of 1865, and, in spite of various efforts to arrange satisfactory terms, has steadily held aloof, and so has proved the only obstacle to the complete political unification of British North America.
A signal proof was soon furnished of the new standing in the empire which federation had given to the Canadian provinces. A heritage of differences and difficulties had been left to be settled between England, Canada and the Difficulties with the United States. American Union as the result of the Civil War. In retaliation for the supposed sympathy of Canadians with the South in this struggle the victorious North took steps to abrogate in 1866 the reciprocity treaty of 1854, which had conferred such great advantages on both countries. It followed that the citizens of the United States lost the right which they had received under the treaty to share in the fisheries of Canada. American fishermen, however, showed so little inclination to give up what they had enjoyed so long, that it was found necessary to take vigorous steps to protect Canadian fishing rights, and frequent causes of friction consequently arose. During the progress of the Civil War American feeling had been greatly exasperated by the losses inflicted on commerce by the cruiser “Alabama,” which, it was claimed, was allowed to leave a British port in, violation of international law. On the other hand, Canadian feeling had been equally exasperated by the Fenian raids, organized on American soil, which had cost Canada much expenditure of money and some loss of life. In, addition to these causes of difference there was an unsettled boundary dispute in British Columbia, and questions about the navigation of rivers common to the United States and Canada. In 1869 the government of Canada sent a deputation to England to press upon the imperial government the necessity of asserting Canada’s position in regard to the fisheries, and the desirability of settling other questions in dispute with the republic. The outcome of this application was the appointment of a commission to consider and if possible settle outstanding differences between the three countries. The prime minister of the Dominion, Sir John Macdonald, was asked to act as one of the imperial commissioners in carrying on these negotiations. This was the first time that a colonist had been called upon to assist in the settlement of international disputes. The commission assembled at the American capital in February 1871, and after discussions extending over several weeks signed what is known as the treaty of Washington. By the terms of this treaty the “Alabama” claims and the San Juan boundary were referred to arbitration; the free navigation of the St Lawrence was granted to the United States in return for the free use of Lake Michigan and certain Alaskan rivers; and it was settled that a further commission should decide the excess of value of the Canadian fisheries thrown open to the United States over and above the reciprocal concessions made to Canada. Much to the annoyance of the people of the Dominion the claims for the Fenian raids were withdrawn at the request of the British government, which undertook, to make good to Canada any losses she had suffered. To some of these terms the representative of Canada made a strenuous opposition, and in finally signing the treaty stated that he did so chiefly for imperial interests, although in these he believed Canadian interests to be involved. The clauses relating to the fisheries and the San Juan boundary were reserved for the approval of the Canadian parliament, which, in spite of much violent opposition, ratified them by a large majority. Under the “Alabama” arbitration Great Britain paid to the United States damages to the amount of $15,500,000, while the German Emperor decided the San Juan boundary in favour of the United States. The Fishery Commission, on the other hand, which sat in Halifax, awarded Canada $5,500,000 as the excess value of its fisheries for twelve years, and after much hesitation this sum was paid by the United States into the Canadian treasury. An imperial guarantee of a loan for the construction of railways was the only compensation Canada received for the Fenian raids.
The second general election for the Dominion took place in 1872. It was marked by the complete defeat of the Anti-Unionist party in Nova Scotia, only one member of which secured his election, thus exactly reversing the Canadian Pacific railway question. vote of 1867. While Sir John Macdonald’s administration was supported in Nova Scotia, it was weakened in Ontario on account of the clemency shown to Riel, and in Quebec by the refusal to grant a general amnesty to all who had taken part in the rebellion. Two important members of the cabinet, Sir G. Cartier and Sir F. Hincks, were defeated. Opposition to the Washington treaty and dread of the bold railway policy of the government also contributed to weaken its position. But a graver blow, ending in the complete overthrow of the administration, was soon to fall as the result of the election. In 1872 two companies had been formed and received charters to build the Canadian Pacific railway. Sir Hugh Allan of Montreal was at the head of the one, and the Hon. David Macpherson of Toronto was president of the other. The government endeavoured to bring about an amalgamation of these rival companies, believing that the united energies and financial ability of the whole country were required for so vast an undertaking. While negotiations to this end were still proceeding the election of 1872 came on with the result already mentioned. Soon after the meeting of parliament, a Liberal member of the House, Mr L. S. Huntingdon, formally charged certain members of the cabinet with having received large sums of money, for use in the election, from Sir Hugh Allan, on condition, as it was claimed, that the Canadian Pacific contract should be given to the new company, of which he became the head on the failure of the plan for amalgamation. These charges were investigated by a royal commission, which was appointed after it had been decided that the parliamentary committee named for that purpose could not legally take evidence under oath. Parliament met in October 1873, to receive the report of the commission. While members of the government were exonerated by the report from the charge of personal corruption, the payment of large sums of money by Sir Hugh Allan was fully established, and public feeling on the matter was so strong that Sir J. Macdonald, while asserting his own innocence, felt compelled to resign without waiting for the vote, of parliament. Lord Dufferin, who had succeeded Lord Lisgar as governor-general in 1872, at once sent for the leader of the Opposition, Mr Alexander Mackenzie (q.v.), who succeeded in forming a Liberal administration which, on appealing to the constituencies, was supported by an overwhelming majority, and held power for the five following years.
On the accession to power of the Liberal party, a new policy was adopted for the construction of the trans-continental railway. It was proposed to lessen the cost of construction by utilizing the water stretches along the route, while, on the ground that the contract made was impossible of fulfilment, the period of completion was postponed indefinitely. Meanwhile the surveys and construction were carried forward not by a company, but as a government work. Under this arrangement British Columbia became exceedingly restive, holding the Dominion to the engagement by which it had been induced to enter the union. A representative of the government, Mr (later Sir James) Edgar, sent out to conciliate the province by some new agreement, failed to accomplish his object, and all the influence of the governor-general, Lord Dufferin, who paid a visit at this time to the Pacific coast, was required to quiet the public excitement, which had shown itself in a resolution passed by the legislature for separation from the Dominion unless the terms of union were fulfilled.
Meanwhile a policy destined to affect profoundly the future of the Dominion had, along with that of the construction of the Canadian Pacific railway, become a subject of burning political discussion and party division.
During the period of Mr Mackenzie’s administration a profound business depression affected the whole continent of America. The Dominion revenue showed a series of deficits for several years in succession. The factories of