But complex as the motives and circumstances underlying Confederation were, Canadain economic historians have seen Confederation itself as only one component of an even larger scheme, the building of a transcontinental national economic system which seemed to defy "natural" ("market"?) forces dictating  a "north-south" integration of economic activity in all of North America. This (perhaps entirely imagined) grand design has come to be called the "national policy" (note absence of caps). It has conventionally been represented as having four main components: the political union ("Confederation"); the acquisition and settlement of the western lands; construction of a transcontinental railway (the CPR); and a protective tariff (also confusingly known as the "National Policy" --note the caps).

• Who wanted it?
• "the people"?
• farmers?
• business and commercial interests?
• Winners and losers
• the situation in the Maritime colonies
• the situation in the United Province of Canada

It is not difficult to find the motives underlying some of those who supported Confederation, but it should not be imagined that the undertaking meant much to most ordinary citizens of the time. There was no great upsurge of resentment against Britain or demands for the advancement of popular democracy. Instead there were the particular problems of groups such as farmers who could hope that a stronger national government could support their quest for new markets and better transportation facilities to get their products to them. 
In the Maritimes, economic conditions had been generally good, but some of the more progressive business and commercial interests were anxious to see railway links established to connect them to larger centres of population, projects which it was already evident exceeded the capabilities of existing colonial governments. In central Canada other business interests were looking for a broadening of their domestic markets, especially for manufactured goods. However, there were also many who feared change and who tended to focus their attention on the real risks involved in departing from the status quo. Especially in the Maritimes many people feared that a local way of life, instead of being strengthened, would be submerged by union with a larger and more populous Canada. In central Canada there were those who feared that the larger union would simply further strengthen the dominant business elites while some particular groups, such as the anglophone Protestant majority in Canada East were concerned about their future in a newly constituted federation which would replace the existing legislative union of the Canadas.

• status quo
• economic stagnation
• net emigration to US
• union with the US
• unease with outcome of Civil War
• dislike of American values
• renewal of imperial connection
• independence through union

The alternatives to Confederation however were even less attractive. The status quo was, for many reasons, unacceptable. Economic stagnation and the fact that so many were "voting with their feet" by leaving British North America made that clear enough. 
Then, as now, the option of union with the US was appealing to some. Certainly many Americans of the time saw such a development as inevitable. But despite an organized "Annexationist Movement", this option failed to attract either mass support or significant support from the business community in the Maritimes or in Canada. The fact that the US was in disarray as a result of the Civil War may have been a factor in this. And certainly many in BNA, including those of Loyalist background, found closer ties with the US repugnant. 
Another option which appealed to many who retained ties with Britain, or who remained sentimental about the British connection, was a renewal of the old imperial system, or some revised version of it. There were no indications, however, that the British were interested in such. 
By default, then, it seems likely that Confederation -- despite all the obstacles presented by the regionalism and internal conflicts which would have to be at least glossed over -- offered better odds for most of those involved than the available alternatives. 
 
 

• reconciliation of unity with diversity
• a strong central government 
• to manage economic growth
• to withstand the "manifest destiny" of the US
• preservation of local particularities
• French language and culture
• Maritime traditions

The key to resolving these differences among the prospective members of a larger national union lay in the promise of federalism. Creating a federal union offered a way of achieving two otherwise incompatible things at the same time: unity and diversity. 
A strong central government would be created which could achieve certain things the individual colonial governments could not: it could support large-scale investments in railways and other nation-building infrastructure; it might be able to stand up to the threat of a casual US take-over of Canada or the nibbling away of its parts as had happened in the case of Mexico; it could manage the country's external trade and such things as money, banking, and postal services which were national in scope. 
At the same time provincial governments would continue to attend to matter of local or particular regional interest. The way of life which had developed over generations in the Maritimes, in Quebec, and in southern Ontario would go on much as it had under the control of locally-elected politicians. 
Of course there was nothing original in this. Federalism had been adopted elsewhere. One thing that had recently been made clear, however, was that such systems could break down if some of the constituent states chose to break away. The bloody civil war in the US showed how great the danger of this could be. 
 

