In a democracy such as Canada’s, voters choose their political leaders according to a number of factors. Among them is the belief that a particular candidate will be able to handle with calm, reason, and resolve whatever challenges the Fates may devise. Voters sometimes think they are choosing a leader but end up with a manager. Good managers are those whose experience, values, and character are such that when difficult decisions arise, they are able to intelligently pick the best option given the facts known at the time. Good leaders are those who are able not only to do that, but more. They are also able to shape events and bring to fruition novel ideas and, in so doing, steer that which they lead in a new direction and thereby bring benefit to all. Good managers choose well between options while inspired leaders create new options from which to choose. Important leaders do more than play the rules of the game well — they change the game. R.B. Bennett was such a leader.

While working throughout his tenure as prime minister to provide relief to suffering Canadians and increase international trade to spur an economic recovery, Bennett was also creating three institutions that have become icons in Canada’s statehood. In so doing, he changed the way Canadians relate to each other and the manner in which the Canadian state does business. In one way or another, and to different degrees and in different ways, each of the three brings benefit to the Canadian nation and state to this day.

Bennett helped to protect and promote Canadian culture and social uniqueness through his creation of what became the Canadian Broadcasting Corporation (CBC). He moved Canada toward becoming a global trading power while helping virtually every sector of the economy through advancing the construction of the St. Lawrence Seaway. Bennett also created the Bank of Canada, which modernized the Canadian economy by providing an instrument through which monetary policy would be more professionally and centrally managed, with the inevitable boom-bust capitalist cycles rendered less extreme and destructive.

In all three cases, Bennett found many important and powerful people and groups advising or even threatening him to slow down or to do nothing at all. Those on the political right in his cabinet and caucus did all they could to stop him from putting his Tory principles so blatantly into practice. Those on the left, meanwhile, were frustrated by his unwillingness to do more or do it more quickly. In each case it would have been easier and more popular to do nothing. But effective leaders do not shrink from challenges or wilt in the face of criticism.

CANADIAN RADIO BROADCASTING CORPORATION

By the mid-1920s, commercial radio was thriving in Europe and the United States. Like early television and later the Internet, radio was not just a technological marvel and source of entertainment but also a new and exciting conduit through which those within a country gathered news and opinion and so engaged in a grand civic conversation. At its best, radio was a means through which citizenship could be enhanced. Beginning in Scandinavia, then catching on in western European countries and finally Britain, these notions regarding the importance of radio as a public good led to the regulation of stations and networks and various models of state financing and ownership. In the United States all stations remained in private hands, but the government conceded the civic value of radio and so the public was granted the ownership of the airwaves that they enjoy to this day.

Despite these actions taken by other governments, by the early 1920s, radio in Canada was in terrible condition. As is the case with too many issues, Canada was a victim of its geography, for it had too much; money, because it had too little; and, at a critical moment, weak leadership that trembled in the face of those twin challenges. Radio signals were strong near the few small transmitters that dotted the largest cities, but grew weaker as one travelled farther from urban centres. Radio transmissions were absent in rural communities and merely a dream on isolated farms.

All of these facts were not enough to move Prime Minister Mackenzie King. But in 1928 he surrendered to pressure from the Catholic Church, which had been upset by radio broadcasts promoting the ideas of the Jehovah’s Witnesses and criticizing the Catholic faith, and by J.S. Woodsworth, who was critical of the government’s reacting to the spat by revoking the offenders’ radio licences. The prime minister established the Royal Commission on Radio Broadcasting chaired by former Imperial Bank president John Aird. Also on the commission were electrical engineer and educator Augustin Frigon and Charles Bowman, editor of the Ottawa Citizen. The commission’s mandate was to offer advice on how Canada could catch up to the industrialized world while also investigating the viability of a state-owned radio broadcasting network. After a great deal of work and through studying what was being done in other countries, the Aird Report on Radio Broadcasting recommended that the government finance the creation of seven publicly owned stations not to replace, or even to offer competition to, but to augment the sixty-two commercial stations that existed at the time. To allow this to happen, it suggested that the government finance the creation of more wavelengths since at the time there were only forty-two in Canada. This meant that only forty-two stations could be on the air at any one moment. Such an investment would, the commission argued, boost the paltry 27,500 watts of total transmission power that existed in the country.

There was objection to the Aird Report. It came mostly from wealthy individuals who owned radio stations and who saw a public system as unfair competition. Opposition was also heard from those who saw publicly owned anything as smacking of socialism or even communism. There was no groundswell of support to counteract the loud voices of opposition. Mackenzie King decided to do with the report as is done with many: he put it on a shelf to gather dust.

In his response to Mackenzie King’s February 1930 Speech from the Throne, Opposition leader Bennett noted that in the previous session of Parliament the government had instituted several commissions and yet none of their findings or recommendations had found their way into the new agenda. Bennett made specific reference to the Aird Commission Report. He said he had read it, supported its recommendations, and was saddened that the prime minister had decided to ignore it. In so doing, Bennett labelled himself a friend of public radio.1

Shortly after moving into the prime minister’s office, Bennett asked Alfred Duranleau, his minister of marine and fisheries — under whose jurisdiction radio in Canada rested at the time, since it was so new and no one really knew where else to put it — to investigate the state of radio in the country. Duranleau and Bennett spoke several times about the issue and shared reports and letters. One such report was from eight commercial radio operators and manufacturers. It stated that there were 185,000 Canadian radio sets sold in Canada, but that 118,000 of them had been made in the United States. The report asked for the tariff to be raised on imported American radios to build the incipient Canadian industry.² The tariff recommendation aside, the report demonstrated the growing popularity of radio in Canada.

What the report did not mention, but that anyone listening to his or her newly purchased and probably American-made radio soon discovered, was that the majority of the voices emanating from the box had American accents. The Columbia Broadcasting System (CBS) and the National Broadcasting Corporation (NBC) were already being investigated by the United States Congress for their monopolization of the airwaves. Although American senators did not much care what signals were spilling over the northern border, Bennett’s mailbag was filled with letters from many Canadian listeners who seemed to care a great deal about two large and growing American corporations adding to the infiltration of Canada by American culture and commerce. And the trend that was disturbing so many people was not about to stop. In fact, in November 1929, NBC had inaugurated a service operating out of CKGW in Toronto. All of its programming was American. So successful was the station that only three months later, NBC was in negotiation with Quebec’s Marconi Radio Company to create another American station to broadcast 100-per-cent American content at CFCF in Montreal.

In December 1930, the two-year-old National Council of the Canadian Radio League (CRL) had begun to make itself heard. It was a large group, with representation from every province and nearly every sector of society. It comprised a loosely tied amalgam of representatives from many groups, including the Royal Society of Canada, the Trades and Labour Congress, the Canadian Legion, and the Imperial Order of the Daughters of the Empire. On its board was president of the Canadian Bar Association and eventual prime minister Louis St. Laurent; W.M. Birks, who had turned his jewellery store into a successful national chain; First World War hero General Sir Arthur Currie, who was at that time the principal of McGill University; Cairine Wilson, president of the National Council of Women; and a rich cross-section of others representing Canada’s elite, including senators, captains of industry and finance, labour leaders, and university presidents.

The CRL let it be known to Bennett, and anyone else who would listen for that matter, that it supported the recommendation of the Aird Commission and wanted the creation of public radio. It argued, as the Aird Commission had, that private radio should continue to exist in Canada for it served a valuable purpose. But because private radio exists to earn a profit it cannot provide the educational and public service programming that is needed to tie together a country as vast as Canada. Nor, it argued, could private broadcasters be expected to lose money by extending their signals into remote areas. These services addressed the public good and thus should be undertaken by the government on the public’s behalf.

In January 1931, Bennett received a copy of the RCA News. It spoke of the tremendous growth and popularity of radio in the United States. Of special interest to Bennett, given the important role that radio had played in his election just months before, was that President Hoover had used radio twenty-seven times to speak directly to Americans. Further, the report stated, 193 government officials had similarly taken their messages to the people.3 It was another voice supporting the idea that radio could be a bulwark of democracy and an invaluable educational tool.

With the CRL making noise and Bennett privately, and occasionally publicly, stating his support, opposition to the idea of public radio began to again coalesce. As radio would do when TV appeared, and as TV would do when the Internet surfaced, newspaper owners saw new communications technology as a threat to their bottom lines. After the publication of the Aird Report, they had been among those who had petitioned Mackenzie King, demanding that he ignore the recommendations. Around Christmas of 1930, they began to organize again, this time to fight not just public radio but radio itself. A group of powerful editors told all other Canadian editors that they should refuse to print the names of or accept advertising from firms that also used radio advertising. They believed that every dime of advertising spending going to radio was being taken from them.4 Choking the revenue stream would kill the usurper that was competing for ad dollars and the public’s attention.

No sooner had the newspaper owners begun to fall together, however, than they fell apart. Like the precious few progressive thinkers of any transitional time, enough of them began to see that they could make more money cooperating with radio than fighting it. Some even began to seek opportunities to invest in new stations. The conglomerates that today own the companies that produce and then distribute product did not invent the notion that if you can’t beat them, buy them.

With the newspaper opposition to radio and public radio fraying, others took the lead and organized letter-writing campaigns. Some argued from an ideological point of view, imploring Bennett to keep the hands of the state away from the radio industry. Others said that all of the government’s attention and money should be directed toward economic matters related to ending the Depression. As MPs saw more and more negative letters arriving, many began to speak against public radio in weekly caucus meetings. In January 1931, William Tummon, Conservative MP from Hastings South, Ontario, told Bennett that he had received four hundred letters from constituents, all stating their opposition to public radio.⁵ A Belleville MP claimed to have received nearly a hundred such letters.⁶ Letters from business people from coast to coast poured in with nearly all opposed to the idea.

