Douglas to Carnarvon

1. In my communication of the 14th Instt I attempted to give
your Lordship some idea of the painfully depressed state of the
Colonies of Vancouver Island and British
 Columbia: to point out
some causes of that depression, and to suggest measures of relief.
I will now according to promise, continue the subject, trusting
that my remarks may not be unacceptable to Her Majesty's Government.

2. The alarming depreciation of property and depopulation at
Victoria, alluded to in my last letter are occasioned less by
commercial reverses, than by distrust of the future of the Colony.
Though union with British
 Columbia is much desired, there is no
wish to sacrifice the free port; each one clings to that
institution as the life and soul of the place. Union, it is
feared, will deprive the Colony of its commercial freedom and
Victoria cease to be a Free port. Rumours to that effect have been
in circulation for months past. In that case, many are preparing
to leave the country, and in the mean time, large sums are
withdrawn from circulation; building and all works of improvement
are suspended, and persons of every class are leaving the Colony
for want of employment.

The Union Bill as laid before Parliament, appears to be a mere
permissive Act, and contains nothing that expressly warrants these
alarming reports, and for many reasons, I sincerely trust that they
will have no realization in fact. It is however very desirable to
put an end to this painful uncertainty and suspense; to many—a
question of competence or poverty. A simple announcement, to the
effect, that Her Majestys Government, will protect the interest of
Vancouver Island and leave it in the enjoyment of the commercial
system, which has produced so many satisfactory results, would
remove every doubt, on the subject, and immediately produce a
salutary change.

3. There is an intense and very general interest exhibited by
the public here, in regard to this question.

There was always a firm belief in the stability and permanence of
Free Trade and it was under such impressions that nine tenths of
the present inhabitants were induced to settle and embark their
fortunes in Vancouver Island. Her Majesty's Government is, they
suppose, pledged to that policy, and bound in good faith, to redeem
that pledge.

4. Permit me in explanation to revert briefly to the past.

Your Lordship from being connected with the Administration of the
Colonies in 1858, will probably recollect, that in concerting
 measures for the Government of Vancouver Island, it was determined
 to establish a Free port at Victoria, as a convenient distributing
point for British goods, to the rapidly improving countries and
Islands in the Pacific, and that the same policy of Free trade,
should apply to all the coasts and harbours of Vancouver Island,
 and to the ships of all nations, entering or leaving or landing
goods thereat, and that goods should not be subject to the payment
of duties.

5. There were many substantial reasons for adopting that, as the
policy best adapted to the interests of the Colony. In the first
place it was evident from the general aspect of the country,
abounding in Rock and Mountain, that it could only be partially
tilled, or rendered available for pasturage; that the arable surface
in the best districts bore a very small proportion to the
unimprovable area; and that the clearing of bush and heavy
woodlands, was at best a slow and costly work.

Secondly. There was no available market within reach for Farm or
Dairy produce; the terrritories of the United States being
virtually closed to these exports by an almost prohibitive Tariff,
and their own over-abundant resources.

Thirdly. The country, as thus seen, having few attractive
features, the Colony could not derive much support, from the early
growth of agricultural settlements.

Fourthly. Its open and accessible coasts, affording unlimited
facilities, for shipping and landing merchandize, made it very
improbable, that an Income could be raised from Customs, without
the aid of an efficient and expensive preventive service, the cost
of which might really absorb the entire amount of Revenue collected.

9. It was thence inferred that if treated in the usual manner of
Colonies, Vancouver Island would remain in poverty, without an
Income to defray the expense of its administration, and become a
charge upon the Imperial Exchequer.

10. For these conclusive reasons, it was resolved to foster and
make Trade the chief dependence of the Colony. Trade it was
believed would bring population, create a home market; and build up
a commercial settlement capable of yielding an Income adequate to
the wants of the Colony.

11. Free Trade was thus, almost from necessity, recognized as a
fundamental policy, and it fulfilled every promise. Victoria
became a centre of Trade and population, a place of wealth and
importance; consuming more than all the food grown in the colony.
Settlements were slowly spreading into the outlying Districts; the
country defrayed the whole cost of its administration without the
smallest aid from Imperial funds, and acquired a capacity of
taxation, beyond what any other policy could have developed.

12. The fiscal arrangements of the Government were all framed in
accordance with the ruling policy. The taxation was raised
principally from four sources, direct taxes on property, Liquor
Licenses, Trade Licenses and Harbour Dues, at an average cost of
collection not exceeding two and one half per cent.

In the seven years beginning with 1859 and ending with 1865 the
revenue increased from 41,884 dollars in the former year to 184,596
dollars in the latter year, including about 20,000 dollars accruing
yearly from Land Sales.

About four fifths of the whole Revenue, is derived from the city
and District of Victoria the purely Agricultural Districts, owing
 to their poverty, and the low assessment of country Lands,
contributing a very small portion of the public Income.

13. It will be seen from the foregoing remarks, that the people of
Vancouver Island had good grounds for believing in the permanence
of a policy maintained for so many years, with the approval of Her
Majestys Government and which made Vancouver Island wealthy and
self dependent.

I feel assurred without knowing the intentions of Her Majesty's
Government, that from a principle of justice, they will strongly
oppose, any rash or arbitrary interference with the great material
interests of the Colony, the effect of which, might be to derange
its industrial pursuits, and to plunge thousands, now living in
comfort, into poverty and distress. Such a result would be
deplored as a public calamity; and in the circumstances, uncalled
for and gratuitous, as the Colony wants nothing, asks for nothing,
but to be left alone, to work out its own destinies, in its own
way. It now defrays all the expenses of its administration, and
with economy and good management, will soon pay off all its very
moderate liabilities. No sufficient reason, would therefore be
alleged, for interference with its internal regulations, and least
of all for the total overthrow of its domestic and commercial policy.

14. Instead of that course I would suggest and strongly urge the
continuance of the commercial policy which now exists: that
Victoria be again formally proclaimed, without delay a Free port,
 for the ships and commerce of all Nations: and that Goods, of every
kind, will enter Duty free. In that case instead of a revenue
derived from Customs the taxation would, as heretofore, be raised
mainly from real estate and licenses. I would also suggest that
the Governor be instructed, to maintain that, as a fundamental
policy, through his over-ruling influence in the Legislative
Council. The Colony would thus have a sound commercial system and
full security for its stability and permanence.

On another point also I would venture to make a suggestion, which
is in fact, but a repetition of Her Majesty's instructions. I mean
the necessity of confining the expenditure of the Colony, within
the limits of the Revenue and maintaining its establishments on
the most economical scale.

From a Statement of the Revenue and Expenditure of Vancouver Island
from the year 1859 to 1865 inclusive which is herewith transmitted
your Lordship will observe a wide deviation from the safe rule laid
down in these instructions.

15. These measures and the immediate disallowance of the British Columbia "Customs Amendment Ordinance 1865" recommended in my
letter of the 14th September—would be hailed with satisfaction
by the people of both Colonies, and will I firmly believe bring a
return of prosperity.

If unfortunately it should be otherwise, Her Majesty's Government
will not be open to reproach and will at least have the consolation
of knowing that every thing in their power was done to avert
impending ruin.