• Section 91 assigned responsibility to the federal authority for:
• defence, money, criminal law, 
• patents, penetentiaries
• and "all matters not specifically assigned to the provinces
• Section 92 assigned responsibility to the provinces for:
• the public lands
• hospitals, charities, education
• municipal institutions
• property and civil rights
• all matters of a local or private nature

Following lively negotiations among representatives of the various BNA colonies, in 1867 the British Parliament enacted legislation, the British North America Act, creating a federal union of Canada (divided into the provinces of Ontario and Quebec), Nova Scotia, and New Brunswick. 
For our purposes the most significant parts of the Act were sections 91 and 92 which set out the responsibilities of the two levels of government in the new Dominion. Section 91 assigned to the federal authority what appear to have been considered the larger and more expensive functions of government, including defence, money and banking, the criminal law, patents, penitentiaries…plus a catch-all assignment of all matters not specifically assigned to the provinces. The Act also charged the federal government with another very broad category of responsibility, ensuring "peace, order and good government". 
Section 92 gave the provinces responsibility for management of natural resources, hospitals, charity and education, municipal government, and another catch-all category "all matters of a local or private nature". 
 
 

• Federal government:
• any mode or system of taxation
• borrowing on the public credit
• Provincial governments:
• direct taxation
• borrowing on the public credit of the province

The British North America Act assigned revenue-raising powers to the two levels of government commensurate with what framers of the legislation expected would be required for them to carry out the duties assigned to them. 
The federal government was authorized to borrow on the public credit of the country as a whole, and to impose any form or mode of taxation, either direct or indirect, on its citizens. 
The provincial governments were authorized to borrow on the public credit of the province, and to impose direct taxes only. 
The distinction between direct and indirect taxes is significant. Direct taxes, such as a sales tax are conspicuous and resented by tax payers which means that governments limited to such a form of taxation will find the political costs of raising revenues by this means are high. 
Governments with access to indirect taxes have much greater taxing power in a practical sense because such taxes, imposed for example on goods while in the process of production, are invisible to those who ultimately bear the burden of them because they are buried in the price they pay for a good or service. 
 

• literal?
• intention to grant the major functions of government to the central authority PLUS any additional functions arising in the future?
• but…"property and civil rights" and "all matters of a purely private or local nature"?
• finding an impartial judicial authority

 It will be evident from even this cursory glance at the written part of the Canadian constitution that its meaning in places is far from clear. 
For example, what would be included in "property and civil rights"? Indeed, what could be excluded? What would be covered or not covered under "all matters of a purely private or local nature"? 
Any written constitution must be interpreted, but where is responsibility for such interpretation to reside? 
In the US, the task of deciding what the constitution means was entrusted to the Supreme Court, the highest court in the American judicial system. (Note that in Britain which managed to get along very well without a written constitution such a question doesn't arise -- Parliament is the ultimate decision-making body in that system.) 
In Canada the question of judicial interpretation was so sensitive because of concerns that a Canadian Supreme Court might be less than impartial (a matter of particular concern to the French Canadians in Quebec) that interpretation of BNA was left in the hands of a remote and obscure body in London called the Judicial Committee of the Privy Council. 
 

• the threat of American "Manifest Destiny"
• the Oregon issue
• Texas, California and the south-west
• British Columbia ...Victoria and the interior
• the inviting open plains of the BNA interior
• a new frontier of agricultural settlement to support the economic development of central Canada?

Following Confederation Britain transferred title to all its possessions in what is now western and northwestern Canada to the new Dominion. The Hudson's Bay Company also agreed to turn over Rupert's Land in return for compensation in the form of cash and land grants from the Canadian government.  
The big question remained, however, as to how suitable the lands of the western interior were for agricultural settlement. To determine this, the Canadian and British governments sponsored expeditions to investigate the agricultural potential of the region. 
The reports of these expeditions were somewhat inconclusive. They indicated that much of the most accessible part of the interior plains seemed to be quite arid, although there was a more promising belt of land surrounding this dry area (which came to be called Palliser's triangle after the leader of the expeditions) which was more suitable for farming. Some of those involved in the surveys also suggested that the biggest problem facing development in the region would be establishing transportation facilities to link producers there to outside markets. 
Another problem which arose to complicate the plan to establish large-scale agriculture in the west was the unexpected opposition of local inhabitants and in particular the established Metis community in the Red River area of what is now southern Manitoba. 
 