In March, Canadian private radio broadcasters weighed in with a nineteen-page pamphlet entitled Radio Broadcasting Under Private Ownership. It outlined the benefits that private ownership had brought to Canada. It then presented an argument against the recommendations of the Aird Commission. The arguments were persuasively stated, although they all distorted what the commission report had actually said. The arguments can be understood simply by knowing that they were peppered with words and phrases such as “monopoly,” “censorship,” “lack of choice,” “increased licence fees,” and “discrimination.” The pamphlet went on to use similar sophistry to attack the recommendations of the CRL. The final page listed forty-seven companies that had expressed support for private radio. Among them were Imperial Tobacco, Simpson’s, Lowney, Neilson, Quaker Oats, Pepsodent, Silverwoods Dairy, Dominion Stores, Massey Harris, Shirriff’s, Fuller Brush, and Supertest Petroleum. And, the list concluded ominously, many others.7

With the economic collapse robbing the government of revenue, a host of complex issues demanding Bennett’s time, and in the face of such organized and potent opposition, it would have been understandable if Bennett had taken Mackenzie King’s lead and let the matter drop. But he did not. He made it clear to those around him that he wanted the matter of public radio pursued. He was supported in this goal by Rod K. Finlayson, the Winnipeg lawyer who sat on the executive committee of the CRL. Bennett had met Finlayson during the 1930 campaign and had been impressed with his intelligence and wit. Shortly after the election Bennett sought Finlayson’s advice on several matters and each time had been rewarded with pithy, articulate replies. He was to become one of Bennett’s most trusted advisers.

Bill Herridge was another supporter of public radio. On April 14, 1931, after a long courtship, Herridge had married Bennett’s beloved sister Mildred. The wedding was a major social event with many of the country’s political and business elite in attendance at the grand reception at the Château Laurier. Bennett beamed as he stood at the hotel’s door and watched his sister acknowledge the crowd of Ottawa citizens that had gathered on Wellington Street to wish her well. The festivities were splendid but the honeymoon brief. Bennett took but a few hours off to attend the ceremony and part of the evening’s reception but then was back upstairs to pore over his briefing books. Herridge and Mildred were soon on an official trip to England with Bennett, then off to their new home in Washington.

While in London with Bennett, Herridge had been cabled by the CRL’s Graham Spry. Spry was aware of Bennett’s desire to use Britain to stand against American influence in trade. He sought to use that inclination to encourage Bennett to see radio as a way to protect Canada against being swamped by American culture. Herridge spoke to Bennett about the issue. Bennett cabled Spry, telling him that he wanted him to investigate the notion of public radio further and that there would no more commercial radio licences granted at least until he had returned to Canada.8 Bennett’s next cable was to Duranleau, with the instruction to issue no more licences.⁹

Just as the move toward public radio was beginning to proceed, however, it was stopped. It was temporarily frozen by a court case brought against the federal government by the government of Quebec. Quebec insisted that the granting of radio licences was a provincial jurisdiction. If Quebec was right, then public radio was doomed. Bennett, however, insisted that under Section 91, Subsection 29, of the BNA Act, radio fell under federal jurisdiction. The scrap was on and the case quickly found its way across Parliament Hill to the Supreme Court — housed at that time in a dilapidated, leaky old building that would be demolished just as the court itself was growing to become more relevant. Bennett ordered a vigorous defence. Government lawyers were helped by the CRL, which paid the expenses of Brooke Claxton, who presented a compelling case in support of the federal government’s argument. He made two main points. First, he noted that the Constitution’s residual power clause granted responsibilities that were not specifically allotted to either level of government to the feds. This clause, he argued, gave the federal government the power to regulate radio. Second, and an even more persuasive argument, was that in 1927, Canada and seventy-eight other countries had signed the International Radio Telegraph Convention. The legality of that treaty, along with the fact that only the federal government had the constitutional power to enter into treaties, meant that the regulation of radio was within the federal government’s power. The Supreme Court agreed.

Quebec was not satisfied, however, and began an appeal process that saw the case land with the Judicial Committee of the Privy Council’s office in London, with its power to overrule decisions of the Canadian Supreme Court. Meanwhile, the Americans had been watching the Canadian situation. In January 1932, the American Senate passed a resolution stating that the secretary of state should immediately undertake negotiations with governments of other North American countries with regard to allowing more American radio owners and advertisers into their markets. The senators were coveting Canadian air and American corporations were about to pounce, just as Bennett’s hands were tied by another interminable federal-provincial squabble.

A month later, however, the Privy Council denied Quebec’s appeal. The decision handed Bennett the constitutional power to act. Less than a week after the ruling he stood in the House to announce the formation of a special parliamentary committee to undertake a study of not only commercial radio in Canada but also of the idea of a publicly funded radio network. He appointed noted friend of public radio Raymond Morand to be its chair. He and the other seven commissioners were drawn from business, radio, and public life, and were both Conservatives and Liberals. They set to work quickly and travelled the country hearing testimony.

Bennett’s active pursuit of the public radio option, and his appointment of Morand, who had openly expressed his support for the idea, made Bennett’s beliefs in the matter of public ownership clear. His conviction that the government should play a role in protecting and promoting Canada’s social and cultural uniqueness had already been seen in the actions he had taken to protect Canada’s infant magazine industry. In July 1931, Bennett had sought to stop the influx of American magazines into the Canadian market by proposing drastically increased duties on them. He assured Canadians that scholarly journals and those addressing themselves to religious matters and economic concerns would be exempt. He explained to the House that he was seeking to inspire Canadians to look within Canada for cultural and intellectual stimulation.10 In February 1932, in announcing the Morand Committee, he made the same argument with respect to public radio, telling the House, “The enormous benefits of an adequate scheme of radio broadcasting controlled and operated by Canadians is abundantly plain. Properly employed, the radio can be made a most effective instrument in nation building, with an education value difficult to estimate.”¹¹

Knowing it had an ally in Bennett, the CRL ensured that the Morand Committee heard from witness after witness who urged the creation of a public radio network. While the committee work was being done, Bennett and Spry spoke on the phone about both the committee and about what was being done across the country to stir up interest in the public radio scheme. Spry assured Bennett that he was gathering people of influence to endorse the idea. Among those who spoke in favour of public radio, for instance, were former prime ministers Borden and Meighen. Meighen had long been a strong proponent of public radio. Meighen spoke to Bennett about the manner in which American and Australian radio, both of which were totally in private hands, were not serving the best needs of the people and not allowing radio to meet its potential.12 In so doing, he emboldened Bennett to be brave in the face of so much opposition.

Some of that opposition came from the many members of Bennett’s caucus who were cool to the idea of public radio. Some were outright hostile. Many continued to bring the subject up in caucus meetings and others wrote letters to the prime minister expressing their opposition. From Quebec he heard that the idea was no good because the province would be swamped with English programming, and from the West he heard that it was no good because taxpayers would be forced to finance French programming. From some he heard the legitimate ideological opposition to government intervention into what had been a private realm of enterprise, and from others the excuse that the creation of public radio should be delayed until the Depression ended. Bennett listened to all, but his reactions in caucus and replies to the letters indicated that while he understood the points raised he did not agree with them.

As the Morand Committee ended its hearings and began work on its final report, opposition to public radio reached a fever pitch. Bennett was approached by a number of business people who either saw public radio as placing the government on a slippery slope toward a socialist ownership of industry or as a danger to their profit margins or both. Edward Beatty tried to dissuade Bennett from his support. He argued that a national radio network was a good idea but that private enterprise could build a better network faster and more efficiently than government ever could. Bennett received a number of letters from other friends and business associates that also warned him away from public radio. Many of the correspondents had contributed handsomely to the Conservative Party. R.W. Ashcroft from the Canadian Association of Broadcasters even promised that if Bennett killed the idea, he would enjoy an hour of free nationally broadcast radio time to deliver his New Year’s message to Canadians.¹³

The Morand Committee’s report was received by Bennett in late April and tabled in the House on May 9, 1932. It began by reviewing its mandate and the points made in the public and written submissions. It then recommended that the government create a radio broadcasting commission that would, through three independent commissioners, regulate all broadcasting in Canada. The commission should, it said, allow private broadcasters to continue to operate, but it should have the power to grant and cancel licences, create and purchase programming, build and operate stations, and regulate everything that went on the air including programs and advertising. Further, it recommended a national network of stations operating with optimum power. The stations should exist for educational purposes, for legitimate experimental work, and for broadcasting programs of community interest. The stations, the report said, should operate with the money made available through transmission and licence fees. In other words, they should be commercial free.14

Bennett acted quickly to put the commission’s recommendations into law. In the debate over the bill that he had ordered to be written, Bennett foreshadowed the intention and achievement of the Canadian Radio and Television Commission. He spoke of the importance of public radio as a means to protect Canada from undue American influence while simultaneously bolstering Canadian national unity and pride through the promotion of Canadian arts and artists. Canadian artists, he argued, enable Canadians to speak with one another and of each other. Canadians needed Canadian stories told, especially given the neighbourhood. Culture is the glue of any civil society. Bennett said,

Without such control, radio broadcasting can never become the great agency for the communication of matters of national concern and for the diffusion of national thought and ideals, and without such control it can never be the agency by which national consciousness may be fostered and sustained and national unity still further strengthened.¹⁵

Bennett also made an argument that would later be appropriated to justify the creation of VIA Rail and Air Canada. He said,

Private ownership must necessarily discriminate between densely and sparsely populated areas. This is not a correctable fault in private ownership; it is an inescapable and inherent demerit of that system. It does not seem right that in Canada the towns should be preferred to the countryside or the prosperous communities to those less fortunate.¹⁶

The bill passed the House with only one member casting a dissenting vote. It received royal assent and became law on May 26, 1932. The Canadian Radio Broadcasting Commission (CRBC) that would grow into the CBC was born. Bennett then moved to expedite appointments to the CRBC’s commission and the drawing up of the procedures that would specify the manner in which it would pursue its broad and ambitious mandate. When the members of the commission were appointed, it quickly began planning for the establishment of 5,000-watt stations in Montreal, Toronto, Winnipeg, and Red Deer. It planned for another thirty-two stations operating with 500 watts or greater. It also recommended, and the government accepted, something that no one had before discussed: that the annual tax of one dollar that had for years been levied on each radio owner be abolished. Bennett agreed and the hated tax was gone.

The CRBC soon found itself bogged down in a morass of difficulties. Most importantly, there were technical troubles with the creation of the network, with decisions regarding programming, with the percentage of French versus English programming, and with funding. In March 1933, an act to amend the Canadian Radio Broadcasting Act was introduced. The act afforded the CRBC more independence from Parliament and greater power to spend the profits it was already making. It also gave CRBC commissioners the equivalent rank of a deputy minister. It allowed the CRBC to go outside the existing civil service to hire the experts it needed. The bill’s purpose, Bennett explained, was to allow the CRBC the power and flexibility it needed to pursue its goal of promoting excellence in Canadian radio for the benefit of Canadians.

