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In April of 1873 Macdoanld was faced with a vote of censure over the Pacific Railway scandal by the Canadian Parliament but before the vote could be taken he resigned. Alexander Mackenzie was asked by the Governor General to form a Government which he did but in 1874 he called a general election which he fought mainly on the Pacific Railway scandal and won the election by 173-33 seats.

Unfortunately for Mackenzie, just as he was celebrating the victory of the Liberal party, a worldwide recession was setting in. The result of this economic downturn was a decrease in the demand for Canadian product, the dumping of excess foreign products in Canada and in addition to these negative factors Canada suffer poor crop production that year. Mackenzie dispatch George Brown to Washington in 1874 in an attempt to renew some sort of reciprocity with the United States but failed and the Liberal government was forced to resort to raising protective tariffs on imports.

Mackenzie sought to reduce the growing Federal deficit by cutting costs and the first target of this policy was the transcontinental railway. He did not believe that the government could afford to build the railway and instead tried to minimize the costs by building short sections between water transportation links as an interim measure. British Columbia became very disillusioned with their agreement that would have seen the railway built within 10 years and started to take about secession from Confederation. Mackenzie made overtures to British Columbia as an attempt to renegotiate the railway deal which only inflamed the situation more. Finally, the Governor General, Lord Dufferin, made a trip to British Columbia in an attempt to mediate the situation and insure that British Columbia remained within the British Empire as a part of Canada.

The intercolonial railway from the Maritimes to Quebec was completed at government expense and a link to the American railways in Minnesota built from Winnipeg while a slow start was made on a section from Fort William to Winnipeg with some surveying done in many areas across the county with little actual building.

The development of the Canadian Government did make tremendous strides during this periods with the establishment of the Supreme Court of Canada in 1875 and the reform and regulation of Federal elections with rules demanding expenditure accountability, and the elimination of requirements for owning property in order to run for Parliament. The North West Mounted Police, which were to be come the Royal Canadian Mounted Police. were also established. The Northwest Act provided for government regulation and rule of the Northwest territories and the Homestead Act provided for the easy acquisition of land by settlers in the west.

Mackenzie also began the process of expanding Canadian participation in it's own foreign policy and in that vain he insisted that Canadians be included in any negotiations with foreign powers over issue that effected Canada as Sir John A. Macdonald had during the drawing up of the Washington Treaty. The other battle which Mackenzie fought and won was the limiting of the powers of the Governor General in actual policy formation and governing. Mackenzie was offended when the Governor General interfered in both the Railway issues in British Columbia and the over the decision about how to handle the executioners of Thomas Scott. The British Government instructed Lord Dufferin to restrict his involvement in domestic affairs and the trend was set.

By the time it was getting close to another election Mackenzie had extinguished much of the goodwill that had welcomed his election in 1874 and with the colourful Macdonald back in control of the Conservative Party, Mackenzie was turned out of power in 1978 and the Liberals would not get a taste of it again until Laurier.