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Canadian Historic Sites: Occasional Papers in Archaeology and History No. 8

The Canals of Canada

by John P. Heisler

Financing the Construction of Early Canals in the Canadas, 1779-1841


The imperial government, the provincial government and the private company, either separately or in combination, financed canal construction in the provinces of Upper and Lower Canada prior to 1841. The imperial government initiated this construction. The four short military canals with locks designed to overcome the rapids at the Cascades and Cedars were begun in 1779 by Captain Twiss of the Royal Engineers acting on orders from Governor Haldimand, and were completed in 1783. Construction costs were defrayed out of the military chest. The governor, however, knowing that these canals, though small, would prove of great advantage to the merchants using them, considered it unjust that the whole expense of construction operation and maintenance should fall on the imperial government. A toll of 10 shillings, therefore, was imposed on each batteau passing through the locks. It was hoped that the toll collected would partly offset the costs of maintenance. Twiss reported that £132.5.0 in tolls was collected in 1781 and £175.15.0 in 1783 and he believed that the government could expect to receive something like £350 annually.1 However the canals were only a partial success. The two lower ones were damaged by ice each spring and within a decade all of them fell into disrepair. In 1800, Colonel Gother Mann of the Royal Engineers was authorized to make a report on these canals.2 He recommended repair, enlargement, and the construction of a new canal at Mill Rapid and the Cascades, and his estimate of costs was about £4,127. In 1804 the locks at Split Rock and Coteau du Lac were partly rebuilt and a new canal about one-half mile in length with 3 locks, 6 feet in width between the gates was constructed at the foot of the Cascades. During the renovation and construction Captain R. H. Bruyère of the Royal Engineers submitted detailed accounts of the work being done to the military secretary for the information of the commander of the forces since the expenditure for the work was met out of the military chest which was under his control.3 In 1817 the locks on these canals were enlarged by the Royal Engineers from 6 to 12 feet in breadth and the depth of water on the sills increased from 2 feet to 3-1/2 feet for the passage of boats capable of carrying from 80 to 100 barrels of flour.4 These small military canals were placed under the supervision of the Commissariat Department since the principal use of them was, prior to the formation of the Rideau Canal, for the passage of batteaux belonging to that department.5 At the same time all repairs and other works for maintaining them were performed by the engineer department upon estimates submitted to the commander of the forces by whom the funds were granted.6


Even before the termination of the War of 1812, the government of Lower Canada had decided to construct a canal between Montreal and Lachine. In January 1815 the Lower Canada House of Assembly received from the governor a message stating that

His Majesty's Government having in contemplation the speedy opening of a canal from the neighbourhood of the Town of Montreal to Lachine, His Excellency the Governor-in-Chief recommends the subject to the early consideration of the House of Assembly and that they will grant such supply and other legislative provision as they may deem expedient to assist in carrying into execution so important an object and whereas the execution of such a project will greatly benefit His Majesty's service, ameliorate the Internal Communications of this Province and thereby tend generally to the encouragement of the agriculture and commerce thereof.7

The legislature of Lower Canada responded to this appeal with "An Act to grant an Aid to His Majesty to assist in opening a Canal from the neighbourhood of Montreal to Lachine and further to provide for facilitating the execution of the same."8 The sum of £25,000 was appropriated for the purpose and three commissioners were appointed and entrusted with execution of the work.9

Captain Samuel Romilly of the Royal Engineers now studied the project, made a survey, estimated costs and submitted his report in 1817.10 He found that the navigation of the St. Lawrence from Montreal to Lachine, a distance of about 10 miles, was very difficult owing to the rapid current and the shallowness of particular parts. He estimated the cost of a canal with a depth of 3 feet of water and capable of passing Durham boats 60 feet long, 13 feet 6 inches wide and drawing 2 feet 6 inches of water, at slightly over £46,000. This was almost twice the figure of £25,000 appropriated for the project which was temporarily shelved.

Meantime the imperial government had focused its attention on the construction of the Ottawa-Rideau waterway. Nevertheless, that government was prepared to give financial assistance should the province of Lower Canada shoulder the burden of constructing the Lachine Canal. In June 1818 the Lords Commissioners of His Majesty's Treasury informed Earl Bathurst, the colonial secretary, that, after considering Sir John Sherbrooke's despatch relating to making a canal from Lachine to Montreal, if the legislative authorities in Canada would make provision for one-half of the expense attending the construction of the canal, they would not object to sanctioning the payment of the remainder out of the army extraordinaries.11 The province, however, was not prepared to assume the burden of construction.

On 18 January 1819, the government of Lower Canada received a petition signed by a number of leading men of the province including several Montreal merchants, asking that they be incorporated for the purpose of building the canal.12 A company known as "The Company of the Proprietors of the Lachine Canal" was created with a capital of £150,000 divided into shares of £50 each.13 The company undertook to build a canal not less than 40 feet wide at the surface of the water, 22 feet at the bottom, with locks 110 feet long by 22 feet wide. Tolls were fixed at 12s.6d. for small vessels under 5 tons burden and up to 30s. for vessels of over 60 tons burden. Each ton of merchandise carried paid an additional 5s. The Crown enjoyed the right to seize the canal at any time either before or after its completion. One of the conditions of the company's charter was that the work should be completed within three years. The company hired Thomas Burnett, an engineer from England, to make a survey and estimate the cost of the work. All in all it expended £2,038 in preliminary work, But the company soon ran into financial difficulties notwithstanding the fact that the British government, recognizing the value of the canal, subscribed for 600 shares while the government of the province subscribed for 200. By 1821 only 1,780 of the original 3,000 shares of capital stock had been subscribed — only £89,000 out of a capital of £150,000.14 Therefore, in January of that year, the company presented a petition to the legislature outlining the financial difficulties and appealing for certain changes in the act of incorporation.15 The company found that a great impediment to subscriptions was