 

• the transfer of land title to the new Dominion
• Palliser's expeditions to assess the possibilities of agricultural settlement in the region

 
Some supporters of the Confederation proposals in the 1860s suggested that a union of the BNA colonies would make possible the development of the lands of the continental interior, creating a new frontier of agricultural settlement which would provide an expanding domestic market to support the development of manufacturing and commercial activities in central Canada. How seriously this possibility was taken to be at the time is unclear, but such a project did get underway in the years following Confederation. 
It has been suggested that the British government was particularly interested in promoting such a scheme in order to contain the expansionist ambitions of the United States. The US had already annexed Spanish territory in the southwest, seized much of Texas which was converted into the state of Texas, negotiated transfer of the Pacific Northwestern Oregon territory from Britain to American jurisdiction, and effectively occupied lands in California which were claimed by Spain. Prospectors from the US entered British Columbia in substantial numbers during the gold rushes of the 1850s and the possibility that they might challenge British claims in the area and demand US "protection" was a real threat to British sovereignty in the region. Even more threatening was the fact that by the 1870s the American west was filling up and it seemed likely that the American frontier of western settlement would simply swing northward into British territory. 
 

• attempt to establish a Métis nation
• origins of Manitoba
• opposition of white Protestant interests in Ontario
• armed rebellion of 1869-70
• military suppression by federal authority
The Red River rebellion of 1869, now more sensitively referred to as the Red River "resistance", did little to disrupt the process by which the western prairies were converted from the older uses of the fur trade to the new "purposes of the Dominion". But it represented a number of significant policy issues, some of which continue to reverberate in debates over the Canadian federation. 
The opposition of largely French-speaking, Roman Catholic offspring of fur traders who had married native Indians to the plans of the federal government to develop the agricultural resources of the prairie west served to highlight the extent to which the territorial expansion of Canada into that region was assumed to be a matter of creating a white, English-speaking Protestant economic, political and social system in the region…in effect a westward extension of southern Ontario. It forced some acknowledgement of French-Canadian rights outside Quebec, although the effect of concessions made by the federal government to the Metis at Red River was subsequently negated by its decision to hang Louis Riel following his involvement in a second insurrection in the 1880s. 
 

• to compensate Hudson's By Co.
• to subsidize railway construction
• to attract settlers by giving away homestead lands
• to finance public education
Canadian land policy in the new western territories was closely modelled on that of the US. Even the survey which laid out the pattern of property titles in the region followed the American system rather than that which had previously been used in central Canada. The idea of using land grants to subsidize railway companies was also borrowed from the Americans as was the free homestead policy which made a quarter section of land (160 acres) available for a fee of $10 and a commitment of at least 3 years residency on the land.  
Some land was also set aside for purposes of financing education once settlement got underway in the region, some was made available to the Hudson's Bay Company as compensation for its surrender of title to Rupert's Land, and the rest was disposed of by direct sale or by sale through private land companies. 
A large literature has grown up examining Canadian land policy in the prairie west, much of it critical, claiming that the homestead policy encouraged wasteful, premature settlement, that the railway land grants were excessive, that the railways and the Hudson's Bay Company realized excessive speculative gains from the land they acquired, that the Metis were cheated of the lands reserved for them and so on. The greatest concern at the time, however, was that the hoped for flood of settlers into the region was so slow in arriving. It was not until well on in the 1890s that large scale immigration to the west got underway. 
 

