The distinctive feature of this period of Canadian development, however, was the growth of canals and railroads. The forties were the time of canal building and rebuilding all along the lakes and the St. Lawrence to salt water. Canada spent millions on what were wonderful works for their day, in the hope that the St. Lawrence would become the channel for the trade of all the growing western States bordering on the Great Lakes. Scarcely were these waterway improvements completed when it was realized they had been made largely in vain. The railway had come and was outrivaling the canal. If Canadian ports and channels were even to hold their own, they must take heed of the enterprise of all the cities along the Atlantic coast of the United States, which were promoting railroads to the interior in a vigorous rivalry for the trade of the Golden West. Here was a challenge which must be taken up. The fifties became the first great railway era of Canada. In 1850 there were only sixty-six miles of railway in all the provinces; ten years later there were over two thousand. Nearly all the roads were aided by provincial or municipal bonus or guarantee. Chief among the lines was the Grand Trunk, which ran from the Detroit border to Riviere du Loup on the Gulf of St. Lawrence, and which, though it halted at that eastern terminus in the magnificent project of connecting with the railways of the Maritime Provinces, was nevertheless at that time the longest road in the world operating under single control.

The railways brought with them a new speculative fever, a more complex financial structure, a business politics which shaded into open corruption, and a closer touch with the outside world. The general substitution of steam for sail on the Atlantic during this period aided further in lessening the isolation of what had been backwoods provinces and in bringing them into closer relation with the rest of the world.

It was in closer relations with the United States that this emergence from isolation chiefly manifested itself. In the generation that followed the War of 1812 intercourse with the United States was discouraged and was remarkably insignificant. Official policy and the memories of 1783 and 1812 alike built up a wall along the southern border. The spirit of Downing Street was shown in the instructions given to Lord Bathurst, immediately after the close of the war, to leave the territory between Montreal and Lake Champlain in a state of nature, making no further grants of land and letting the few roads which had been begun fall into decay thus a barrier of forest wilderness would ward off republican contagion. This Chinese policy of putting up a wall of separation proved impossible to carry through, but in less extreme ways this attitude of aloofness marked the course of the Government all through the days of oversea authority.

The friction aroused by repeated boundary disputes prevented friendly relations between Canada and the United States. With unconscious irony the framers of the Peace of 1783 had prefaced their long outline of the boundaries of the United States by expressing their intention "that all disputes which might arise in future on the subject of the boundaries of the said United States may be prevented." So vague, however, were the terms of the treaty and so untrustworthy were the maps of the day that ultimately almost every clause in the boundary section gave rise to dispute.

As settlement rolled westward one section of the boundary after another came in question. Beginning in the east, the line between New Brunswick and New England was to be formed by the St. Croix River. There had been a St. Croix in Champlain's time and a St. Croix was depicted on the maps, but no river known by that name existed in 1783. The British identified it with the Schoodic, the Americans with the Magaguadavic. Arbitration in 1798 upheld the British in the contention that the Schoodic was the St. Croix but agreed with the Americans in the secondary question as to which of the two branches of the Schoodic should be followed. A similar commission in 1817 settled the dispute as to the islands in Passamaquoddy Bay.

More difficult, because at once more ambiguous in terms and more vitally important, was the determination of the boundary in the next stage westward from the St. Croix to the St. Lawrence. The British position was a difficult one to maintain. In the days of the struggle with France, Great Britain had tried to push the bounds of the New England colonies as far north as might be, making claims that would hem in France to the barest strip along the south shore of the St. Lawrence. Now that she was heir to the territories and claims of France and had lost her own old colonies, it was somewhat embarrassing, but for diplomats not impossible, to have to urge a line as far south as the urgent needs of the provinces for intercommunication demanded. The letter of the treaty was impossible to interpret with certainty. The phrase, "the Highlands which divide those rivers that empty themselves into the river St. Lawrence from those which fall into the Atlantic Ocean," meant according to the American reading a watershed which was a marshy plateau, and according to the British version a range of hills to the south which involved some keen hairsplitting as to the rivers they divided. The intentions of the parties to the original treaty were probably much as the Americans contended. From the standpoint of neighborly adjustment and the relative need for the land in question, a strong case in equity could be made out for the provinces, which would be cut asunder for all time if a wedge were driven north to the very brink of the St. Lawrence.