The exclusion by the thirty-first section of the Act, of the revenues and expenses of repairs and keeping up the Canal and Branch, which may be very heavy, from being considered a part of the capital stock laid out and expended for making the same and thereby from participating in the maximum of interest and profit to be allowed to the proprietors as an inducement or bonus for risk they incur in an untried and costly undertaking.16

The company also stated that it would be an additional stimulus to subscriptions if tolls were permitted to be levied before the whole canal was completed.17 Moreover, the company wanted an extension of the three-year limit set for the completion of the work. It also asked the provincial government to assume an additional number of shares.18 The legislature's reply to the petition for aid was to repeal the Act of Incorporation.19

At the same time the government of Lower Canada undertook to construct the canal. The private shareholders of the former "Company of the Proprietors of the Lachine Canal" were compensated for the money which they had expended in development work while the legislature of Lower Canada appropriated £35,000 to the construction of the canal and granted free passage to all boats of His Majesty's service on condition of an aid of £10,000 from the imperial government.20 This aid was advanced by the governor and commander-in-chief, Lord Dalhousie, from the military chest.21 At the same time Dalhousie rightly believed that the legislature, now fully committed to the project, would grant further aid, if required, towards the completion of the canal. He therefore informed the imperial government that it should decline any further co-operation in the provincial government's projects.22

Meantime commissioners were appointed with John Richardson as chairman to superintend the completion of the work. They advertised for tenders and nominated arbitrators to determine the valuation of the lands through which the canal would run.23 At the same time they worked out what they considered to be a practical plan for checking and controlling expenditure, specifically the advance of money to contractors within the limits of the agreement. The first check was the measurement by the engineer, from time to time, of the work done, when he certified what the contractor was entitled to receive. This measurement could not be an accurate, precise one so long as the entire work remained unfinished, so in his measurement the engineer kept on the safe side. The second check was an account kept by the assistant superintendent and overseer of the number of men employed each day by the contractor; these were averaged at the end of each week and inspected by the engineer. A third check, or rather security in case of accidental inaccuracy in the estimate of work done, was the guarantees for the contractors who were responsible for the result.24

As work progressed the commissioners had from time to time to approach the assembly, amid charges of extravagance, and extract more grants from it.25 In order that the work proceed steadily despite temporary shortages in funds, the commissioners occasionally obtained short term loans, on their own securities, from the Bank of Montreal.26 The final cost of £109,601 greatly exceeded the original estimate. A precedent for imperial aid to provincial canals was established when the British government decided to contribute £12,00027 or about one-ninth of the final cost. The remainder, roughly £97,000, was met by the government of Lower Canada.


In 1818, Captain J. F. Mann of the Royal Engineers surveyed the Ottawa River and found the navigation impeded by rapids at Carillon and Grenville. He therefore recommended the construction of three canals with locks between Carillon and Grenville in order to overcome a fall in the river of nearly 60 feet.28 The three canals — Carillon the lowest, Grenville the highest and Chute-à-Blondeau the intermediate one — were designed by the imperial authorities in 1819 on the scale of the Lachine Canal.29 The army now undertook the canalization of the Ottawa River and construction was commenced the same year, under the direction of the Royal Engineers, at Grenville, midway between Montreal and the Rideau River.30 Lord Dalhousie strongly urged the construction of this canal at an estimated cost of £25,000 which was shortly to be increased by an additional £25,000 to be contributed at the rate of £8,000 per annum for three years.31 At first the annual imperial parliamentary grant for work on the Ottawa River was £10,000, but in 1827 this sum was increased to £15,000 annually in order to hasten the completion of the work.32 Known as the "ordnance canals," they were completed in 1833.


On 10 March 1826, the Board of Ordnance requested General Gother Mann, Inspector General of Fortifications, to select a competent officer to be sent out to Canada to take charge of the construction of the Rideau Canal.33 He selected Lieutenant Colonel John By of the Royal Engineers. The Board of Ordnance stipulated that the officer selected was to converse with Sir James Carmichael Smyth who was experienced in the particular duties to be performed and knowledgeable on the subject of the Rideau waterway.34 Sir James was to draft the proper instructions for the officer selected.35 Because of the peculiar nature of the duties which the officer would be called upon to perform, the Board of Ordnance directed that the officer should be independent in carrying on the duty entrusted to him. He would only make such general reports to the commanding Royal Engineer in Canada as the custom of military service required and as desired by the governor-in-chief, Lord Dalhousie, and the lieutenant governor of Upper Canada.36

In his instructions to By,37 Sir James stated that in his opinion it would be found more economical and more expeditious to build the whole of the proposed canal by contract. The Americans had built the entire Erie Canal that way. Should this be done the government would avoid the formation of an expensive establishment which would otherwise be required. Smyth then went on to say that if done by contract the termination of the work at a fixed period could be more easily forecast. Also, if done by contract, only three or four engineer officers and the same number of intelligent clerks of work would be required.

The ordnance department had inserted in the colonial estimate for the previous year, 1825, an item of £5,000 for preliminary work on the Rideau River.38 This small item had passed the House of Commons without attention being called to it and the ordnance department assumed that, the item having been approved, Parliament was committed to the Rideau Canal project which could proceed without waiting each year for the annual building grant. This really meant that Parliament had received no estimate of the work and had no opportunity of either approving or disapproving of the government entering into such a large undertaking. On 18 April 1826, Earl Bathurst, Secretary of State for War and the Colonies, assured the Board of Ordnance that the work should go on without waiting for the annual grant.39

As to the method of drawing the money required for construction, Smyth suggested that the accounts should be carried on as a supplementary Ordnance Act. The necessary sums would be drawn from the military chest by the ordnance storekeepers. The ordnance department would then render each year to the colonial department an account of the sums expended and drawn out of the military chest with an estimate of the sum required for the succeeding year.40

17 Plan of hydraulic lift lock at Peterborough, Trent Canal. (Sessional Paper No. 20, 1910.)

The spring of 1827 found By busy in Montreal making arrangements with the contractors.41 Each contract was an agreement "between the commissary general of His Majesty's forces (in Canada) for and on behalf of the King."42 In it "the named contractor guaranteed to carry out the stipulated work for the unit sums noted in the document."43 In one contract the unit prices were 4s. per cubic yard of rock excavation and 1s. per cubic yard for earth excavation. The contractor was paid these prices for each of the units noted. Engineers would measure the total amount of work completed and the quantity multiplied by the unit price would give the total sum due to the contractor.