Bennett was pleased with the work the CRBC was doing but, as was typical for him, he wanted more and he wanted it faster. To see what could be done, he turned to a man who would play a significant but shadowy role in Canadian history — Gladstone Murray. Born in British Columbia, Murray was a graduate of McGill University who had earned a Rhodes Scholarship to study at Oxford. He came to Bennett’s attention as a journalist writing for Beaverbrook’s Daily Express. Beaverbrook supported his career and Murray joined what became the state-owned British Broadcasting Corporation (BBC). He was quickly promoted to the point where, when Bennett called upon him, he was the BBC’s manager of political relations.

Bennett asked Murray for his opinion on the CRBC and in June 1933 Murray responded with a well-researched report. He assured Bennett that the CRBC’s problems were all fixable. He said that a clearer mandate, more secure funding, and time were the antidotes. His report concluded, “In the development of public service broadcasting on a co-operative constructive basis, with management on efficient business lines and State control remote yet secure, Canada will be in a position to add immeasurably to the amenities of civilization and also to produce a decisive new instrument of national unity and stability.”17

Bennett was quick to make Murray’s report public as it supported both the fledgling CRBC and his ideas regarding public radio that had led to its conception and establishment in the first place. He also saw to it that some of the report’s recommendations were implemented with more amendments to the CRBC’s operating mandate. Funding, however, remained a significant challenge. The scant resources available to the government in the midst of the Depression were an insurmountable hurdle.

The funding problems that faced the CRBC offer an interesting insight into the behind-the-scenes operations of the Bennett cabinet. On two occasions, cabinet took actions against the CRBC when Bennett was not present. In June 1933, when Bennett was in London, cabinet cut its funding through an order-in-council. When Bennett returned he rescinded the order and funding was restored. In May 1935, when Bennett was ill and convalescing, cabinet violated the law by approving radio licences and American programming on newly created stations. Ministers loyal to Bennett informed him of cabinet’s action and Bennett again came to the CRBC’s defence and reversed the decision. Despite these acts of insubordination, no one was fired.

More attacks against the CRBC, many well earned and others driven by blind ideological opposition, were launched throughout the remainder of Bennett’s time in office. Despite the misgivings about public radio and the exceptional difficulties the CRBC experienced in making the vision a reality, Bennett never lost faith in the vision itself. He was proud of his work in establishing the national broadcasting network and demonstrated that fact by taking time to appear whenever he could at the inauguration of new stations. On Saturday, December 1, 1934, for instance, the prime minister travelled to Winnipeg and spoke at the opening of CKY. It boasted a 15,000-watt transmitter, making it greater than any other operating in the country at the time. Bennett praised the daring initiative because it was pursuing a goal he had when he established the radio commission two years before: to bring radio to all Canadians but especially to those in rural areas. He saw such a service, he said that day, as playing an important role in strengthening Canada’s social fabric.18

In 1935, Mackenzie King could very well have killed the CRBC. Instead, he moved to re-form and improve it. It became the Canadian Broadcasting Corporation (CBC) with a more precise mandate regarding news and public education, more secure funding, and a more masterful manager in Gladstone Murray.

ST. LAWRENCE SEAWAY

The St. Lawrence River was the first trans-Canada highway. After providing a trade and transportation route for Native nations for thousands of years, it took the first European adventurers into the interior for gold and souls. Those of the economic determinist school of Canadian historical scholarship have based careers upon the argument that through the quest for furs, the mighty waterways and especially the St. Lawrence played a more significant role in the creation of Canada than political decisions made in Paris, London, or, later, Ottawa. Renowned historian Harold Innis, who was the father of what became known as the Laurentian thesis, wrote in 1930, “The present Dominion emerged not in spite of geography but because of it.”¹⁹ Canada was, according to the title and thesis of Donald Creighton’s seminal book, the “empire of the St. Lawrence.” And yet, as important as the river had always been, by the 1920s the St. Lawrence was still largely unchanged. While there were power plants and canals, docking facilities and bridges, much of the river remained an untamed torrent singing with the crash of mighty rapids. It was romantic all right, but mostly unnavigable. Many saw the potential in a great St. Lawrence project, but many more thought it unimaginable.

When finally completed in 1959, the St. Lawrence Seaway took its place among the world’s great technological, economic, and political achievements. It allowed mammoth ships to take cargo to nearly the centre of the country: a distance equal to that of the transatlantic voyage itself. The seaway’s construction took five years, 22,000 workers, and $470 million, with cooperation from the governments of Canada, America, Ontario, Quebec, and New York. Soon, about 40 per cent of American and about 67 per cent of all Canadian export goods travelled through the seaway to the world. Manufactured goods from Ontario factories, iron ore and other such products from the North, and grain, wheat, and corn from the prairies all made their way through the seaway. Meanwhile, electrical power made possible by the construction lit homes and factories.

The vision for the creation of a seaway along the St. Lawrence can be traced to Dollier de Casson, who in 1680 brought his talents and money to an attempt to build a canal around the Lachine Rapids. The realization that Canadian-American cooperation would be needed to realize the vision was seen in the 1892 attempt by Minnesota congressman John Lind to initiate an investigation into a joint project to create a water route from the Great Lakes to the mouth of the St. Lawrence. In 1921, an International Joint Commission recommended to both governments that a cooperative effort should be undertaken to construct dams, canals, and power plants along the river. In Canada, it was argued that the seaway would create direct benefit for Quebec City and Montreal, as they would become important international ports. It was suggested that Ontario would benefit from the additional power capacity while its manufactured goods, as well as products from the West, could make their way through the province to the wider world.

Like most things Canadian, however, even when the benefits are clear, the old squabbles about federal-provincial jurisdiction had to first be endured. Questions about which level of government owned the water, or the riverbed, or the river’s banks, and which level should pay for the construction and later own the seaway’s many facets, or be responsible for the maintenance and repair of all that would be built, all needed to be agreed upon. Further, if power was to be generated, who would own the plants and the power? If the power was sold, what would be the price and who would profit?

These questions and more landed on Prime Minister Mackenzie King’s desk in early 1923. It is clear from the actions he took and confidences he shared that he weighed the economic potential against the political challenges and decided to shelve the International Joint Commission Report and do nothing. Mackenzie King confided to his diary, “I believe the project will come about someday but is full of uncertainties begetting its technical aspects — power — water canal etc. & possibilities of international friction in joint ownership of anything so vast.”20

Quebec’s Liberal premier Taschereau and Ontario Conservative premier Ferguson disagreed about nearly everything, but with respect to the possibility of moving forward with the seaway they found themselves in anomalous harmony. Together they pressured Mackenzie King to at least discuss the concept. The prime minister stalled all that he could and then came upon a terrific delaying tactic. In April 1928, he asked the Supreme Court to settle the federal-provincial jurisdiction question. The court was vague and suggested that a political decision needed to be made because a constitutional one was not viable.

Unable to delay discussions any longer, Mackenzie King finally agreed to meet with two provincial delegations in January 1930. It was clear from the beginning of the meeting, however, that his intention remained to stop the seaway. In addition to his earlier fears, he had somehow persuaded himself that because the project would necessitate negotiations with Washington and New York State, it would result in a surrender of Canadian sovereignty that could ultimately lead toward American annexation.²¹

Mackenzie King attempted to derail the meeting by digging out a two-year-old letter from Ferguson in which the premier had urged the building of a power plant on the St. Lawrence to provide electricity for Ontario at a cost favouring his province. Power generation was of particular importance to Ferguson, as Ontario desperately needed electricity for its manufacturing plants in the rapidly growing region hugging Lake Ontario’s western shore from Toronto to Niagara Falls, known as the Golden Horseshoe. Meanwhile, Quebec had just witnessed the creation of the Beauharnois power plant, which was privately owned and generating more power than it needed. The Quebec government stood to make a tidy profit if demand could continue to outpace supply. Keeping Ontario from erecting a plant on the St. Lawrence was essential to this scenario.

Mackenzie King had shown the letter to his Quebec lieutenant Ernest Lapointe and Finance Minister Charles Dunning, who were understandably upset that Ferguson had been speaking with him about a partnership without involving Quebec in the discussion. Their anger meant the plan was perfect. Mackenzie King was happy to have found this way to, as he put it, “corner” Ferguson, anger Taschereau, and scuttle both the meeting and progress on the seaway.22 The meeting blundered on but soon fell apart in recrimination and bad feelings.

It was eventually agreed that the premiers would repair to their capitals and compose letters to him outlining what they thought the three had agreed upon. The two wrote that Mackenzie King had agreed that the provinces owned and enjoyed full proprietary rights on the river’s beds, banks, and waters and that the federal government would bear the lion’s share of the costs. Mackenzie King responded that nothing of the sort had been agreed to and so progress that had appeared to be afoot was halted.

Meanwhile, Quebec’s Beauharnois power plant was the subject of intense scrutiny in the House of Commons. Alberta MP Robert Gardiner had noted that in 1927 the federal and Quebec governments had approved the project and the use of 40,000 cubic-feet-per-second of river water, with the estimate of it basing its operations on $1.2 million in capital assets. By early 1930, Gardiner alleged, the company had $30 million in capital assets. He wondered if money was being illegally pocketed or if secret deals had been made and demanded an inquiry into the dealings of the man at the centre of the deals: R.O. Sweeney. The Mackenzie King government swayed and dodged and an inquiry was avoided.

After the 1930 election, Gardiner brought the issue to the House again, but this time Prime Minister Bennett agreed to an investigation. Bennett was interested in getting to the bottom of what appeared to be a shady scheme. Bennett had known Sweeney for some time and, in fact, Sweeney had approached him with a ridiculously low offer to purchase his interest in the E.B. Eddy Company. The two men intensely disliked each other.

The inquiry reported in July 1931 that deputy minister of public works Harold Bonner handled the details of the federal grant of water rights to the Beauharnois Power Corporation while he was also serving as the corporation’s general manager. Further, it was found that the grant had enabled investors to turn a quick $2.1 million profit on their initial outlay while they also arranged to control a majority of the stock worth an additional $17 million. Beyond that, the corporation had funnelled about $650,000, through two Liberal senators, to the Liberal Party for use in the 1930 campaign while also picking up the tab for Prime Minister Mackenzie King’s stay at a swanky Bermuda hotel. Upon hearing that his hotel receipt was about to be made public, Mackenzie King had rushed to Bennett’s office and asked that the evidence be suppressed to protect the dignity of the Prime Minister’s Office.23 Bennett agreed, but the damning receipt was nonetheless public within days. To Mackenzie King’s excuse that he did not know who had paid for his vacation, Bennett reminded all that the person who receives criminally obtained benefit is usually the criminal.²⁴

At this point, Bennett probably would have been excused had he let the seaway project disappear into the vortex of the Liberal and corporate scandal, spinning with the seemingly endless federal-provincial snits and constitutional spats. After all, he faced the same political, technical, and jurisdictional challenges that had turned Mackenzie King’s feet to stone. Everything suggested that he should have just let the seaway dream fade away.

