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Lord Sydenham
Chapter XX - Leading Government Measures

WE may now glance at some of the leading measures of a very crowded and important session, and over the head of which Lord Sydenham introduced and rendered more or less familiar the system of a responsible and coherent cabinet. In his Speech from the Throne Lord Sydenham naturally dealt with the most difficult question facing the government, the financial condition of the country. In several despatches he had already referred to the deplorable financial condition in which Canada found itself, owing partly to bad management and partly to political difficulties, which, on the one hand, were emphasized by a commercial crisis which was continental in its range, and which in turn was rendered still more severe by the political condition of the country. The result was that after spending large sums, relatively to the resources of the country, on public works, chiefly canals, they had been suspended in an unfinished condition owing* to the collapse of provincial credit.

Through the employment which they gave in summer to newly-arrived settlers, the public works had been an indispensable means of tiding needy immigrants over the first year or two in Canada. During the winters they were able to build their houses and make sufficient clearing on their bush farms to furnish them with food until further improvements brought them larger returns. The closing of the public works, therefore, involving the loss of markets for both produce and labour, checked immigration, while political and economic despair encouraged emigration to the middle western states, then opening to settlement and promising prosperity and political freedom. To rehabilitate the colonial finances was obviously as immediately essential to returning confidence in the country's future as the establishment of political freedom and self-government.

Financial difficulties as between the two provinces constituted one of the natural results of the division of Canada in 1701. In Lower Canada was situated the most favoured portion of the St. Lawrence route, the national highway of both provinces. Holding the gateway for practically all of the imports and exports of both provinces, Lower Canadian officials sat at the receipt of customs, and her great merchants commanded large profits on both the outward and inward trade of the country. The French-Canadians had long been accustomed, by natural thrift and a prohibitive trade policy, to live upon their local resources, and had little or no experience of civil taxation. As a province, Lower Canada had ample revenues and moderate expenditures. In Upper Canada, however, the national highway was beset by colossal obstructions, to be surmounted only by expensive public works. There also, in proportion to the population, was the terminus of the greater part of the imports and the origin of a large share of the export trade which supported the revenue and mercantile profits of Lower Canada; hence the perennial controversy between the two provinces as to the division of the customs revenue. Meanwhile, Upper Canada found itself burdened with Large expenditures and enjoying a small revenue. To remedy the unequal distribution of expenditure and revenue, as between the two provinces, was one of the purposes of the union measure; while to frustrate its accomplishment, under the representation of preventing the burden of Upper Canada from falling upon Lower Canada, was one of the chief incentives against the union in the latter province.

In a despatch to the colonial secretary, dated March 11th, 1810, Lord Sydenham had summarized the financial conditions of the two provinces. Their outstanding obligations were classified under the following heads:—(1) for expenditures of a general nature, (2) for public works, (3) for advances to private corporations, (4) for public works where the interest is a charge upon local taxation. In Lower Canada the only debt came under the second head, advances having been made to the extent of £50,000, and authorized to the extent of £45,000 more. In Upper Canada the debt under the first head was about £02,000, being chiefly for war losses in 1812. The amount advanced in Upper Canada under the second head was £704,000, with a further sum of £200,000 for interest on previous loans. The public works referred to under this head were chiefly the Welland and St. Lawrence Canals, which accounted for £817,000. The Rideau Canal had been built and paid for by the British government as a military work. The amount under the third head, chiefly expended on minor public works, with the interest due, was about £30,000, for which securities were held against the companies. The advances under the fourth head were chiefly for central macadamized roads, and amounted to £210,000. The local districts, in accordance with an Act of the legislature, were liable for the interest on this sum. In a later despatch of June 27th, 1840, it was shown that the credit of Upper Canada was so low that it could not borrow £63,000 at less than eight or nine per cent., and could not sell five per cent, debentures for more than seventy-five or eighty. With its present revenue the annual deficit of the province was estimated at £28,735. Even the revenue of the united province would barely meet the expenditure. "Your Lordship will thus at once perceive that assistance will be required from the mother country to place the finances of the United Province in a satisfactory condition; and that the aid which I was authorized to promise in order to 318 obtain the assent of the Upper Canada Legislature to the measure, if necessary, must hereafter be afforded. He was pleased that it had not been necessary to make use of the promised assistance in order to carry the union measure, though the people of Upper Canada looked to the union and the assistance of the home government to enable them to restore their financial equilibrium. He considered that the assistance of the imperial government would be absolutely necessary when he came to place the finances of the united province on a sound basis, and he knew of no better way in which that assistance could be afforded than by means of the original proposition to guarantee a Canadian loan. This would relieve the province of a high rate of interest on the existing debt and facilitate the raising of sufficient capital to complete the indispensable public works.

