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ECON 2P19 (11)
Lecture

Chapter 9.docx

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Department
Economics
Course
ECON 2P19
Professor
Indra Hardeen
Semester
Fall

Description
Chapter 9 – Railways and Early Industrialization Railways • Railways were essential to the development of British North America because of the great distances involved in moving people and goods • The expensive canals developed during the 1840s had been intended to meet this problem, but canals had their limitations • First, they could improve the movement of goods along natural waterways, but they could do nothing to assist inland settlements • Railways in contrast, were relatively immune to the effects of winter and could reach beyond the waterways to wherever potential traffic justified their presence • Finally, they were faster than water transportation and, in comparison with any other type of land transport, much less likely to damage the goods in transit • Railways were tremendously expensive, much more so than canals and other projects undertaken in British North America until this time • There was not sufficient speculative capital in the colonies to undertake such risky ventures • With the exception of a successful but short railway line along the Richelieu River, built in 1936, British North Americans continued to plan, dream, and promote, but not to build, railways through the 1830s and 1840s • By 1850, first, Great Britain’s stock of private investment funds was growing rapidly • To the evolving financier class in Great Britain, overseas investments were more attractive than they had been a decade or so earlier • If railways were to be built in British North America, then governments would have to get involved, as they had earlier with canals • The province of Canada proceeded by throwing its credit behind railways ventures • In 1849, it passed the Railway Loan Guarantee Act, which stipulated that, if railways met certain conditions, they could have the interest on their bond issues guaranteed by the Government of Canada • The Municipal Loan Act of 1852 provided an alternative channel to the same end • Provincial credit was made available to those municipalities that wished to get involved in the game of railway subsidization • Towns and villages soon joined the rush to spread the magic of the steel rail into their community • As it turned out, Canadian government was nearly driven to bankruptcy • Municipalities foundered on the rocks of ill-conceived investments, and British investors found their loans disappearing into the pockets of Canadian contractors and promoters • From 1850 through 1857, the Province of Canada underwent a boom in railway construction • It tied together the major cities of the province and cost more than $67 million to complete • The province had gone from 100 kilometres of railways in 1849, to 2900 kilometres by the time the Grand Trunk reached Sarnia • Time after time, the government had to step in to rescue collapsing railways, to pay interest on bond defaults, and to explain why politicians with large investments in railways always seemed to be willing to pour in good government money after bad • This reliance on debt finance, over equity finance, was likely encouraged by the expectations of British investors that the Canadian government would bail out the railway company, if necessary • Railways had an enormous economic impacts • Millions of dollars of foreign investment flowed into Canada, largely from Britain, generating employment for the huge workforces necessary for railway survey and construction • Urban centres that were at the terminus of key railways could expand their own hinterlands and increasingly tighten their economic control of the regions around them • The Toronto Globe, was able to extend its range of influence over much of Canada West • The railway thus allowed Montreal, Toronto, Hamilton, and a few other centres increasingly dominate smaller communities • Gravitation, confirmed the dominance of those centres and allowed them to increase the range and variety of their influence • Railways affected the nature of manufacturing and the structure and location of industries, and were instrumental in creating new industries • There was one thing railways did not do, they did not supplant canals or natural waterways as the primary transportation system for bulk goods • Water transport remained cheaper than rail • Railways supplemented the canal system, acted as feeders to it, and operated more quickly and without regard to season • For farmers and merchant, what the railways did was extend the reach of, and make more flexible, the existing transportation system of the Province of Canada • In the Maritimes, railway fever caught hold as it had in the Province of Canada, but as it turned out, the construction of such expensive projects was even more difficult for these smaller colonies • Those strongly in favour of railway construction in the Maritimes had two objectives in mind • The first was to consolidate the hold of the main urban centre – Saint John and Halifax – over their own hinterland • The second was to establish the region as the entrepot (centre warehouse) of trade between the continent and Europe, which meant constructing a truck line to Quebec, or to Maine, or, in the most ambitious scheme, to both • The British government was unwilling to finance a line through U.S. territory, whereas the governments of Nova Scotia and New Brunswick fought over routing within the region • By Confederation, the Maritimes had only about 600 kilometres of track in operation, and no truck lines to either Canada of the United States Early Industrialization • Two preliminary points have to be made • The first is that there was always a range of cottage industries and sma
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