In contrast to most of his contemporaries, who sought wealth as an avenue to political influence, Smith recognized that in the primitive environment of his time it was injinitely easier to parlay political connections into lucrative private ventures, often supported by the public purse. "For forty years his personality stands out in every political crisis in the Dominion," noted WTR. Preston, one of Smith's many political foes. "He has had far more to do with the defeat and victory of political parties since Confederation than all other influences combined.... On many imporiant occasions Parliament, without being aware of the fact, simply registered his decrees."

Smith's view ot'public life paralleled his approach to business. He believed political parties were no different

133.

134 LABRADOR SMITH.

from commercial corporations-handy conveyances to be boarded and abandoned at will, according to which one best served his personal purposes at any given moment. Smith was aware of no conflicts of interest in his adroit manoeuvrings between the private and public sectors because his interests never conflicted, they were, one and all, designed to advance his fame and his fortune. "His philosophical disposition to accept the inevitable never deserted him," noted Preston. "His standard of political honour was not high, but it served."

Smith vacillated in his support between the Conservative and Liberal parties, equally disloyal to both and trusted by neither. He once complained that he would not consign ownership of his grandmother's toothbrush to the ordinary politician-even if his own record proved the understatement of that taunt.

The buccaneering that characterizes developing economies found its most virulent expression in Canadian railway promotion. By 191 i, when major construction ran out of steam, Canada had 40,000 miles of rails, built with government cash, subventions or bond guarantees worth more than $1.3 bill1ion-plus the giveaway of 65,000 square miles including some of the finest wheat-growing land on earth. Yet despite these extravagant provisions, nearly every mile of every track was privately owned. Financing a new railway usually ineant its promoters would set up secretly controlled construction companies, then negotiate inflated contracts with themselves, collecting hefty profits at both ends of each deal. At the same time, they would award themselves bloated debenture offerings in return for artificial corporate services, reducing their balance sheets to rivers of red ink.

They would then turn to Ottawa and demand subsidies to cover fiscal overruns, either bribing ininisters to ensure bailouts or threatening to embarra.s.s the government by halting construction-or both.

STEAL OF EMPIRE 135.

And yet the railways did get built, and they provided the essential infrastructure for the transcontinental economy, yanking an embryonic Dominion into the new century. The railways' promoters and operators became folk heroes, Canada's version of the great American robber barons-reviled and envied, riding about in their ornate private cars, gesturing with fat cigars, collecting old masters and young mistresses. Apart from the obvious chicanery in the link between politicians in power and these railway manipulators, the industry corrupted the electoral process itself. Railways and politics in nineteenthcentury Canada became interchangeable black arts, only marginally more ethical than piracy on the high seas.

DONALD SMIt.i.tS DEBUT in Canadian politics followed ]its successful arbitration of the Red River Rebellion in 1870. He contested and won the Winnipeg and St John seat in Manitoba's first provincial election and was simultaneously appointed to the executive council of the Northwest Territories. Unhappy with its munic.i.p.al status as a "police village,"

Winnipeg in 1872 requested the right to incorporate itself as a city, but the new provincial legislature adjourned without dealing with the issue.

Feelings ran so high that when enactment of the ineasure was delayed by Dr Curtis James Bird, a local physician who had been elected the legislature's Speaker, he was lured out of his home on a phony nocturnal house call and waylaid by const.i.tuents who dragged him from his sleigh and poured a bucket of tar over him. Popular outrage had been roused by a belief that Bird was helping Smith oppose incorporation so that the HBC could avoid paying city taxes. Insinuations of corporate favouritism were fanned by the factthat the province's first lieutenant-governor, A.G. Archibald, lived on Company property and his successor, Alexander Morris, toured his domain STEAL OF EMPIRE 137.

aboard IIBC steamers. Before Manitoba's first bank was incorporated in 1873, the Company acted as the provincial treasury and repository for funds collected by customs officers. This official status, added to the retroactive bitterness over the 1113C's long monopoly, had jelled into ,in enduring resentment of the Companyand all Dr John C hristian Schultz, the charismatic leader of Manitoba's pro-Canadian moVement, sunirned up popular sentiment when he labelled the Hudson's Bay Company "a curse to the country."

f'he act of incorporation was finally pa.s.sed in the closing days of 187 1. Winnipeg's original street surveys followed the M6tis river lots and boundaries of the HB(A Land Reserve, its five -hundred - ac re holding around Fort Garry.* The settlement's muddy alleys ("a mixture of putty and bird-lime") had been graded and planked, but there was nothing taine about Winnipeg's roughneck inhabitants, who turned the settlement into Canadas closest approximation to the Nmerican Wild West. The gin mills and mug-houses were there, as were the prost.i.tutes brazenly auctioning off their s.e.xual wares. "Winnipeg and Barrie are the two most evil places in Canada," went a typical report of the time.

Smith sponsored few initiatives in the Manitoba Legislat-ure mainly because he was hardly ever there. Quickly growing dissatisfied with the constraints of provincial and munic.i.p.al venues, be won the Selkirk federal seat in 1871 and held it in the next three campaigns.t He showed no

*Winnipeg'sorigina I coat of arms featured a buffalo, a ~tearro locomotive and three sheaves of wheat. This A as slightly fanciful, since the buffalo had long vanished from the city's environs, the first train would not arrive until 1878. and there would be no substantial grain exports for another five years.

tThe const.i.tuency Donald A. Smith represented was known as Lisgar in his time. In 1891 the name was changed to Selkirk. Sornesources listSmith as Member for Lisgar, others forSelk-irk.