After further correspondence on the subject, just before the opening of the session, Lord .John Russell sent a despatch to Lord Sydenham outlining the policy of the home government in relation to Canada, and part of this was made the basis of Lord Sydenham's Speech from the Throne in opening the legislature. In this despatch the debt of the united province was placed at £1,220,000. With the sum needed to complete the public works for establishing a free communication between the provinces, the total amount required would be £1,500,000. The home government, he says, agree with Lord Sydenham as to the expediency of employing the credit of England for the support of the Canadian finances. It would hardly do, however, to force, by Act of Parliament, those already holding Canadian securities to give up their contracts, but the home government agrees to guarantee a loan for the completion of the public works as proposed, and also for the payment of such part of the debt as is now due, or as the creditors may be induced to accept. In accordance with this arrangement Lord Sydenham was enabled to promise, in his speech at the opening of the legislature, that Her Majesty's government " will propose to Parliament, by affording the guarantee of the Imperial Treasury for a loan to the extent of no less than a million and a half sterling, to aid the province, for the double purpose of diminishing the pressure of the interest on the public debt, and of enabling it to proceed with those great public undertakings whose progress during the last few years has been arrested by the financial difficulties."

Closely connected with the subject of public works, as we have seen, was that of immigration, in which Lord Sydenham took a deep interest and on which much correspondence had passed between himself and the home government. That he held very sound views on this important subject, the following brief extract from his many papers on emigration will indicate.

"I have sent home a long Report on Emigration ; which some of you won't like because it tells the truth, and declares that to throw starving and diseased paupers under the rock at Quebec ought to be punishable as murder. Send me out good English peasants who know what work is; give them the means of getting up the country six or seven hundred miles where it is to be had; and I will take as many as you can get, and promise them independence. Or give me some yeomen with a few hundred pounds each, and let them take prudent advice — buy cleared farms— not throw themselves into the bush, where they are as helpless as they would be in the Sahara Desert; and I will secure them comfort and perfect independence at the end of a couple of years—but not money. That is a thing never to be mentioned. Pigs, pork, flour, potatoes, horses to ride, cows to milk; but you must eat all your produce, for devil a purchaser will you find. However, the man's chief wants are supplied, and those of his family; he has no rent or taxes to pay, and he ought to be satisfied. But send me no Irish paupers; nor young gentlemen with £500 or £000, who fancy that upon that they may be idle, and are hardly used because they cannot get an income of £200 or £300 a year in return for it. The Province absolutely teems with people of this character—lawyers, broken down merchants, clerks, soldiers—who have come out here to farm; lost their money through their ignorance of the business; or have been unable to brook plenty without civilized life's enjoyments—the lot of those who succeed best; and all these are applicants for places, of which there is one perhaps to one hundred candidates. So you see competition is nearly as rife here as in the mother country."

On this point also Lord John Russell thoroughly agreed with Lord Sydenham. As he admitted, "It is a hardship to Canada that she should be obliged to maintain the pauper emigrants from the United Kingdom who arrive in a state of destitution and disease." Assistance for poor but suitable immigrants was formerly provided by an immigrant tax, and this, Lord John Russell thought, should be reestablished by the Canadian legislature. He would favour a tax of five shillings per head, to be paid by the home government instead of by the ship captains as formerly. Rut there should be an agent in Britain to certify to the fitness of the emigrants, and only those who held certificates would have their tax paid by the home government. In his Speech from the Throne, therefore, Lord Sydenham was able to couple with the promised British guarantee for a Canadian loan, the assurance of improved prospects for desirable immigrants, and a promise of a money grant from the British parliament "to assist in facilitating the passage of the immigrant from the port at which he is landed to the place where his labour may be made available"