By toured the whole route of the canal for the first time in May 1827.44 In the next two months John Mactaggart, the chief of works, made his initial survey of the route and submitted his report to By in August. In it Mactaggart estimated the total cost of the work to be £486,000.45 In the same summer Lieutenant Pooley, a young engineer, also took a survey party over the proposed route with instructions to prepare accurate general plans and estimates. Following Pooley's work, By arrived at a revised estimate of £474,000.46 This estimate, it should be pointed out, was for a canal with small locks measuring only 110 feet by 22 feet. It was not for the larger size locks strongly recommended by Colonel By. Lord Dalhousie suggested that the new plans and revised estimates be sent immediately to London to ensure their arrival in time to lay before Parliament.47 Pooley was chosen for the task and left for England in November. By's report to the Board of Ordnance strongly recommended that the size of the locks be increased to 150 feet long by 50 feet wide with 5 feet in depth.48

By's report with its increased estimate of £474,000 greatly alarmed the ordnance department in London. On 2 January 1828, the Rt. Hon. William Huskisson wrote to Lord Dalhousie that the estimate was so alarmingly high that it had become necessary to subject the entire proceedings to the strictest examination.49 A committee of engineers was set up to investigate the various documents, plans and estimates. Orders were issued to By to suspend all such operations as were not absolutely necessary to be performed immediately. Dalhousie was requested to assist By in prevailing upon individuals to suspend contracts into which they may have entered but which were not yet sanctioned by His Majesty's government.50

In its report of 22 January 1828,51 the committee of engineers declared that it could find nothing wrong with By's plans and estimates. The committee members were impressed by the daring plans to flood out some of the rapids and falls with high dams. The report, however, still did not entirely satisfy the British government. Whereupon, the Board of Ordnance appointed a special commission of military engineers to make a further, and what was intended to be a final, report on the subject.52 The commission was under the chairmanship of Lieutenant General Sir James Kempt, then lieutenant governor of Nova Scotia, with Colonels Fanshawe and Lewis of the Royal Engineers as members. The commission was instructed to examine personally on the spot the plans and estimates of Colonel By. If they found the project was practicable and that it had been designed and was being conducted economically, then they were to authorize By to continue with the work. Otherwise he was to be stopped. The commission was also "authorized to approve the larger size of locks which By recommended if they agreed with him on this point."53

Throughout the winter and spring, while the committee was actually scrutinizing his plans and estimates, By had been carrying out more accurate surveys and preparing further plans for the Rideau project. As a result of this additional work he was able to submit to the committee, when requested to do so, an estimated cost of the different sized locks for the Rideau Canal;54 for the Lachine lock of 108 feet long by 22 feet wide, £544,676.2.9-1/2; for the lock of 150 feet long by 50 feet wide with the sluices in the gates as By proposed, £697,672.2.9-1/2; for the lock of 134 feet long by 33 feet wide approved by the committee, £576,757.14.9-1/2.

This latter figure was reduced to £558,000 by the committee which considered it a reasonable estimate and one which would meet every probable contingency. The committee's decision regarding the approved size of locks appears to have been a compromise between the two extreme proposals of Sir James Carmichael Smyth for locks of 108 feet by 20 feet and Colonel By for locks of 150 feet by 50 feet.55

On 28 June 1828, the committee issued instructions to By authorizing him to proceed with the work as he had planned and to build the locks with the new dimensions of 134 feet long by 33 feet wide with the same depth of 5 feet.56 A few days later, on 3 July, Sir James Kempt wrote to Lord Dalhousie that the committee had gone over the whole line of the intended navigation and inspected the work in progress.57 Sir James then went on to say that the committee had instructed Colonel By to proceed with the work though they were unhappy about the amount of the estimate.58 Yet they had no alternative but to accept it since, according to Sir James, "they could hardly refuse their sanction to any further advance of the work and thereby involve His Majesty's government in a certain loss for the detention and breach of contract and at the same time sacrifice a large portion of the expense already incurred for specific contracts."59 They therefore authorized By to proceed upon what the committee members considered the most practicable means of adopting the navigation for all probable naval and military purposes and for the commercial uses of the upper country. The size of the new locks would allow the passage of steamboats 30 feet wide over the paddle wheels and for spars 108 feet long clear of opening the gates. And finally Sir James Kempt mentioned that the committee also specified the sum to which By's expenditure was to be confined in the year 1828.

In January 1831, Colonel By laid before Colonel Durnford, commanding Royal Engineer in Canada, a detailed report of expenditures consisting of 311 pages on more than 500 items.60 By showed in each case the amount of the item in the estimate of £576,757 given the Kempt Commission, the amount expended at the date of the report and the amount required to complete; and when the item required an increase of expenditure beyond the amount totalled in the estimate of £576,757 an explanation was given. In closing By wrote,

I beg in conclusion to remark, that the original Plan and Estimate were formed from as correct data as could be obtained during the period that the woods and swamps were uncleared, and in consequence of their impenetrable nature; many of the surveys required has to be taken during the severity of a Canadian winter, and when these circumstances are taken into consideration with the additional fact that from the country being so extremely unhealthy, nearly all my Officers, Clerks of Work and Overseers, have suffered from repeated and severe attacks of sickness, caught whilst in the performance of their respective duties, it will not, I think, appear so much a matter of surprise that the Plans and Sections have in some instances proved to be incorrect as that so few errors have taken place.61

In this same year a select committee of the British House of Commons was appointed to review the accounts and papers of the Rideau Canal. After hearing witnesses who were familiar with the canal works and searching through papers, correspondence and accounts relating to it, the committee published a report dated 30 May 1832.62 This document was mainly concerned with the manner in which the Rideau Canal project had been handled by the London authorities, It contained no criticism of the superintending engineer.