But by the time he became prime minister, Bennett had been showing an interest in the project for over a year. In January 1929, the still relatively new Conservative Opposition leader had read two reports contained within the McGill University News. The first detailed the technical challenges inherent in building the seaway and the second attempted to make sense of the political labyrinth through which anyone wishing to realize or at least advance the project would need to pass. It was clear from the reports that the political challenges outweighed the technical. To understand similar challenges, Bennett asked his staff to provide him with information regarding the manner in which the French had failed and the Americans had succeeded in building the Panama Canal.

Throughout the 1930 campaign, Bennett had argued that the seaway would be good for Ontario in providing power, good for Quebec in creating jobs and bolstering communities touched by the development, good for the West in reducing the costs of shipping goods, and good for the country as a whole. Within a stump speech that was repeated throughout the country, he had spoken of the St. Lawrence River and asked why a proper canal and seaway to the world’s markets had not already been built. Anticipating opposition, he’d stated that it could and should be built with no threat to Canadian sovereignty. He argued that the only reason it had not been built was that the Liberal government did not choose to build it, and that it had refused only because Mackenzie King was not sufficiently daring. He challenged his listeners to share his intrepid vision, saying,

See this great water route as the carrier of half the world’s trade. See the factories that grow up on its banks, their wheels spun by the harnessed stream. See the people come to man them: The purchasers of your products. See the growth of the cities lying within its basin: They, your assured market in all the years to come. I once called the St. Lawrence basin the Ruhr to be of Canada. I should more properly have termed it, the Ruhr of North America.25

Bennett slammed Prime Minister Mackenzie King for his refusal to believe that it is government’s job to make such investments and undertake such projects. He criticized him for having stated that the seaway system was not needed because there was not sufficient trade. Bennett argued that the seaway would increase trade and thus the traffic would meet the capacity. If they built it, the ships would come. He showed political courage in making these points not only in Ontario and Quebec, where the benefits were obvious and direct, but everywhere.

Bennett received a good deal of mail from those who had been confused and infuriated by Mackenzie King’s inability or unwillingness to move the seaway project forward. O.E. Fleming, for instance, president of the Canadian Deep Waterways and Power Association, was one of many who had publicly expressed frustration with Mackenzie King for doing so little since the publication of the International Joint Commission Report eight years before. He wrote to Bennett noting that Mackenzie King had not even mentioned the St. Lawrence project in his 1930 Throne Speech. After all the work that had been done, Fleming wrote, that obviously intentional oversight had led him to give up on the man.²⁶

In expressing interest in the project, Bennett also aroused the critics to whom Mackenzie King had listened. Many slammed the seaway project as having benefits that could not be balanced against the enormous costs of despoiling a beautiful river, destroying valuable farmland, flooding people’s homes, and spending outrageous amounts of public money. They were valid arguments. Others said that its construction was technically impossible. Much of the opposition to the seaway was based upon suspicion about the United States. Some saw a seaway agreement, no matter how it was structured, as surrendering sovereignty to the Americans. Still others believed, perhaps accurately, that the United States was interested in the project only to secure more electrical power for itself. Americans were talking about improved navigation only to placate Canadians; the real objective was to have Canada pony up some of the cash that would allow New York State to meet its growing power needs. No one, after all, had ever accused New York’s governor, the brash and charismatic Franklin D. Roosevelt, of being dumb.

Bennett understood the political, economic, and technological challenges but was intimidated by none of them. He had become certain that the benefits would outweigh the costs and the technical issues could be resolved. The only point he conceded was that he could not understand the American attitude toward the project. He was sincerely baffled by the Americans’ reluctance to share his vision, to be bold, to rebel against timidity by putting shovels in the ground and getting on with it.27 And in Canada, like Mackenzie King, he knew the costs and risks associated with entering the gauntlet through which he would have to pass to move the project forward. But unlike Mackenzie King, he summoned the political courage to do so.

The first action on the seaway file that Bennett took as prime minister was to ignore those who pressured his government to stop or slow the construction of southwestern Ontario’s Welland Canal. The Welland Canal is a technological marvel. It was dug in 1829 and allowed an end to the portage around Niagara Falls. From its inception, it was seen as the initial step in a dream that would be realized with the completion of locks that would tame the St. Lawrence and provide a highway of fresh then salt water to Europe and the world. In 1841, the colonial government of Upper Canada had seen the value in the people owning and controlling such a vital resource and had purchased all of the canal’s private stock. More canals were built, with another stage begun in 1913, stopped during the First World War, but then started again in 1919.

When he took office, Bennett found that the expansion of the canal was years behind schedule and vastly over budget. He ordered Manion, his minister of railways and canals, to put pressure on those who were involved with the project to complete it on time, according to a new set of deadlines, and to better control costs.

With Manion taking a direct interest, the canal expansion was finished in 1931, at a cost of $130 million. Bennett delayed its grand opening to coincide with the 1932 Ottawa Imperial Trade Conference. Specially outfitted trains were arranged to take dignitaries to the event. Governor General Lord Bessborough was the host and in attendance were the leaders of all attending nations. Bennett made a fine and inspiring speech, as did Britain’s Stanley Baldwin, and both speeches were transmitted over the radio. All applauded as the 540-foot-long Lemoyne, carrying 540,000 bushels of Manitoba grain, passed through the canal on its way to Toronto. It was an inspiring moment that Bennett had set up to promote the St. Lawrence Seaway.

Shortly after the conference concluded, Bennett initiated contact with American president Hoover. During his 1928 presidential campaign, Hoover had spoken of the advantages of building an internal trade route from, as he mapped it, Duluth, Minnesota, to the Atlantic. Bennett was impressed with Hoover and for good reason; he brought to the presidency a wealth of experience. A blacksmith’s son, Hoover had been born to limited means in a small Iowa town, but his intelligence and drive saw him graduate with an engineering degree from Stanford. He was working as a mining engineer in China when, in June 1900, the Boxer Rebellion led to violence, and with his wife Lou’s support he personally intervened to save hundreds of children’s lives. He later led efforts to bring more than 120,000 Americans home from Europe at the outset of the First World War. After the war, he led the American Food Administration that brought much-needed food to starving millions in Europe and civil war–ravaged Russia. Europeans dubbed them Hoover rations and called Hoover a hero. He later served as commerce secretary under presidents Harding and Coolidge.

Despite Hoover’s intellect, personal and political courage, and political and philanthropic accomplishments, he suffered from an image problem. He lacked charisma and personal charm. Like many self-made men, he had little patience for those he deemed lazy or foolish. These qualities, coupled with his inability to end the Depression while appearing to have little empathy for those suffering its consequences, led to his unpopularity with the majority of Americans. Like Bennett, his negative public persona would taint his term in office and trivialize all that he had done in his life.

The two leaders met in Washington in January 1931. They discussed a number of issues before Bennett raised the seaway question. Hoover had been well briefed and so was quick to propose that the two immediately establish another joint commission to negotiate a treaty that might move the project ahead. This was exactly what Bennett had told advisers that he wanted, but upon seeing that the president wanted it too, the skilful prime minister weaved about and said that a number of irritants needed to be addressed before such a commission could be contemplated. But Bennett had learned what he needed to know: the American president shared his eagerness to make progress on the seaway.

Present at Bennett’s meeting with Hoover and essential in all his dealings with the Americans was Bill Herridge. He had quickly become well connected and well liked in Washington’s inner circles. Herridge had presented his credentials as Canada’s ambassador to the United States to President Hoover. He had arrived with instructions that among his priorities was to take whatever action he deemed prudent to advance the St. Lawrence Seaway negotiations. Like Bennett, Herridge had long been a supporter of the seaway. Even before his appointment to Washington, he had devoted many hours to reading about the project. He had invited General Andrew McNaughton, who was an engineer and acknowledged expert on the seaway, to spend a number of weekends at his cottage. The two had delved into the many technical aspects of the undertaking.

Herridge and Bennett had also devoted a good deal of time to discussing the technical and political obstacles. In one of those discussions, Bennett acceded to Herridge’s request that he be given the authority to carry out negotiations alone, without the involvement of the External Affairs Department, and even without commissioners.28 Bennett trusted him and saw value in his working alone.

It was thus with the gravitas of his office, the faith and direction of his prime minister, the personality of a charming and skilled negotiator, and an expert’s knowledge of the political and technical challenges before him, that Herridge began his work. He knew that President Hoover remained keen on advancing the project. His meetings in Ottawa with American ambassador Hanford MacNider had told him that. He had also met with Secretary of State Henry Stimson, who had been told by Hoover to expedite the talks and arrive at an agreement as quickly as possible. Herridge reported back to Bennett that the negotiations were going well and the two discussed some of the intricacies of what lay ahead.

As with the American trade talks, Bennett was careful to keep the negotiations’ details secret, but he did let Canadians know that he was proceeding with the seaway initiative. In answer to a question in the House about the Welland Canal, he spoke about the importance of the canal’s reconstruction so that it could carry ocean-bound ships. He then broadened his response beyond what the questioner had asked by bringing up the fact that a similar deepening of the Hudson River was being undertaken as well. He used the two projects to explain how both the Canadian and American governments were demonstrating a belief in canal projects as a way of stimulating short- and long-term economic activity. When the Opposition spoke against such work as foolhardy in a time of limited resources, Bennett thundered back, “Did it ever occur to honourable members that there are occasions in the lives of nations as of individuals when decisions have to be made or the opportunity is gone forever.”29 Meanwhile, Bennett asked General McNaughton to devote more time to working in consultation with Herridge on a draft treaty. By the end of June, Bennett had signed off on the McNaughton-Herridge draft.