As has been already indicated, the measure before the legislature to winch Lord Sydenham attached the greatest importance was the bill for the establishment of local self-government, and which was substantially the same as the ordinance for that purpose passed by the Special Council of Lower Canada. This measure was opposed by the Conservatives as a dangerous concession to republican principles and institutions, while the French-Canadians opposed it as a typical British invasion of their cherished national system, and as a means of causing the people of the parishes to pay for what they were previously accustomed to extract from the central government. Mr. Baldwin and a few of the ultra-Reformers who had allied themselves with the opposition, found it convenient to base their antagonism to the bill on the ground that it did not go far enough and at one stroke pass to the limit of local democracy. It was on this measure, and in the face of such tactics, that Mr. Hincks definitely broke for a time with Mr. Raid-win. Hincks fully recognized that Baldwin's attitude, in such a house and at such a stage of development, meant the wrecking of any measure in favour of local self-government;, and the indefinite postponement of that most desirable object. He therefore used his influence with the moderate Reformers in favour of the measure, and undoubtedly was largely instrumental in its being successfully passed. It was this Act which established for Canada our general municipal system, and which made it possible for Mr. Raid win himself, eight years later, to develop it a step further by giving more authority to the councils over their executive officers.

The chief features of the District Councils Act were, that the province was divided into incorporated municipal districts whose powers were to be exercised by a warden appointed by the governor and a body of councillors elected by the ratepayers of the townships. The clerk was selected by the council and the treasurer appointed by the governor. The public works provided for by the council were to come under the supervision of a duly qualified surveyor of the district, appointed by the warden and approved by the governor. As at present, limitations were placed upon the financial powers of the council, and the system of assessment and taxation was provided for by a provincial Act. The by-laws of the council were subject to disallowance by the governor within thirty days of their submission. As at present also, the charter granted by a special Act to any incorporated city or town was not affected by the general municipal Act. The District Councils took over the powers and functions of the old Courts of Quarter Sessions composed of the officially appointed magistrates for the districts, and which exercised such limited municipal functions as were permitted under the older system.

In a despatch of August 28th, Lord Sydenham reported the successful passing of the measure and made the following among other comments. " The Bill as proposed by the Government met with serious opposition during its passage through the House of Assembly. Those who are opposed to any extension of popular power objected to it on that ground, those who are in favour of extreme popular concessions opposed it on account of the checks which it imposed on the abuse of this power, and many others were hostile to it secretly, though not avowedly, on the ground so |ustly stated by Lord Durham, that it took away from the House of Assembly one of its chief privileges, that of jobbing by its members for personal or local advantage. Nothing indeed but the circumstance of my having already established these institutions in Lower Canada by the authority of the Special Council could have secured the passage of the Bill for the rest of the Province, and it is to that alone that I owe the success of the measure, as well as the still more gratifying fact that it has now become the law of Upper Canada upon exactly the same conditions as in the other Province, and without the alteration of a single provision, so far as they could be made applicable to the more advanced state of socicty here."

In this same despatch he reports but one other of the great measures to which he had devoted special attention as still to be dealt with,—the great public works for the improvement of the province. His chief care was that, whatever works were undertaken, sufficient provision should be made for defraying the cost, so as to preserve the credit of the province. "I have accordingly transmitted to the House of Assembly a message upon the subject, together with the report from the president of the board of works, which I have placed before Parliament and the country the best information I possess as to the works which are likely to prove most advantageous and a scheme for defraying the cost." In this message and the report accompanying it was presented a comprehensive plan of public works for improving provincial transportation, extending from the Bay of Chaleurs to Lake Huron. It provided for the completion of the Welland and St. Lawrence Canals, the deepening of the St. Lawrence below Montreal, the opening of the Richelieu by the Chambly Canal, establishing connections between the lakes on the Trent Canal system, erecting a port and lighthouses on Lake Erie, constructing timber slides on the Ottawa, and the establishment and improvement of central highways from Quebec to Sarnia, as well as in various other directions in both provinces. The total cost was estimated at £1,470.000 sterling. It was not intended, however, to undertake all these improvements at once, though it was desirable to have a comprehensive plan for the future.