In February 1832, By submitted to the Board of Ordnance in London his final estimate for the construction of the canal. The total now was £715,408.63 The sum was £22,700 above what had been voted by the imperial Parliament for that year. In addition By calculated that "to complete the entire project with all its ancillary defences" would require £60,615 for a total estimate of £776,023;64 a sum exceeding by £216,023 the estimate of £558,000 accepted and approved by the Kempt Commission in 1828. The cost of extras found to be necessary as construction progressed, such as the adoption of waste weirs, the enlargement of dams and embankments following the collapse of the first dam at Hog's Back, accounted for the substantial increase in cost apart from about £30,000. When one considers the wretched conditions under which the Rideau Canal was constructed, the discrepancy between approved estimate and final cost does not seem excessive. The Lords of His Majesty's Treasury in London, however, took a different view. On 19 May 1832 the secretary of the Board of Ordnance forwarded By's estimate to the Treasury. Six days later a Treasury Minute was issued, part of which stated:

My Lords have under their serious considerations the letter from the Secretary of the Ordnance. . . . My Lords will take in their future consideration these voluminous Accounts and Papers; but they cannot delay expressing their opinion to the Master General and Board of Ordnance on the conduct of Colonel By in carrying on this Work. . . . In order, therefore, to complete the Work, Colonel By has, upon his own responsibility, thought proper to expend no less than £82,516. . . . It is impossible for My Lords to permit such conduct to be pursued by any public functionary. If My Lords were to allow any person whatsoever to expand with impunity . . . a larger amount than that sanctioned by Parliament and by the Board, there would be an end to all control and My Lords would feel themselves deeply responsible to Parliament. They desire, therefore, that the Master General and Board will take immediate steps for removing Colonel By from any superintendence over any part of the Works for making Canal Communication in Canada, and for placing some competent person in charge of those works, upon whose knowledge and discretion due reliance can be placed. . . . My Lords further desire that Colonel By may be forthwith ordered to return to this country that he may be called upon to afford such explanation as My Lords may consider necessary upon this important subject. Let copies of these Papers, and this Minute be forthwith prepared with a view to their being laid before the House of Commons.65

This indictment was submitted officially to the House of Commons. Colonel By was recalled. The House of Commons then appointed another committee which heard evidence including that of Colonel By. He was exonerated. He did not, however, receive "the honours which should have come to the builder of the Rideau Canal."66

According to memoranda from ordnance documents the total cost of the Rideau Canal to the imperial government was £803,774.56 or $3,991,701.47 — a total which comprised the following items.67


Land44,807126-1/4$ 218,063.79

work done by contract625,545653,044,320.56

Lock gates23,141610-3/4112,621.50

Pay of establishment110,279198536,695.92



The Welland Canal Company received its original charter in 1824.68 That charter authorized the company to issue 3,200 shares of common stock at a par value of £12.10.0 each making a total capitalization of £40,000. The amount was quickly subscribed by residents in New York state who took over half the amount, and by residents in Upper and Lower Canada who took the remainder. No attempt was made to sell any of the stock to British investors.69

Early in the following year the Upper Canada House of Assembly passed a resolution to lend the company £25,000 and to permit an increase in capitalization.70 On 13 April, the company received an amended Act of Incorporation but no accompanying financial assistance.71 The new charter increased the authorized capital to £200,000. It also allowed persons who had subscribed under the old charter to withdraw and be paid their subscriptions should they so desire. Forty persons representing a total of 170 shares took advantage of this right. New subscriptions, however, a total of 232 being sold in Upper Canada alone, offset the withdrawals.72 Yet only eight individuals invested the £250 necessary to qualify them for a seat on the board of directors. These eight were John Henry Dunn, John Beverly Robinson, William Allan, Henry John Boulton, D'Arcy Boulton, Colonel Joseph Wells, George Keefer and William Hamilton Merritt.73 Most of these men were persons of high social rank and politically influential. Dunn, Allan and Wells were members of the legislative council. Allan was also president of the government-sponsored Bank of Upper Canada. Robinson was attorney general. He and H. J. Boulton, the solicitor general, were leading members of the assembly. D'Arcy Boulton, father of H. J. Boulton, was a judge of assizes.

In 1825 the board of directors petitioned the lieutenant governor of Upper Canada for a grant of land. Maitland forwarded the petition to Bathurst on 19 May, at the same time strongly recommending that it be granted.74 Bathurst accepted the recommendation75 and the following year Maitland made to the company a grant of 13,000 acres of land in the township of Wainfleet. The same board meeting which decided to petition for a grant of land also decided to reserve one-half of the total capital stock of 8,000 shares for sale in Great Britain to be disposed of there through the agency of the Canada Company.76 Of the remaining 8,000 shares, 4,000 were to be sold in the Canadas and 4,000 in New York. The board limited the amount of the New York subscriptions because it was "anxious to preserve the management of the Company under British influence." The Canada Company was expected to find influential subscribers for the £100,000 of company stock reserved for Great Britain. At the same time an agent was sent to London with documents to explain the project in detail.