After a series of preliminary discussions in July 1931, a secret lunch meeting took place involving Herridge and American ambassador MacNider, Secretary of State Stimson, and Assistant Secretary of State Rogers. The men had developed a trusting and collegial relationship, all had done their homework, and all enjoyed the support of their prime minister and president. An agreement was quickly reached. Herridge was proud to report to Bennett that the rough outline of the agreement mirrored much of the Canadian draft proposal.³⁰

The lunch agreement stated that the project would proceed, technical matters would be worked out later, and the estimated $800-million cost would be shared equally between the two countries. The agreement was quite specific and involved building a 27-foot-deep channel from Lake Superior to the St. Lawrence. Dams, canals, locks, and electricity-generating power plants would be shared by both countries. It was believed that everything could be completed in eight years. While construction was proceeding, private companies would refit the ships that had previously traversed only the lakes to allow for sea travel. Port facilities along the route would be improved to accommodate them. Hoover quickly signed off on the agreement, as did Bennett.

Meanwhile, anticipating the agreement, Bennett and Manion had begun talks with Ontario’s new premier, Conservative George Henry, who had taken office in December 1930. Henry had quickly moved toward agreements with Bennett regarding the amount the province would pay to build the seaway balanced with the amount it would earn through the electrical power that would be derived from it.

Only after the agreement with Ontario was made did Bennett bring Quebec premier Louis-Alexandre Taschereau to the table. Taschereau had been Quebec’s premier since 1920 and had been intricately involved in all power projects and other capital improvements along the St. Lawrence. He was understandably angry about not only the fact that deals had been made with Ontario and the United States without Quebec’s involvement, but also about the details of those deals. In a harshly worded letter to the prime minister, Taschereau made it clear that he believed Quebec had been betrayed. Bennett was calm in his reply and patiently responded to each of the premier’s complaints. He concluded that Quebec would benefit from the seaway more than the federal government or any other province or state.31 The condescending tone was that of a teacher to a petulant child. Bennett’s letter must have worked, though, for Taschereau made no public criticism of the deal or of Bennett. On the contrary, he pledged to abide by the agreements that the prime minister had forged.

Bennett had done something remarkable, something that Mackenzie King had refused to even try. He had managed to carry out a three-way negotiation with three tough bargainers. He’d settled matters in a way that would bring great economic benefit to the country when it needed it most, while also enriching Canada’s economy for decades to come. The deal promised benefits to both countries — but it was not to be.

News of the clandestine Washington lunch that had led to the secret Canadian-American deal was leaked to Governor Roosevelt. Like his Quebec counterpart, FDR was incensed that a deal had been reached without his involvement. Roosevelt had taken office somewhat cautious about the seaway. His cousin and former New York governor Theodore Roosevelt had warned as far back as 1914 about water-power barons who would promote the enterprise to line their own pockets while bringing little benefit to the people of the state. Further, FDR had seen his predecessor, Governor A.E. Smith, expend an enormous amount of political capital in vainly trying to bring about progress on the project.

But FDR had sufficiently overcome his fears to at least establish a commission to study the project. In April 1931, he went further and had enacted the New York Power Authority Act, which supported the construction of power plants on the St. Lawrence to bring abundant and cheap electricity to the farms, homes, and factories of his state. Without disclosing his negotiations with Bennett, Hoover had politely but firmly told Roosevelt that a larger seaway plan would be in accord with the New York legislation and would bring the benefits to New Yorkers that FDR had hoped. But before Roosevelt had time to react, first the Baltimore Sun and then other American and Canadian newspapers reported the secret Canadian-American deal. Roosevelt was forced to speak against it as it entailed his state surrendering riparian rights and paying a higher percentage of the costs than his New York Power Authority Act had envisioned.

Bennett and Hoover chose to proceed through the political hurricane that their agreement had unleashed in Quebec and New York and on July 18, 1932, the St. Lawrence Deep Waterway Treaty was signed. Many newspapers on both sides of the border dubbed it the Hoover-Bennett Treaty. Canadian reaction was generally positive. Even Mackenzie King confided in his diary that Bennett had worked out a very good deal for Canada.32

Bennett was confident that his majority in the House would see the treaty pass through Parliament with a minimum of fuss. However, the American Constitution states that two-thirds of the Senate must ratify all treaties. When finally presented to the Senate on December 6, 1932, the Hoover-Bennett Treaty ran into three problems. First, Hoover had lost the election the month before and so was a lame duck with little power to persuade legislators as they awaited the inauguration of the next president in March. Second, President-elect Roosevelt was still cool to the idea of the seaway construction and too distracted by the demands of transition to give the treaty the support it needed, even if he had been so inclined.

Finally, the treaty became entangled in a web of intersecting regional interests. The most vocal opposition came from Mississippi valley states, whose senators worried about the competition from New York and saw the project as one more way that the rich and powerful North was seeking to squelch the economic potential of the South, which had never fully recovered from the Civil War and Reconstruction. Meanwhile, powerful railway lobbyists buttonholed senators, arguing that their businesses would be irreparably harmed and thousands of jobs would be lost by the seaway’s construction.

Herridge did what he could to lobby senators, becoming a regular visitor to the halls of the grand old Capitol. Idaho’s Senator William Borah chaired the powerful subcommittee of the Senate Foreign Relations Committee that was considering the treaty. Borah began as a staunch opponent and so it took a good deal of time to even come up for debate. But Borah eventually became convinced that there was merit in the project, changed his mind, and persuaded his committee to pass it. The treaty finally went to the full Senate in January 1934.

President Roosevelt had become a supporter, since as president he was considering not just what was best for the state of New York but for the country as a whole. Through the prism of his New Deal make-work projects he also saw the seaway as another public work that could create infrastructure jobs. On January 10 he signed a long letter to the Senate majority leader, requesting the ratification of what Borah’s subcommittee had renamed the St. Lawrence Seaway Treaty. FDR noted that Bennett had approved construction of the Beauharnois power plant and argued that Canada was already proceeding with the project and would be enjoying its benefits while the American government was missing an opportunity to help its own people. He carefully detailed the economic benefits that would accrue to all regions of his country and pleaded with senators, as he had with Borah, to look beyond regional interests and adopt a broader view. He wrote, “On the affirmative side, I subscribe to the definite belief that the completion of the seaway will greatly serve the economic and transportation needs of a vast area of the United States and should, therefore, be considered solely from the national point of view.”33

The treaty came to the Senate floor for a vote on March 12, 1934. The sectional interests remained, however, and the voices of corporate lobbyists were heard. The treaty was defeated by a vote of 46 to 42. It had won the majority but not the constitutionally demanding two-thirds. Herridge reported to Bennett that the lobbyists and special interests had been too powerful to overcome. He wrote,

The Treaty’s fate was determined by the combined pressure brought to bear by the railway companies, port authorities, and power interests in the States along the Atlantic seaboard . . . the Treaty was beaten mainly through the activities of the transportation and power interests, successfully operating to establish an appearance of a sectional cleavage of interest.34

President Roosevelt would later attempt to initiate construction of the seaway as necessary for the war effort. He tried to move its funding through Congress as a defence measure in an attempt to negate the need for the two-thirds vote, as it would no longer be a treaty. But even this tactic gained little traction and he abandoned the effort rather than be linked to a failure.

With the seaway killed by the American Senate, Quebec and Ontario lost their incentive to cooperate. Premier Taschereau stated that he was opposed to any further talk of seaway construction. In Ontario, newly elected premier Mitchell Hepburn stated that the province was rescinding its cost allocation agreement with the federal government.

With no support from the United States and none from Quebec and Ontario, ideas regarding the building of the St. Lawrence Seaway were put on the shelf. Power projects such as the Beauharnois generating station, the dredging of American ports and canals, and other minor improvements to the waterway proceeded. But a generation would pass before others finally caught up with Bennett’s prophetic vision.

Bennett’s not having turned a silver shovel’s worth of Quebec soil to mark the beginning of the seaway’s construction can be seen as failure only if one considers a single monarch butterfly a failure for not completing the entire trip to Mexico. Bennett moved the journey along. When meaningful negotiations resumed after the Second World War, Canadians and Americans began where Bennett had left off. The final bilateral agreement that Prime Minister Louis St. Laurent and President Dwight Eisenhower oversaw was based directly on the Hoover-Bennett Treaty.

BANK OF CANADA

The colonies that would become Canada abandoned pounds and pence for dollars and cents in 1858. At Confederation in 1867, like nearly every other country, Canada was tied to the gold standard. That international gentleman’s agreement meant legitimacy for the Canadian currency in world markets based on the understanding that 25 per cent of the country’s paper money could be issued up to $50 million, and then for each dollar printed after that a dollar in gold had to be purchased and physically stored. This practice meant that the paper money was actually worth something and varied in value only with the price of gold, which fluctuated very little. Whenever the world’s major economies suffered from rising inflation, there was talk of raising the fifty-million limit, or raising the 25 per cent, or even abandoning the gold standard altogether, but little changed.

Canadian chartered banks also wielded enormous influence. They set interest rates, and they worked with their counterparts abroad to influence foreign exchange rates. Further, along with the government, the chartered banks printed and issued money. As late as 1920, of the total $298.3 million in circulation, the banks had issued $132.4 million and the government $165.9 million.35 The banks decided on their own how many notes to put into circulation according to what they deemed best for both the economy and their bottom lines. Canadians paid for goods and services not only with Canadian money but also with Bank of Montreal or Bank of Commerce notes. The federal government’s role was simply to ensure that only reputable firms became banks and that each had capital in hand equal to the amount of money they printed. The system was fine as long as banks and the government all maintained their gold reserves. The system held through mild domestic fluctuations and even major international crises, mostly stemming from financial problems in the United States in the 1890s and again in 1907.

Britain had had a privately owned central bank, called the Bank of England, since stealing the idea from the Dutch in 1694. The American central bank, called the Federal Reserve, was established in 1913 and based upon Alexander Hamilton’s eighteenth-century National Bank of the United States.

Following the creation of the American central bank, Robert Borden’s government pondered the viability of such an institution for Canada. York South MP William Maclean did some research and submitted it to caucus, but the idea went nowhere. A new Finance Act was passed that provided greater legislative direction for Canada’s banks, but Borden had decided that a central bank was unnecessary. As a result, Canada’s chartered banks continued to wield enormous power over the country’s economy.

The world’s financial system was irrevocably knocked off kilter by the First World War. In July 1914, even before the war began, the British government ended the convertibility of its Bank of England currency to gold in order to help pay for the war everyone knew was coming. All governments were forced to react. In Canada, the Borden government did the same thing while also loosening the regulations regarding the amount of currency chartered banks could circulate. The actions caused inflation. This was exactly the point, for it rendered the enormous war expenses easier for governments to handle.