In dealing with the financial aspect of this programme he introduced a feature to which he attached special importance. "A very considerable amount of the capital required might be raised, without any charge whatever for interest, by the assumption by the province of the issue of paper payable on demand, which is now enjoyed by private banks or by individuals, without their being subjected to any charge whatever in return for the power thus granted to them by the state.'' This was the introduction to Lord Sydenham's plan for a reconstruction of the Canadian banking system, and the establishment of a provincial bank of issue. Though it was a measure open to discussion on quite independent grounds, it was introduced by him as an integral part of the general plan for rehabilitating the provincial finances and providing for the much-needed public works.

Lord Sydenham's plan for a bank of issue had been worked out in connection with English conditions, and was the fruit of his labours on the bank committee in the British House. Its essential features were afterwards embodied in Sir Robert Peel's Bank Act which is still the basis of the Bank of England. The central feature was that the government should resume and retain the exclusive right to issue paper money payable on demand. The advantage to the government would be precisely that now obtained, so far as it goes, by the issue of Dominion notes; namely, a free loan of the difference between the amount of notes outstanding and the amount of bullion field in reserve for their redemption. This reserve Lord Sydenham placed at twenty-five per cent., so that approximately the advantage to the government would be a free loan of seventy-five per cent, of its note issue, less the cost of management. The government notes were to be issued through the chartered banks, much as at present, in return for bullion or approved securities. An allowance for a limited time was to be made to the existing banks as partial compensation for the loss of their own note issue.

The chief difficulty in the way of such a measure at that time was that the banks depended much more than at present upon their note issue as a means of making their loans and discounts. Under present conditions deposits largely offset discounts, while the note issue is much smaller and more uniform in volume. The seasonal fluctuation jp discounts — a very important matter m 1841— greatly affected the expansion and contraction of the note issue. The banks enjoyed the privilege of issuing notes considerably in excess of their paid-up capital; thus, with full control of their own note issue, they were able to expand and contract their loans quite freely. Rut, if their notes were to be obtained from the government bank only, in return for specie or public securities, the need for a rapid expansion could scarcely be met in a country with so little reserve capital. Contraction, on the other hand, would leave the banks with a large amount of expensive government notes on hand, or the equivalent in bullion or low interest bearing securities, and with little opportunity for temporary investment such as was readily to be had in England. The same conditions would require the government to keep on hand a much larger amount of bullion than Lord Sydenham had estimated, and would materially curtail the advantage to the government from its note issue. In fact, under the conditions of Canadian trade and banking at that time, Lord Sydenham's measure would have meant a very considerable addition to the expense of Canadian domestic exchange, with the inevitable curtailment of legitimate business, and without corresponding gain to the provincial treasury. That the Canadian banking system was not above reproach was evident from the all but universal suspension of specie payment by the Canadian banks during the financial crisis which preceded Lord Sydenham's arrival. And yet the freedom which the banks enjoyed of expanding and contracting their note issue, to spit the demands of trade, was one of the most important economic factors in the Canadian machinery of exchange, and consequently very essential to Canadian prosperity and expansion. Thus, though absolutely sound in theory, Lord Sydenham's scheme was scarcely suited to Canadian conditions in 1841.

The general principles embodied in Lord Sydenham's plan were accepted by Mr. Hincks, Mr. W. H. Merritt, and other Liberals, but failed to command a majority in the House, owing to the conjunction of the usual opposition with a number of representatives connected with the mercantile and banking interests who found their privileges threatened. Some thirty years later, it fell to the lot of Mr. Hincks, then Sir Francis Hincks, to incorporate the central feature of Lord Sydenham's bank of issue into our financial system, in the shape of the government issue of Dominion notes accompanied by a partial restriction of bank note issue.

It is not possible even to enumerate here the unusual number of important measures which were passed during the first session of the legislature, and in so many of which Lord Sydenham took a very special interest.

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