During May and June, 1825, Dunn went to New York where he not only sold all the quota of stock reserved for that market but an additional amount of £25,000. At the same time, he was able to sell £25,000 of stock in the Canadas.77 This left only the £100,000 of stock reserved for the British market to be sold.78 However, just at the time that this was offered to the British public, panic struck the London capital market in December, 1825, and few shares were sold. This meant that the company was deprived of half of its capital and therefore crippled before its operations were fully begun.

Late in 1825 Dunn informed a select committee of the assembly that the company required assistance until the British subscriptions became available.79 Thereupon the committee recommended that a loan be granted and this was done on 30 January 1826.80 The company received £25,000 repayable in three equal instalments in two, four and six years with interest at 6 per cent payable semi-annually. With this assistance the company continued operations during 1826. In September of that year the Canada Company in London formed a committee to act on behalf of the Welland Canal Company in the London money market but this action brought no immediate relief.81 By the end of the year the stock sold at 50 per cent discount in New York and it was clear that the company was in serious financial difficulties.82

Meanwhile on 30 September 1826, Bathurst, the Colonial Secretary, had stated that the British government was prepared to grant to the company "a sum equal to one-ninth the estimated cost of construction on condition that government stores and vessels were permitted to use the canal without paying toll."83 As noted before, imperial aid in the form of a grant of £12,000 or one-ninth of the estimated cost had been given in the case of the Lachine Canal on conditions similar to those now laid down for the Welland. The Smyth Commission, which as we have seen visited Upper Canada in the summer of 1825, had estimated the cost of the Welland Canal at £147,240.84 Taking this figure as correct, Bathurst offered the sum of £16,360 sterling to be paid in four annual instalments. However, authority to draw for the first instalment was not immediately forthcoming and as things eventually turned out the company never did receive this grant.

Unsuccessful in disposing of its stock in the London and New York markets during 1826, the company, desperate for capital, turned once again to the provincial legislature. Early in 1827 the company presented petitions for aid, urging the provincial governments to purchase its stock. Both of these applications were successful. In Upper Canada a motion to purchase £50,000 of stock in the Welland Canal Company was carried in the assembly and the whole of this subscription was made immediately available in order that the company might be enabled to press ahead with the work.85 However, in return for the province purchasing this stock, the company was required to deposit with the receiver general a bond for £20,000 to be forfeited if interest at 6 per cent were not paid semi-annually one year after the completion of the canal to the Grand River.86 At the same time the assembly of Lower Canada approved a bill granting £25,000 for the purchase of Welland Canal Company stock.87 By means of these two large subscriptions the company's financial position was healthy during the first few months of 1827.

18 William Hamilton Merritt (1793-1862), politician. Keenly interested in the development of island waterways, Merrrit promoted the Welland Canal and strongly urged the improvement of the St. Lawrence canal system. (Public Archives of Canada.)

On 10 March 1827, Dunn wrote to Lieutenant Governor Sir Peregrine Maitland giving an account of the company's financial position.88 At that time, of £200,000 authorized capital stock, £93,000 had been subscribed by private individuals. Of this sum, however, £10,000 had reverted to the company through nonpayment of instalments. Of the remaining £83,000, 27 per cent was still to be paid in. The company now had available £50,000 subscribed by the government of Upper Canada together with the British government's promise of £16,360, Estimated total cost of the canal was now £230,000. Of this sum £90,000 had already been spent. This left £47,000 still required to bring the work to a successful conclusion. Since, at this time, the imperial government had declared its intention to make money available for public works at low interest rates, Dunn wrote that

It had suggested itself to the Directors that if His Majesty's Government would consider the actual expenditure of £170,000 as sufficient security to render it prudent to afford the accommodation alluded to and would raise by loan in England the funds still wanting say £50,000 sterling, the Directors relieved from the uncertainty of stock being subscribed by individuals, might safely proceed to put the Western Section of the Canal from the Welland to the Grand River at once under contract and the certainty would be afforded of the navigation being completed with the least possible delay; it need scarcely be mentioned that if the remaining £57,000 stock should be subscribed in America it would of course enable the Company immediately to redeem the loan.89

Meanwhile, though work on the canal was progressing favourably, it was clear that only public assistance had enabled the company to survive as long as it had and only by the continuance of public funds could it hope to complete its task. The hard fact was that "out of a capitalization of £200,000 — itself less than adequate — private individuals had subscribed only £83,000."90 Dunn's letter to Maitland was forwarded to the Colonial Office on 12 March 1827.91 It was not well received. The Treasury informed the Colonial Office that they could not recommend Parliament "to lend any money for the completion of the canal upon any security which the proprietors of the company could offer."92 The Treasury went on to say, however, that "if the provincial government were to guarantee payment of interest on the loan and set up a sinking fund for redemption of the principal an imperial loan might be arranged."93 Nothing was ever done about the suggested provincial guarantee.

By 1828, the company's financial situation was desperate. It was estimated that if no further financial assistance were forthcoming after the end of July, the company would bankrupt. The board now decided to send an agent to England primarily to arrange for the payment of the imperial "one-ninth grant" and with a roving commission to sell shares or arrange a loan wherever opportunity offered. Merritt was to be the agent and he sailed from New York on 16 March 1828. In England he finally got the imperial government to act and on 11 July 1828, an appropriation for a loan of £50,000 sterling to the Welland Canal Company passed the House of Commons.94 The loan, however, was granted instead of, not in addition to, the "one-ninth grant" promised by Bathurst. As security for the loan "Merritt had mortgaged the canal itself with all its property, tolls and profits to the British government. Interest on the loan was to be paid at 4 per cent per annum and the principal was to be repaid within ten years. If principal and interest were not paid promptly the canal would become government property."95 In England at this time, Merritt also succeeded in selling all the remaining stock of the company, or 2,467 shares, to private individuals some of them distinguished public figures like the Duke of Wellington and Alexander Baring.96