With the war’s conclusion all industrialized countries were dealing with inflation, debt, and the uncertainty of a post–gold standard world. In 1922, a conference was held in Genoa. Participants, including Canada, discussed the many intersecting issues facing them, and among the solutions put forth regarding the financial instability was the establishment of central banks. Prime Minister Mackenzie King’s representative had supported the idea in Italy but then nothing was done.

There was a perfect opportunity to address the issue. The Bank Act, which needed to be amended if a Canadian central bank was to be created, had to be renewed every ten years and it was up again in 1923. But Mackenzie King watched the fastball coming down the middle and let it sail by. He allowed the act to be renewed with nary a mention of a central bank.

The worldwide depression that began in late 1929 refocused attention on international financial practices, while every government sought to address its own economic challenges. By the time Bennett took office in July 1930, Canada was in the throes of an economic collapse, with the country’s financial system a contributing factor.

As international trade slowed and commodity prices dropped, companies began laying off workers and people bought fewer goods and services. Saving rates went up as even folks with money worried about the future and slowed spending. Sound companies delayed investments. At the same time, personal, business, and corporate loans that had been granted with the least security began to go bad. Banks did as they always do in such situations and called in the loans they could, foreclosed on those in arrears, and stopped lending to all but those with the most solid of credentials. They also stopped lending to each other. To get a loan you had to prove you did not need one, and even then your chances were not good. Canadians who could still afford a house, car, or farm found it difficult to secure affordable loans to make those big-ticket purchases. Even companies with good books and capacity were often unable to borrow for expansion.

Illustrative of the banks’ situation was that of the Royal Bank, the country’s largest. The loans on its books went from $640.5 million in fiscal 1929 to $384.6 million in fiscal 1933.36 The numbers are small by today’s standards but they represented a 40-per-cent drop in outstanding loans. When added to similar drops in the other banks, this figure goes a long way toward explaining the financial squeeze that was put on the Canadian economy. The money had dried up. The swirling multiplier effects of decreased consumer spending and decreasing industrial capacity spun the economy further down and faster. Canadians could take some small pride in the fact that while approximately four thousand American banks declared bankruptcy throughout the Depression, and many took their depositors’ money with them, not a single Canadian bank closed its doors. But the price paid to keep those doors open was steep: the banks helped to move the country from recession to depression.

In the financial crisis that began in 2008, most governments moved swiftly to bail out failing banks and corporations while tossing stimulus money out the door in an attempt to get businesses to invest and people to spend. Interest rates were dropped to the point where they approached zero, creating nearly free money. It was a concerted effort to get cash flowing again. These actions were based on the lessons of the 1930s. Bennett, however, had no lessons on which to draw. Still, what he needed to do was clear. He needed to get more money into the economy to create inflation. It wasn’t that the country was insolvent or the currency was not sound. Bennett needed commodity and other prices to rise so that they would be profitable to produce again. The rise in prices would loosen the banks’ restriction on credit, which would in turn work as a financial laxative and get everything moving again.

Bennett considered allowing the fiduciary issue of banknotes — permitting more money to be created beyond that which could be backed by the gold held by banks or the government. But he rejected the idea, believing that it would not address the issue of unemployment. Further, he worried that the action would devalue Canada’s currency on world markets, which could in turn lead to increased costs on current debt and trouble selling bonds to raise additional revenue in the future. Mackenzie King agreed and the action was not taken.37

Bennett’s decision to hold the line on the creation of money was based on his commitment to the orthodox notions of the gold standard. But his fealty was shaken by actions taken in Britain. Britain had ended the gold standard in the First World War, but re-established it in 1925. In September 1931, Prime Minister and First Lord of the Treasury Ramsay MacDonald announced that Britain was abandoning the gold standard again and would allow its currency to float on the world market. He believed that the action would increase the value of the pound and stabilize domestic prices. Other countries, including the United States, which owned much of the world’s gold, quickly followed the British lead. The decision caused all currencies to fluctuate wildly. With Canada’s economy tied so closely to Britain and the United States, the manner in which the Canadian dollar was valued was of paramount importance and so Bennett was left with few options. He made the decision to allow the Canadian dollar to float independently of gold as well. It moved from close to par with the American dollar to settling two weeks later at about ninety cents. The change was of immediate benefit to Canadian manufacturers for their goods, and, through the rippling multiplier effect, the many people and companies involved in their construction became cheaper to American customers and therefore, despite the high tariffs, their order sheets began to fill. While this consequence was welcome, the end of the gold standard meant that Canadian financial policies and practices, which were on shaky ground before, grew even more uncertain, harder to predict, and impossible to control.

The overlapping issues would be tricky even today, with all the economic levers that could be pulled and with all national governments playing according to at least similar fundamental rules. But for Bennett, and other national leaders at the time, it was a whole new ball game. Old rules no longer seemed to apply and new ones were yet to be written. The abandonment of the gold standard, coupled with ongoing international and domestic financial instability throughout the winter of 1931–32, led Bennett to explore the option of a Canadian central bank.

Today it is difficult to ponder the economy without the Bank of Canada. While the government is in charge of fiscal policy, through which it influences the economy by manipulating taxing and spending, the Bank of Canada exerts its influence through controlling monetary policy. Broadly put, monetary policy involves managing the number of dollars in the economy by manipulating the ease with which credit is available. It performs that trick through raising or lowering the interest rate that it demands from the chartered banks that borrow money from its coffers and thereby influences the rates that banks charge their customers. Through these actions, the bank tries to control inflation and keep the economy stable. It influences the value of the dollar and renders international business transactions predictable and reliable. It also controls the look and production of money. The bank operates independently from Parliament so that it is free from the temptation of politicians who might wish to manoeuvre monetary policy for short-term political gain. Former American Federal Reserve chair Alan Greenspan has quipped that a central bank’s job is to see when the party is slowing down and take in a spiked punch bowl and, conversely, when the party looks like it may get out of hand, to go back in and remove it.38 Teetotalling Bennett needed to offer spiked punch to Canadian bankers.

Bennett was unable to concoct the brew, however, because at that time the Canadian government controlled only fiscal and trade policies. He needed the power to control monetary policy. Bennett’s business and legal background, coupled with his experience on the board of the Royal Bank, allowed him to understand well how banks worked. He personally knew many of those who ran them. In the early spring of 1932 Bennett wrote to several of his friends and contacts in the banking industry about the notion of a central bank. Among the responses he received was a well-researched and thoughtful essay from Randolph Nobel. Nobel was the Royal Bank’s long-serving and well-respected assistant general manager. His March 1932 letter suggested that the government needed to take actions that would allow it to win control of monetary policy and then to use that power to increase the money supply, thereby easing the credit crunch that had helped to cause the Depression and was playing a role in impeding recovery. Nobel also suggested that with control of the money supply, the government could reduce the value of the Canadian dollar, which would make Canadian exports cheaper on the world market and thereby increase their quantity. Unemployment would then fall. All of this, Nobel concluded, could only be done through the establishment of a central bank.39

Bennett demanded more information and sought more experts with whom he could speak. One such expert was Clifford Clark, a Queen’s University economics professor. He had impressed Bennett with a paper that he had written in advance of the Ottawa Conference in which he advocated ideas quite similar to Nobel’s. In October, Bennett appointed Clark as his deputy minister of finance. Bennett then asked a number of university economics professors and civil servants in the Finance Department to comment on the papers by Nobel and Clark. He was pleased when there was near unanimity in support of the proposals. American president Harry Truman once joked that he yearned for a one-armed economist, for every time an economic adviser would say something was so, he would immediately add, “But on the other hand. . . .” By the fall of 1932, it appeared that Bennett had assembled a dream team of one-armed economists unanimous in their support for the creation of a central bank.

As word inevitably spread that Bennett was entertaining the notion of a central bank, there arose the equally inevitable negative reaction. Several provincial and many municipal governments entered the debate in ways that caused confusion. A number of cities, for instance, wondered if they might be able to issue their own scrip. In his replies to questions and suggestions, Bennett was always polite but not above occasionally stating bluntly that the writer was dead wrong with respect to facts, premises, or assumptions. While many provincial premiers sought to understand, Quebec’s Taschereau applied his typical ready, fire, aim approach. In a Montreal Gazette article, he argued that a national bank would destroy Canada by giving too much power to the federal government.40 While Taschereau was expressing the old question of balancing federal and provincial powers from Quebec’s unique viewpoint, opposition to the idea of a central bank began to coalesce around the ideological argument that government should leave banking in private hands and to the dictates of the free market.

Bennett consulted broadly, meeting with many people and most often with Clifford Clark and Finance Minister Edgar Rhodes, who had taken over the ministry from Bennett nine months before. Finally, in November 1932, Bennett decided to attempt moral suasion spiced with a little bribery. He informed every chartered bank that, with the authority of the Finance Act, he was going to have them borrow $5 million from the government, which they could then lend to their customers. It was a measured attempt to increase the money supply, spur some inflation, end the financial constipation, and get some dollars flowing through the economy again.

The action did little of consequence. The Canadian dollar fell briefly to eighty cents against the American greenback, which promised some relief for exports, especially warming Ontario’s manufacturing sector, but the decline was temporary. The action failed largely because every bank reacted the same way and kept their interest rates and loan policies the same. They all took the new money and spun it back to pay down their own existing loans. The unsuccessful attempt at prodding the banks so as to influence monetary policy demonstrated that Nobel, Clark, and all of the others were right. A modern, complex, industrial, and predominately urban economy needs a central bank. And to get out of the Depression, Canada needed one right away.

While Canadian banks were refusing to play a positive role in addressing Canada’s monetary crisis, in June 1933, Bennett and representatives of sixty-five other countries met in London’s Geological Building at the World Monetary and Economic Conference. Its goal was primarily to determine a strategy to end the damaging fluctuations in currency rates. Many of the participants, including Bennett, had met President Roosevelt at the White House in April and found a gathering consensus around the pursuit of that goal.

However, while the delegates gathered in England, FDR boarded a 45-foot schooner called the Amberjack II and with a small crew deadreckoned his way 400 miles up the eastern seaboard to his cottage at Campobello, New Brunswick. While enjoying his holiday, he had been receiving cables from London that he did not like. He called the everpresent reporters to his side and told them that he believed it best for the American economy that the United States dollar not be pegged to gold or any other standard. It should continue to float against world currencies. He chatted amiably through his smile and asked that the conversation be off the record, but Roosevelt knew exactly what he was doing.41 The announcement reflected Roosevelt’s belief that a side agreement being hammered together between France and Britain to temporarily return to the gold standard would hurt American efforts to bring inflation to the American economy and, more fundamentally, that monetary policy should be the purview of central banks and not governments.⁴²

The next day, on July 1, 1933, the bombshell of an announcement was the New York Times’s headline. Roosevelt’s musings all but ended the World Monetary and Economic Conference since without the cooperation of the United States, any attempt to gain monetary control of the world’s currencies was futile.

