One of the most important questions with which the Mackenzie government was called upon to deal was the construction of the Canadian Pacific railway.  It was first proposed to utilise the “water-stretches” on the route of the railroad, and in that way lessen its cost, but the scheme was soon found to be impracticable.  The people of British Columbia were aggrieved at the delay in building the railway, and several efforts were made to arrange the difficulty through the intervention of the Earl of Carnarvon, colonial secretary of state, of the governor-general when he visited the province in 1876, and of Mr., afterwards Sir, James Edgar, who was authorised to treat with the provincial government on the subject.  At the instance of the secretary of state the government agreed to build immediately a road from Esquimalt to Nanaimo on Vancouver Island, to prosecute the surveys with vigour, and make arrangements for the completion of the railway in 1890.  Mr. Blake opposed these terms, and in doing so no doubt represented the views of a large body of the Liberal party, who believed that the government of Canada had in 1871 entered into the compact with British Columbia without sufficient consideration of the gravity of the obligation they were incurring.  The commons, however, passed the Esquimalt and Nanaimo bill only to hear of its rejection in the senate, where some Liberals united with the Conservative majority to defeat it.  When the surveys were all completed, the government decided to build the railway as a public work; but by the autumn of 1878, when Mr. Mackenzie was defeated at a general election, only a few miles of the road had been completed, and the indignation of British Columbia had become so deep that the legislature passed a resolution for separation from the Dominion unless the terms of union were soon fulfilled.

During the existence of the Mackenzie government there was much depression in trade throughout the Dominion, and the public revenues showed large deficits in consequence of the falling-off of imports.  When the elections took place in September, 1878, the people were called upon to give their decision on a most important issue.  With that astuteness which always enabled him to gauge correctly the tendency of public opinion, Sir John Macdonald recognised the fact that the people were prepared to accept any new fiscal policy which promised to relieve the country from the great depression which had too long hampered internal and external trade.  In the session of 1878 he brought forward a resolution, declaring emphatically that the welfare of Canada required “the adoption of a national policy which, by a judicious readjustment of the tariff will benefit the agricultural, the mining, the manufacturing and other interests of the Dominion ... will retain in Canada thousands of our fellow-countrymen now obliged to expatriate themselves in search of the employment denied them at home ... will restore prosperity to our struggling industries now so sadly depressed ...