Until this time the company had managed to pay the interest on its debts to the provincial government, but now the situation changed dramatically. In November, 1828, there was a major disaster when the slides in the Deep Cut occurred. After this incident the sum of £54,662 was required to finish the canal for ship navigation. At the same time something like £42,000 was needed to pay off past indebtedness to private individuals.97

Continued deterioration characterized the company's financial position throughout 1829. English subscriptions receded rapidly. Ellice and Company had pledged itself to purchase £1,500 of stock and the Canada Company had pledged itself to purchase £6,000 of stock. When news of the Deep Cut slides reached London in July 1829, both these companies repudiated their pledges.98 The company now applied to the Bank of Upper Canada for a loan and a small advance was obtained on the personal security of the directors.99 "Finally, in desperation, the board had recourse to the extraordinary expedient of applying to the lieutenant-governor, Sir John Colborne, for a personal loan of £10,000," which was granted.100 By the end of the year when the canal was opened for traffic, the company had a floating debt of £15,467 in the form of arrears to contractors and unsettled claims for damages. Cash on hand amounted only to £

Following the completion of the canal, the directors in 1830 applied once again to the provincial legislature for financial assistance.102 The company now sought a loan of £25,000 in order to pay its immediate debts and to cover the cost of necessary maintenance and repairs. It also sought to increase the capital stock to £300,000. A majority of the assembly voted in favour of making the loan thus bringing the investment of the provincial government in the canal to £100,000.103 The capitalization, however, was not enlarged. A similar petition to the legislature of Lower Canada was a failure.104 At the same time strenuous efforts were made by J. B. Yates, a prominent New York stockholder, to sell stock in the United States but without success. He then went to England where he managed to sell 1,158 shares, having only 459 still to be disposed of.105

Once again the company applied for aid to the Upper Canada legislature.106 A request for an additional loan of £25,000 was referred by the assembly to a select committee which recommended that the government should lend the company not the £25,000 asked for but £200,000, enough to pay the loan made by the British government as well as all previous provincial loans.107 This recommendation the assembly rejected. Instead, an Act was passed on 16 March 1831,108 which gave the company a loan of £50,000 on condition that the directors should furnish individual security that this sum would be used to complete the whole canal including harbours and that "the government would be indemnified against the payment of the interest and one-half of the principal." To finance this loan the province issued debentures for a corresponding amount which were issued directly to the canal company to be disposed of as the directors could best arrange. "On May 11, 1831, arrangements for a loan at 5 per cent interest were concluded with the Bank of the United States, the provincial securities to be deposited with the bank as collected on a dollar-for-dollar basis as and when the money was required."109

19 Plans and sections showing the dimensions of the smallest lock on each of the Canadian canal systems except the Trent Canal. (Sessional Paper No. 20, 1910.) (click on image for a PDF version)

As noted previously the mortgage given to the British government covered the whole canal and its revenues, including the large grant of land in Wainfleet and the water-power privileges. In March, 1831, Yates purchased all the landed property (still burdened by the mortgage to the British government) of the company with the rights to sell or lease the surplus water for the sum of $100,000. The canal company received a bond for £25,000 and an understanding that £1,500 would be paid as interest on that bond every year.110 Yates, an alien, was unable legally to hold landed property in his own name in Upper Canada so he formed a partnership with his nephew, A. Y. Macdonell, and with Ogden Creighton — a partnership which came to be known as the Hydraulic Company.111

Meanwhile the Welland Canal Company faced the problem of a shortage of cash and short-term credit.

The £50,000 grant from the provincial government could be expended under the terms of the act only for the completion of the canal. It was not available for the liquidation of the company's floating debt amounting approximately to £11,000. Most of this debt consisted of sums due the contractors for work performed and unsettled claims for land damages.112

But sources of short-term credit were now drying up. The Bank of Upper Canada would no longer assist the company. Early in 1832 the directors forwarded to the Colonial Office a memorial praying that the imperial government should give up the mortgage in so far as it related to the land and hydraulic privileges.113 The Colonial Office replied that in this matter Lieutenant Governor Sir John Colborne was to use his own discretion. Treasury insisted, however, that Colborne was not to release the company from the mortgage before first ascertaining that ample security remained for the loan.114 Colborne decided to do nothing.

Again the company petitioned the legislature for a loan of £25,000 offering as security the bond given by the Hydraulic Company. The legislature, however, refused to sanction the loan, leaving the mortgage in the company's hands and subscribing for £7,500 of stock. Three commissioners appointed by the legislature were to supervise the use of this money in improving the canal. Yet the new government subscription did not relieve the company from the pressure of its debts. The end of 1832 found the company owing £11,814 to contractors and other claims amounting to £8,000. At the same time work indispensable to the opening of navigation was estimated at £6,319.115

Once again the company attempted to raise money on the security of the Hydraulic Company's bond. The lieutenant governor was beseeched to release the company from the mortgage on the hydraulic property. Colborne consulted his attorney general who advised that the lieutenant governor should refuse to release the company from its mortgage until the full £25,000 offered by the Hydraulic Company was paid. Thereupon the lieutenant governor informed the board that he would consent to the release "only if the whole £25,000 which the company proposed to borrow on the security of the Hydraulic Company's bond were expended on perfecting the feeder and completing the new cutting to Lake Erie." What was most required, however, was security for a loan to pay off the floating debt. Colborne finally granted the release. Yates managed to obtain a loan of £25,000 which was used to complete the new harbour on Lake Erie now named Port Colborne.116

In 1833, Benjamin Wright, the principal canal engineer in North America, submitted his report on the Welland Canal. He exonerated the company from charges of waste and mismanagement.117 The commissioners appointed by the legislature now recommended that the canal should be made a national work. However, provincial purchase was politically impossible until the lands and hydraulic privileges alienated by the canal company were repurchased. Provincial purchase was also difficult because of the attitude of the New York stockholders. They would not surrender their title to the canal without full payment of principal and interest. They would much prefer not to sell if only adequate assistance was obtained from the government. The demand for full principal and interest removed the possibility of government purchase for the time being. Provincial finances would not permit it.

