“A State of Anarchy”: Government Finance and the Path to Confederation, 1864–67

I examine the rise in the Province of Canada’s cost of borrowing and its role in the movement towards Confederation. In the mid-1860s, Canada faced mounting refinancing pressures as large debts matured, revenues weakened, and interest rates on Canadian bonds rose to their highest levels of the colonial period. These conditions shaped political debate and influenced what Confederation was expected to achieve. Drawing on new evidence on the structure of provincial debt, contemporary press accounts, and weekly prices of Canadian government securities traded in London, I show that Canadian leaders viewed union in part as a response to an acute problem of public borrowing. Confederation would strengthen fiscal capacity, restore investor confidence, and facilitate access to British capital, including through new loan guarantees. Financial markets responded to political developments surrounding Confederation, with bond prices rising and falling in response to news from British North America. The findings suggest that short-term financial pressures and market perceptions played an important role in the timing and framing of Confederation, complementing existing accounts that emphasize longer-run economic and political forces.