FDR’s policy statement and the conference’s failure meant that there would be no international cooperation to return to the predictability of world currency rates that the gold standard had afforded and some new regime might allow. The United States would not be the world’s banker. Every country was on its own. Bennett’s call for a Canadian central bank became more urgent than ever.

In July 1933, with the conference limping on, Bennett had Finance Minister Rhodes announce the establishment of a Royal Commission on Banking and Currency to investigate the advisability of creating a Canadian central bank. Bennett chose Lord MacMillan from the British House of Lords, who had chaired a similar commission in Britain, to be its chair. Other hand-picked members included banker Beaudry Leman from Quebec; Ontario’s Sir Thomas White, who had served as Borden’s finance minister; and Britain’s Sir Charles Addis, who had been a director of the Bank of England. Rounding out the commission was Alberta premier John Brownlee, representing the West and farmers.

MacMillan took his commission on the road and heard deputations in thirteen cities. Like all royal commissioners, the men heard reasoned arguments, screeching protests, and clunky metaphors, in both verbal and written forms. Although there were many negative opinions expressed, the commissioners had a relatively easy time of it, for the depth of the Depression had created a mood that allowed nearly any fresh idea to be welcomed as a possible remedy to the hard times.

It was also clear that the commission allowed Canadians a venue to express anger at the banks that many, especially those who had been thrown out of homes or off farms, had come to hate. This deep-seated enmity had led many Canadians to join Americans in celebrating the adventures of Bonnie and Clyde and Pretty Boy Floyd, who had become Depression-era folk heroes by robbing banks and, while their sacks were being filled, taking the time to burn mortgage and loan records. Most of these Robin Hood tales are more legend than fact, but when confronting an enemy as faceless as the Depression and as powerful as banks, legends are sometimes more necessary than facts. A story circulated that a banker got a young farmer’s daughter in trouble but then offered to marry the girl. The farmer said no; he would rather have the shame of a bastard child in his family than a banker.

Despite his experience with banks and bankers, Bennett made it clear to all that in this apparent war between the banks and the people, he sided with the people. Bennett was inundated with letters from small-business people and farmers asking him to personally intercede on their behalf to force banks to extend or make loans. Bennett always replied politely and almost always in the negative, as nearly every request was beyond his legal purview, but there were many occasions when the cases were such that he had his staff investigate and then take appropriate action. Sometimes the cases in which Bennett took personal action concerned large companies and large sums, but often they involved individuals being treated by local bank branches in ways that irked Bennett’s sense of fair play.

One example illustrates the point. In July 1935, Gravelbourg, Saskatchewan, wheat farmer Howard Irvine needed fifty dollars in bridge financing for three months to cover the premium on his crop insurance. Despite the fact that Mr. Irvine was not in arrears with any other loans, his Bank of Toronto branch in Bateman followed instructions from its head office and said no. It had been told to end all loans for such purposes. To the Saskatchewan MP who brought the Irvine case to his attention, Bennett wrote that it was “. . . a striking instance of the lack of understanding on the part of some of our banks.”43 Mr. H. Howard, the general manager of the Bank of Toronto head office, then received a stern letter from the prime minister asking for an explanation and stating bluntly that he regarded the bank’s decision in the Irvine case, and the overall policy that led to it, as wrong. Bennett then not so subtly reminded Howard that there was a growing movement throughout the land, begun by the CCF but finding traction among left-leaning Liberals and Conservatives as well, to nationalize all banking operations. He wrote, “. . . that your bank refused to loan him [Irvine] money for this purpose has caused great antagonism to banks and strengthens the forces which are endeavouring to nationalize our financial institutions.”44 There was a vapid response to Bennett’s letter from Howard’s assistant manager, followed by the prime minister snapping back, “Unfortunately, expressions of good-will if accompanied by a refusal to advance $50.00 to a farmer who feels he is in need of it, are not calculated to satisfy the farmers that the good intentions are very real.”⁴⁵ The farmer eventually got his fifty dollars.

While being publicly demonized throughout the country, the Canadian Bankers Association kept its head high and was the only professional organization that stood with the chartered banks in opposition to the idea of a central bank. It explained directly to Bennett, and through depositions to the MacMillan Commission, that it and the banks were naturally upset about what they predicted would be a loss of their wealth and power. Bennett had stated, for instance, that if a central bank was created then all of the gold held in all of the chartered banks would be physically transferred to the central bank. Plus, they would no longer be able to, quite literally, print money.

But more than looking after the interests of the banks, the Canadian Bankers Association expressed fear that a central bank would hurt Canada. It claimed that the chartered banks had served Canada well for years and should not be punished. They had, for instance, kept unprofitable branches open in small towns and rural districts. If the central bank were established and bank profits suffered, they threatened, those branches would need to be closed. It also raised fears that a syndicate of some sort would get control of the bank. The Bankers Association argued that the government should await economic stabilization before making such a move. Particularly, the re-establishment of the gold standard should be promoted, then given time to take effect. Further, it expressed worries about fluctuating exchange rates. It argued that with so many European countries in such dire economic straits, an inexperienced central bank would be easily overwhelmed with a run on the currency and be unable to deal with the crisis.46

Bennett had predicted the opposition presented by the banks and its association and knew that he needed to summon the political courage to persevere in the face of it. In a May 1934 private letter to bank presidents and the chair of the Canadian Bankers Association, he had written, “You must realize that the reason we have had no central bank in Canada is because the chartered banks were powerful enough to prevent it, and they are accepting it now under protest.”⁴⁷ Bennett’s letter could not have been clearer in going on to suggest that they were on the wrong side of history and that they should, in effect if not in fact, shut up and get out of the way.

Despite the organized objections raised by the banks, and some that saw any government intervention in the economy as anathema, the MacMillan Commission seemed to be hearing what Bennett needed it to hear. But he realized that he would also need bipartisan political support in the House to get it done. It was essential if he was to keep the confidence of Canadians and the domestic and international markets. Accordingly, Bennett kept Mackenzie King and J.S. Woodsworth apprised of the commission’s work and of his leaning toward the necessity of creating a central bank. He encouraged both Opposition leaders to meet with Lord MacMillan, and at least two such meetings took place.

Cooperative Commonwealth Federation leader Woodsworth was already on board. The CCF’s founding document, the Regina Manifesto, had outlined a socialist agenda for Canada including an unequivocal pledge to eradicate capitalism. It also stated a desire to socialize banking and to create a central bank.⁴⁸ While Woodsworth mattered due to his presence and stature in the House as a widely respected party leader, Mackenzie King’s opinion was even more important. In two meetings with the Opposition leader, MacMillan sold the notion of a strong central bank operating outside the Finance Department as a means to afford long-term financial stability. Mackenzie King was persuaded.⁴⁹ Bennett’s politically adroit decision to include the two was successful, for when the time came, Mackenzie King worked to bring his caucus around to supporting the notion of a central bank.

Bennett meanwhile continued to read scathing editorials in papers and vicious letters that attacked him for doing nothing to help Canadians. He ignored the criticism, secure in the realization that the uninformed needed to stay that way just a while longer. Finally, on November 20, 1933, Bennett spoke on the radio and made it clear that he supported the establishment of a central bank and that, in fact, the bill to create the bank was already being drafted. The address caused a flutter among the chartered banks that again claimed that their views had not been adequately heard or understood. The bankers demanded that they have an opportunity to scrutinize the bill before first reading. Bennett was cool in response, basically telling them to calm down.50

Bennett did all he could that winter to persuade Canadians that the notion of a central bank was a good one. By April 1934, he was still working hard. He spoke in South Oxford, Ontario, for instance, and presented the idea of a central bank to those about to vote in the federal by-election. He touted the bank as necessary for Canada to promote and maintain sound economic fundamentals and to conduct its own exchange transactions. He promised that it would more responsibly and humanely regulate credit and interest rates. As a result of its power and actions, he told his audience, the bank would do much to avoid a repetition of the financial disaster that had so recently gripped the country. He then wrapped the bank in the flag, stating: “I look upon a central bank as a great forward step taken by this country, which is an essential condition of its taking its place amongst the great countries of the world.”⁵¹

The MacMillan Commission Report was finally released later that spring and, to the surprise of no one, recommended the establishment of a Canadian central bank. The only dissension came from Commissioner White, who argued that while a central bank was needed, a period of such economic adversity and uncertainty was not the time for such a dramatic reform. He also argued that Canada should ignore the moves of Britain, the United States, and others, and look for stability in its monetary affairs through a return to the gold standard. The only other commissioner to show any support for Sir Thomas White’s view was Beaudry Leman. And his only concern was that a central bank might not be constitutional.

Both the report and the positive reaction to it from one coast to the other gave Bennett the support he needed. In the summer of 1934, a Bill to Incorporate the Bank of Canada was introduced into the House. Bennett was clever. He had Finance Minister and Senator Edgar Rhodes introduce the bill in the Senate and then ask only that the Senate and House support the establishment of a central bank in principle. Bennett promised to bring forward and offer for debate further details after they had been hashed out by the committee on banking and commerce. The parliamentary tactic ensured that critics of the bill, such as the Canadian Bankers Association, had a less conspicuous target at which to shoot and so their objections would have less resonance. The bill received Royal Assent on July 3, 1934.