With provincial purchase left in abeyance, the legislature passed, on 6 March 1834, an Act118 authorizing the purchase of £50,000 of stock, the capitalization of the company being increased to £250,000 to accommodate the subscription. Government representation on the board of directors was increased to three members out of seven. The following month the assembly of Upper Canada drew up an address to the King praying that the imperial loan of £50,000 be relinquished. The address pointed out that the province had now given assistance by subscriptions and loans to a total of £207,500; that three directors were appointed by the legislature; and that the company had a right to expect, by the terms of the dispatch of 1826, a grant of one-ninth the estimated cost of construction. The address then went on to state that

From the amount of debt to, and the security held by His Majesty's Government on the said Canal, the Company have been and still are unable to obtain further loans, otherwise than from the Revenues of this Province — that the increased value of Crown Lands, which will be produced by the completion of this work, besides the advantages which the Mother Country will derive from the extension of commerce in consequence thereof will in the opinion of this House more than compensate for this expenditure of the fifty thousand pounds, which will not exceed the one-ninth part of the cost of the said canal.119

20 Thomas Coltrin Keefer (1821-1915), civil engineer. A leading hydraulic engineer and first president of the Canadian Society of Civil Engineers, Keefer was employed on the Erie, Welland, Ottawa and St. Lawrence canals. He was also chief engineer of the Montreal Waterworks. Taken from the Canadian Illustrated News, 26 September 1863. (Public Archives of Canada.)

21 The old Sappers Bridge over the Rideau Canal, Ottawa, as depicted by H. Cotton, 1867. (Public Archives of Canada.)

The appeal was in vain. "The Colonial Secretary refused to reverse the decision of his predecessor." To do so would, he believed, "set a bad precedent for future assistance to important colonial projects."120

The canal, however, still needed capital. The company now had only two policies open to it. It could continue to rely on the provincial government for financial aid. This meant increasing government control and final government purchase. Or it could attempt to mobilize sufficient capital to pay off all government loans and subscriptions and carry on under private ownership. Both lines of policy were pursued simultaneously. Merritt and his supporters in the Upper Canada legislature pursued the first policy. In June, 1834, the canal company bought back its real estate and hydraulic rights. The canal company returned to the Hydraulic Company the bond for £25,000 originally given in consideration for the transfer and also gave its own bond for £17,500 payable in 50 years with interest at 6 per cent payable semi-annually. At the same time the Hydraulic Company was permitted to hold about 200 acres of land in Allanburg and Port Colborne.121

Yates, acting in direct contact with financial houses in New York and Upper Canada, now pursued the second policy of mobilizing sufficient private capital and paying off all government loans and subscriptions and carrying on under private ownership. By April, Yates was certain that a loan could be raised from private sources. By September he was ready to urge immediate action and finally in November he urged Merritt to come to New York at once. Late in December one of Yates' staunch Upper Canada supporters forwarded to the lieutenant governor a letter from "certain mercantile Houses and Individuals in the City of New York" inquiring whether he felt himself authorized to dispose of the government interest in the canal, and if so on what terms.122

But now political events intervened to greatly damage the company. The legislature had appointed William Lyon Mackenzie to the board of the company early in 1835. Mackenzie burrowed through "the company's chaotic account books" and emerged on 21 October with "a series of charges of fraud and defalcation on the part of the company's officers." Merritt, a member of the assembly, succeeded in having the matter referred to a select committee which, after prolonged inquiry, finally emerged with a verdict of "not proven" on several accounts. But the damage was done. Confidence in the canal was badly shaken. Yates argued that if the government were dissatisfied with the management of the canal, let them sell their interest in it and divest themselves of all responsibility. He had an offer ready and the government had only to accept. This, however, was not what Mackenzie and his followers wanted. They were determined to make political capital out of the Welland Canal.

During this period the company, in order to avoid complete bankruptcy, resorted to the desperate expedient of issuing its bills as currency. At the same time Merritt prevailed upon private individuals "to endorse the company's notes." It was clear that if the company's financial situation did not improve it would be impossible to keep the canal open. "On August 6, 1836, the board decided to ask the private stockholders for authority to open negotiations for the sale of their interest in the canal to the provincial government."123 On 2 November a general meeting gave the necessary permission and a memorial was presented to the lieutenant governor praying that the province would buy out the private shareholders.124 There also appeared on 29 November the report of a select committee on the Welland Canal which recommended "making the Welland Canal strictly a public work."125 At this time investments in the canal were probably held as follows:126

Shares held by private parties£117,800

Loan and shares held by Upper Canada govt.275,644

Shares held by Lower Canada pvt.25,000

Loan by imperial government55,555


However, the legislators of Upper Canada were in no hurry to purchase the canal. On 14 March 1837, an Act127 was passed which was intended as a substitute for outright purchase. It dealt with the long overdue organization of the company's finances. The capitalization was increased to £597,300 of which the government of Upper Canada was to hold £454,500; £209,500 to represent a consolidation of previous loans and subscriptions, and a new subscription of £245,000 for the permanent reconstruction of the canal with stone locks. "The remaining lands held by the Hydraulic Company were to be repurchased. The number of directors on the board was reduced to five so that three government appointed directors held a majority."128 The Act marked the end of private control.

But the Act was inoperative almost from the start. The stockmarket crash of 1837 occurred just before the last and largest provincial subscription could be raised. "Only £68,144 of the promised £245,000 was actually realized. After April 1837 the province could not sell its bonds."129 In the same year occurred the Canadian rebellions to complete the debacle.