• Condition of BC's entry into Confederation in 1870
• The Canadian Pacific Railway contract of 1880
• $25 million subsidy
• 25 million acres of good land
• 700 miles of existing track
• tax and tariff exemptions
• 20 year monopoly of traffic in region

Obviously development of the western interior required some sort of transportation system to connect the region to the rest of North America. In the late 1860s an American railway, the Northern Pacific was constructed across the northern states. The possibility of building links to it from western Canada was proposed by the Grand Trunk Railway company but this was rejected in favour of an ambitious plan to construct a railway from central Canada to the west by an all-Canadian route passing north of the Great Lakes through the difficult terrain of the Canadian Shield. Completion of such a transcontinental line became part of the agreement by which British Columbia was induced to enter Confederation in 1871. 
Delayed by political scandals which brought down the Macdonald government in 1873, parts of the transcontinental line were built by the federal government in the later years of the decade before Macdonald regained office and made a contract with the Canadian Pacific Railway Company to complete the railway. The terms of the contract were generous. The line was completed in 1885 and thanks in some part to the generous terms of the agreement the company had with the government it soon became highly profitable. 
Even with the railway in operation, however, it would be another ten years before the long anticipated settlement of the region west of Winnipeg would pick up momentum. 
 

More Railways   Given the almost immediate profitability of the CPR it is perhaps not surprising that other railway projects were immediately undertaken. What is surprising is how many of them were not only begun, but actually completed.  
Branch lines began to sprout from the main sections of the CPR including connections to the US railway system, but two more all-Canadian transcontinental trunk lines were also built, the Grand Trunk Pacific extending the old Grand Trunk system in eastern Canada westward across the northern prairie region to the Pacific Coast and the Canadian Northern, patched together from a number of local railways with the help of massive loan guarentees from the federal and several provincial governments.  
By 1914 Canada had far greater railway capacity than the market could possibly support and by 1916 the major companies involved, other than the still prosperous CPR faced collapse. As their major creditor the federal government had little alternative but to take them over, acquiring some 30,000 kilometres of railway track which was brought under the management of a crown corporation, Canadian National Railways. 
 

• a protective tariff on imported manufactured goods
• modeled on US policy
• an artificial barrier to force trade into an east-west instead of north-south direction

The final component in the nation-building project which began with Confederation was adoption by the Canadian federal government of a system of tariff protection for Canadian manufacturers.  
For most of the decade following Confederation the new Canadian government sought to re-establish some form of free trade arrangement with the United States, but by the mid-1870s hope for this was abandoned and, following the election of 1878 in which trade policy was the central issue, the Conservatives, running on a platform of tariff protection, were returned to office  and the following year instituted what was euphemistically named the "National Policy tariff".  
What this policy achieved has been compared to erecting an invisible barrier along the Canada-US boundary, the effect of which was to force Canadian trade into an east-west pattern instead of allowing it to flow north and south -- which, for many parts of the new nation, seemed to be the "natural" pattern which would have prevailed under the influence of free market forces. 
Although it was roundly denounced by the Liberal opposition, the system of protective duties imposed by the Macdonald Conservatives in 1879 was retained by all subsequent Canadian governments -- Conservative and Liberal --over the course of the next 110 years. We will look at how it may have affected Canadian economic development in later lectures. 
 

The union initiated in 1867 was subsequently expanded through the addition of Manitoba, British Columbia, and Prince Edward Island in the 1870s, the new provinces of Alberta and Saskatchewan in 1905, and Newfoundland (finally) in 1949. Large chunks of the old Northwest Territories were carved off and assigned to particular provinces, or made into separate territories in the cases of Yukon and the newly-established predominantly Inuit territory of Nunavut. 
The significance of this lies in the transfer of control over the vast areas of public lands the federal government of Canada had control over when the new nation was formed to the control of provincial governments. By the 1920s the "purposes of the Dominion" had been pretty much accomplished and the development potential of the public lands was no longer seen as a matter of national interest. The natural resources of the provinces of Saskatchewan and Alberta, which had been retained under federal control when the provinces were created, were transfered to the provinces by amendments to the BNA in 1930. To the extent the remaining unexploited land resources would be utilized for purposes of promoting economic development, it would be as part of "province building" ventures orchestrated by provincial governments rather than as part of a grander national policy. 
 
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