A comparison of the report and the final act shows that Bennett decided not to take all of the commission’s suggestions but rather to begin slowly. All the powers that the commission recommended, or that the bank would later be afforded, were not in the bill. In making this decision, Bennett may have expected to be criticized by the commissioners but, in fact, he received congratulations from Commissioner Leman, who wrote,

I am afraid that, after a few years’ experience, it may be found necessary to broaden the statutory powers of the Central Bank. On the other hand, it may have been an act of wisdom to shackle and fetter the new species introduced in the Canadian fauna, in order that no one be scared. As it becomes evident that the animal is tame, it will no doubt be found desirable to loosen and even remove some of the chains.52

The act stated that the Bank of Canada would regulate internal credit and foreign exchange, use monetary instruments to stabilize levels of production, trade, employment, and prices, and provide expert advice to the government. It would operate as a public trust working for the benefit of the country and would be divorced from those interested only in profit or political gain. As Bennett said in the House in June, “We confidently believe that freed from political control and with the merit determined by the experience of those who are engaged to manage the bank, it will discharge the obligations from which it was created and thereby bring improved conditions to the Canadian people.”⁵³

The act also stated that the bank would be privately owned, with shareholders limited in the amount they could own and by their citizenship. Five million in shares would be offered to Canadians for fifty dollars each, with one person allowed to own only one share. Critics said the ownership scheme was wrong, for it would lead to shareholders demanding monetary policies based on the profit that would accrue to the Bank of Canada rather than what was best for the country. Bennett countered that private ownership was needed to keep it beyond the influence of politicians who might find ways to bend the law and regulations that were there to keep it at arm’s-length reach from political interference. He knew well that the manipulation of interest rates for political purposes had been for decades quite common in Canada. He received many letters, even after the Bank of Canada was in operation, suggesting that he should raise or lower the interest rate for sometimes the most sinister of reasons and sometimes for the most flippant. Consider, for instance, the manager of Halifax’s Elmwood Hotel, who urged Bennett to raise interest rates to 7 per cent because it would “. . . win quite a few votes for you especially from the Ladies who expressed themselves very strongly upon getting such a small return on their savings.”54 An independent, privately owned Bank of Canada, Bennett reasoned, would never cave to pressure from Canada’s powerful political or corporate elite.

The bank was widely supported across the country and by all parties in the House. But the idea of private ownership was not popular. Both Woodsworth and Mackenzie King attacked it as unnecessary. Some critics noted that the issuing of shares was cynical, as not many Canadians had fifty dollars in disposable income with which to purchase a share.

Bennett was unmoved by the arguments. Due to his large majority in the House, the bill passed with the provision for private ownership intact. The day the shares were made available they were snapped up. The bank was soon fully subscribed. Bennett was then able to use the private ownership of the bank to quiet those who wanted him to directly influence it in one way or another. He replied that he was not a shareholder in the bank and therefore had no vote.

The act stated that the bank would be operated by a governor, who would have similar powers to those of a general manager at a chartered bank. The governor would be assisted by the deputy and assistant deputy governors and answerable to a nine-member board of directors. In September 1934, Bennett appointed thirty-seven-year-old Royal Bank general manager Graham Towers to be the Bank of Canada’s first governor. Once in office, the talented and charming Towers wrote to Bennett recommending J.A.C. Osborne, at that point the secretary of the Bank of England, as his deputy. Bennett concurred and Osborne got the job.

A board of directors then needed to be chosen. The act stipulated that three directors should have experience in and represent industry, production, and commerce, with the remaining three from other endeavours. Bennett believed that the selection of directors should be based upon merit rather than allowing the political considerations of language, ethnicity, region, or religion to be considered. He received visitors to his office and letters by the score from those suggesting themselves, family members, or cronies for a directorship position. Many had qualifications that were weak and sometimes laughable. Many who opposed the creation of the bank swung quickly and attempted to become a director to exert influence from within. The Canadian Chamber of Commerce, for example, had instructed those within its network of local chambers to write letters and appear at MacMillan Commission meetings to stop the creation of the bank. But in December it spun and drew up a slate of candidates which it presented to Bennett with the insistence that it be installed as the bank’s directors. The chamber did not help its case by including among its slate R.A. Wright of Drinkwater, Saskatchewan. He had earlier enraged farmers by fighting against the establishment of the wheat pool while repeatedly attacking Bennett’s Marketing Act. Both actions had even caused the Liberals in his riding to condemn him as he unsuccessfully sought the Liberal nomination. The chamber’s slate was ignored.

Many others misread the selection as an election and so initiated fullfledged campaigns with flyers and even advertisements in newspapers. The most enthusiastic in this regard was General Motors senior executive Lorne Ardiel, who set up supporters from coast to coast, then oversaw the publication of a campaign-like booklet that reviewed his life and bragged of his qualifications. It included excerpts from speeches in which Ardiel had spoken of the important role of central banks in stabilizing national economies. Another aggressive candidate was Ottawa’s Archibald Kains, a retired banker, who also published a pamphlet explaining why he was eminently qualified. He had it distributed to each of the bank’s shareholders and of course he, like Ardiel and others, ensured that the campaign bumph was mailed to the prime minister’s office.

A board of directors for the Bank of Canada was finally selected but there was still work to be done before the bank became operational. A number of statutes needed to be done away with or radically altered, such as the Dominion Notes Act and the Finance Act. Regulations and standard practices and procedures needed to be changed. The old chartered bank money needed to be taken out of circulation and new banknotes had to be designed, printed, and distributed. Bennett personally oversaw all that was done. Despite the complexity and the enormity of the undertaking, it was completed over the course of just a few months. Canadians watched as Bank of Montreal three-dollar bills made their way to museums where they rest now beside the old Bank of Canada ones and twos.

In one of his five radio addresses to the Canadian people in January 1935, Bennett explained his creation of the Bank of Canada as a necessary and important step in the long-term restructuring of capitalism in Canada that would bring more stability to the economy. He called the bank,

. . . a powerful instrument of social justice: because it will be the means of insuring a greater measure of equity in the dealings of class with class; because it will aid in correcting the disabilities in the old system; because it will be an independent source of advice and assistance in all matters relating to finance; because it begins a new chapter in the history of Canada’s financial life.55

The new chapter began when the Bank of Canada commenced its work on March 11, 1935. But that did not mean that the chartered banks stopped fighting it. The next and final battle was fought over the transfer of gold. According to the statute creating the Bank of Canada, all chartered banks were to transfer their gold holdings to the bank and receive payment at fair market value. If the Bank of Canada later decided to sell any of the gold then it would reap and keep the profits. The process seemed simple enough.

In early March the physical transfer of gold to the new central bank began. The Bank of Montreal led the way, transferring $13 million of gold coin and bullion from its main branches in Montreal, Toronto, Ottawa, Winnipeg, and Vancouver. In writing to inform Governor Towers and Finance Minister Rhodes of the transfer, Bank of Montreal president C.B. Gordon concluded, “The said transfer is made in conformity with and pursuant to the said Section but is so made under protest inasmuch as we have been advised that said Statute is ultra vires of the Parliament of Canada in so far as it requires transfer of said gold to you on the terms therein stated.”56

The legal claim was based not only on the Bank of Montreal’s belief that it and the other chartered banks deserved more money for its gold, but also upon an opinion rendered the previous December by the bank’s solicitor. The opinion was predicated on the notion that no law had ever existed stating that the banks had a legal obligation to hold gold in reserve. They had done it only to maintain strong reserves. Consequently, the argument followed, it was beyond the power of the government to, in effect, confiscate the banks’ gold.⁵⁷

The Dominion Bank added nuance to the fight when the letter announcing its gold transfer stated the expectation to receive any profits that the Bank of Canada made on any future sale of any of “its” gold.⁵⁸ For good measure, the Dominion Bank’s letter also noted that the transfer of gold was ultra vires. One at a time, each of the banks submitted their letters and each claimed aggrieved status. Each cited in various ways that they should not be forced to relinquish their gold as sections 28 to 30 of the Bank of Canada Act were illegal and, further, that any profit on the sale of “their” gold was theirs.

The legal and constitutional matters had been argued months before and Bennett had considered them settled. Rhodes had his officials review the legalities of the act and it was determined again that the banks’ arguments were specious. They were basing their argument about future profits on their claim that all of the gold they owned was held against liabilities outside of Canada, which was absurd. But that being said, there was power in their argument regarding the need to negotiate the amount of compensation for gold that had been held against domestic liabilities. The Conservative caucus began to lose its nerve. James Herbert Stitt, MP for Selkirk, for instance, questioned Bennett suggesting that the banks be allowed to keep the gold. Bennett replied in caucus for all to hear, “Jimmie Stitt, you quit worrying. We are going to get that gold and it is just about time for us to find out whether the banks or this government is running this country.”59

Unfortunately, progress was delayed due to Bennett’s suffering a heart attack in March 1935 and enduring a period of convalescence throughout the spring. When he returned to work in June, he saw that both the public, through the Bank of Canada, and the shareholders of the chartered banks were dealt with in a fair manner in accordance with both the law and sound accounting practices. He took a personal hand in renegotiating the chartered banks’ compensation for the gold. Finally, after years of bickering and harsh words, the matter was concluded and everyone set to making the new system work.

Of all those involved with the banking industry, however, only the Canadian Bank of Commerce’s Samuel Logan wrote to Bennett to acknowledge the prime minister’s latest efforts at fairness for all. After acknowledging payment of $3.6 million in compensation for the bank’s gold transfer, Logan wrote, “I feel that you took a great personal interest in this and I fully appreciate everything that was done.”⁶⁰ A tired-sounding but palpably grateful Bennett responded that throughout his five years as prime minister, Logan’s letter was the only one he had ever received from a chartered bank expressing appreciation for anything that he had done.⁶¹

Prime Minister Mackenzie King had supported the bank but never agreed that it should be owned by Canadians. Once in office, he had the Bank of Canada Act amended and the government purchased every share. The government became the bank’s sole owner. He did not, however, alter its independence from Parliament or anything else of significance. He did not seek to reduce its powers to control Canada’s monetary policy and through that power to exert a stabilizing and positive influence on the economy and financial system. He knew, as did every prime minister who succeeded him, that Bennett had created an indispensable Canadian institution — an icon.

In his 1993 The Bank of Canada: Origins and Early History, bank researcher George Watts stated without fear of contradiction, “The founding of the Bank of Canada in 1934 appears to have been largely due to the initiative of one person — Prime Minister Bennett.”⁶² In his creation of the Bank of Canada, Bennett demonstrated his conviction that monetary policy was a cause of — and would be part of the solution to — the Depression’s ravages. In this way, he presaged the arguments of monetarists such as Milton Friedman. Years later, the esteemed University of Chicago economist wrote that problems with the money supply were among the chief causes of the Depression and that dealing with monetary issues faster and better could have shortened the length and limited the depth of the crisis.63

As with the CBC and the St. Lawrence Seaway, in creating the Bank of Canada, Bennett had not simply chosen among expedient options, he had created new ones — he had changed the game. In standing against naysayers and powerful big-business interests, even those to whom he owed political debts, Bennett had proven himself not just a competent manager but a bold and effective transitional leader.