The three government appointed directors now informed the lieutenant governor "that the canal could be kept open for navigation only by incurring an annual net loss of about £14,000."130 Pessimistic about possible future increases in traffic, they raised the question whether it might be wiser to "let the Canal go to decay" using it as a reservoir for water-power only rather than by continuing to pour money into the work. Such a report represented a direct threat to the interests of the private stockholders. If the canal was to be abandoned, there was little hope that the private stockholders would ever receive any return on their investment. "Their only hope lay in arranging to withdraw their capital entirely by exchanging their shares for the slightly less dubious security of provincial debentures."131 In March, 1839, the New York shareholders petitioned the provincial government to buy them out.132

Two months later the legislature passed a bill133 providing for the purchase of the private stock in the canal by the provincial government. The shareholders could now exchange their stock if they so desired for 20-year debentures bearing interest which increased over the years from 2 per cent to a maximum of 6 per cent. The Bill also provided that former shareholders would receive debentures for back interest due them once the canal tolls reached £30,000 per annum. But by this time the state of the provincial credit was so precarious that the lieutenant governor, Sir George Arthur, did not want to add to the public debt for the purpose of compensating the private stockholders until the funds required to complete the canal had been raised. He therefore reserved the Bill for the Queen's approval.134

However, a committee of the assembly, to which the whole matter had been referred, advised that an address be submitted to the Queen praying that the bill should receive the royal assent.135 A motion to address the Crown was then carried in the legislature on 25 January 1840.136 When the first Parliament of the now united provinces met in Kingston on 14 June 1841, the Welland Canal Compensation Bill137 was one of the first measures introduced. It became law on 5 July.

Yet this Act also proved to be inoperative. The debentures issued were unsaleable at anything like their nominal value. The bonds sold in England only at a heavy discount and both the Treasury and colonial secretary recommended that the Act be amended. A new Act was therefore passed in 1843138 which provided for the issue of debentures payable in 20 years, bearing interest at 5 per cent if payable in Canada, with debentures for back interest to be issued when the canal tolls reached an annual figure of £45,000. With this acceptable compromise, the Welland Canal Company passed out of existence.

So far as can be ascertained the expenditure on the Welland Canal by the time of union was as follows:139

Stock originally held by private parties and assumed by government$471,200.00

Old stock held by Province of Upper Canada430,000.00

Loans made by Province of Upper Canada and converted into stock in 1837408,000.00

New stock, Province of Upper Canada, advanced and spent up to the end of 1837264,576.00

Stock held by Province of Lower Canada100,000.00


Additional expenditure prior to the union177,651.77


Sum advanced by imperial government and spent before the union222,220.00



The difficulties experienced by the Welland Canal Company in financing canal construction convinced the people in Upper Canada that in future such construction should be undertaken by government. Waterways, vital to the Canadian economy, made such demands on overseas sources of capital that only governments could undertake such improvements. The Cornwall Canal was a case in point. As early as 1816, proposals to construct a canal on the St. Lawrence designed to avoid the Long Sault Rapids at the head of Lake St. Francis had been presented to the legislature of Upper Canada.140 Two years later a joint commission appointed by the legislature of both provinces to report on the water communication of the upper St. Lawrence had recommended that an early start be made with the construction of canals on this stretch of the river to be not less than 4 feet deep and to cost $600,000.141 Nothing was done, however, about this recommendation. Yet the subject was not allowed to lapse. In 1826 the lieutenant governor submitted to the legislature a report by Samuel Clowes outlining two plans, one for a canal with 8 feet depth of water and one for a 4-foot waterway.142 The town of Brockville now took up the matter. Fearing that the completion of the Ottawa-Rideau waterway would draw traffic away from the St. Lawrence and thereby affect adversely the commercial life of the town, Brockville, in 1830, undertook a preliminary survey for a canal between Cornwall and Dickinson's Landing around the Long Sault Rapids. At the same time the town pressured the legislature to take action in this matter143 and this the legislature did in 1832 bypassing a resolution approving the construction of a canal having 9 feet depth of water.144 Commissioners were appointed the following year to supervise the work.145 Two engineers, Benjamin Wright and John B. Mills, were employed to make a report and the plans they submitted for the Cornwall and Williamsburg canals involved an estimated expenditure of £350,000.146

Work was begun on the Cornwall Canal in 1834, the only major canal project undertaken by the province of Upper Canada before the union of the provinces. In order to finance the project, the province floated for the first time a series of loans in the London market. It is interesting to note that those persons who pressed most strongly for this canal were also involved in the Welland Canal, for they realized that the full potentialities of the Welland could only be realized upon the complete canalization of the St. Lawrence. Hence we find that W. H. Merritt introduced into the Upper Canada assembly the bill that empowered J. H. Dunn, president of the Welland Canal Company, to raise the loans in London in 1834 and 1835. These loans were to be negotiated for the sum required, £350,000, which was to be paid into the hands of the receiver general and drawn by the commissioners according to the progress of the work.147

At first construction of the Cornwall Canal proceeded briskly. However, as noted elsewhere, the depression of 1837 combined with the Canadian rebellions of that year made it impossible to sell Canadian provincial securities in London. Once the sources of capital dried up, work on the canal was suspended but not before the province had paid out $1,448,538 on the project.148 It was resumed after the union of the provinces and completed in 1843.

Before leaving the subject of expenditure on canal construction, a few final remarks might be made regarding the amounts paid out by the provincial and imperial governments for waterway improvements in the Canadas prior to 1841.149 The Province of Lower Canada expended a total of $889,110.58 on waterways and the Province of Upper Canada paid out $3,430,952.57 for the same purpose. The imperial government, during this period paid out no less than £1,069,026, a figure which included work done on the Ottawa-Rideau waterway and contributions to the Lachine and Welland canals.

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