138 LABRADOR SMITH.

fax ouritism, being elected twice as a Conservative and twice as a Liberal.

The contests were hard fought, with boozing and brawling part of each run-up to election day and axe handles across the head frequently used to persuade dithering voters. Smith's margins of victory, ranging from a high of 196 ballots in 1872 to only 9 in 1878, reflected the bitterness of these contests.

The first Manitoba representative to arrive in Ottawa, Smith didn't take his parliamentary career too seriously and spent little time in legislative pursuits; debating the fine points of new laws was not a profit-producing enterprise. But from the moment he walked into the House of Commons, Smith knew that within the shifting alli~inces of that resplendent chamber there was significant personal authority to be gained, and he intended to grab it. 'I he great issue of 1871 was British Colurribia's entry into Confederation. The twelve thousand white residents of the former IJBC territory and British colony had decided to enter Confederation as Canada's sixth province on condition they be linked to the rest of the country by a railway within ten years. The only regular pa.s.sage across the Rockies north of the forty-ninth parallel was by IIBC-owned pack mules. The aninials, fitted with aphareos (Mexican-style pack saddles), gathered at the Punch Bowl, near what 'is now jasper, to transfer loads and pa.s.sengers.*

The entrepreneur who first undertook to build a railway across the Canadian West A as Sir Hugh Allan, yet another Scottish inunigrant, who had expanded his Montreal shipping line into the North Atlantic's largest merchant and pa.s.senger fleet. Allan had most

*I I BC packtrains, numbering three hundred or inore 211inials, ~kere led 1w ~i guide folloved by a bagpipcr and an IIBC Chief Factor, who usually carried a Bible anda bottle of gin in his sad- dlebags, consulting boi halong the %v~iy.

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leading C onservative politicians, including Sir John A. ,N,Iacdonal(l, Sir John Rose and Sir George-Etienne Cartier, in his pocket and regularly obtained lucrative subsidies and mail contracts for his maritime operations. Named to the Bank of Montreal board, Allan also expanded his coal and steel interests, and built himself Ravenscrag, a magnificent house on a fourteenacre estate on Mount Royal that had originally been owned by the greatest of the Nor'Westers, Simon McTavis~. Modelled on a fifteenth-century Tuscan villa, the house had thirty-four roorns including an imposing ballroom complete with a minstrels' gallery to accommodate a large orchestra. From the estate's seventy-five-foot tower Allan could scan the horizon for glimpses of his steamers returning from their weekly run to Glasgow or setting off to supply the sloping riverbank settlements along the St Lawrence. (These luxurious surroundings contrasted harshly with conditions at Allan's east-end Montreal cotton inill, which employed ten-year-old street waifs who didn't earn enough to buy shoes in winter.) When the Macdonald government decided to honour its railway commlitrient to British Columbia, Sir Hugh Allan was the logical choice to head the construction syndicate. His laxN yer, John J.C. Abbott (later Canada's fourth prime minister), incorporated the Canada Pacific Railway Company to take advantage of Ottawa's offer to grant the builder $30 million in cash and fifty million acres of land, plus an undertaking to extinguish Indian t.i.tle along the wav. Donald Smith was originally recruited as a member of Allan's syndicate to ensure the Hudson's Bay Company's co-operation in gaining use of its existing infrastructure through western Canada, but his name was not included in the final offering memo- randum. To guarantee that he would be granted the Pacific railway charter under Ottawa's generous terms, 140 LABRADOR SMITH.

Allan pledged secret subscriptions of $100,000 to Macdonald's 1872 campaign fund and even arranged for his Merchants' Bank to cancel $80,000 of Macdonald's personal debts.

The great Pacific Scandal that followed, one of the most thoroughly doc.u.mented instances of bribery in the country's political history, involved more than $500,000. Its least subtle manifestation was the telegram Macdonald sent tojobn Abbott, the Allan lawyer, at the climax of the 1872 campaign: "I MUST HAVE ANOTHER TEN THOUSAND. WILL BE THE LAST TIM[,'. OF CALLING. DO NOT FAIL ME. ANSWER TODAY-J.A. MACDONALD." Abbott consulted with Allan and hastily replied: "DRAIV ON ME FOR TEN THOIJSA-ND DOLLARS." When the Montreal Herald published these and other incrinunat- ing doc.u.ments, a royal commission was established to investigate the bribery allegations. It found the Tories g-uilty as charged. Macdonald had won the 1872 election with a dismal inargin of only two seats, and his governiTieDt seemed dooined--unlcss he could somehow remin Parliament's confidencc. Macdonald quickly realized the fate of his administration hung on one vote, that of Donald Smith. "Upon you and the influence you can bring to bear," he wrote to the 11BC executive, "may depend the fate of this administration."

Smith was in Fort Carlton, half~va ' v from Fort Garry to Edmonton, on an inspection trip at the time, but immediately rushed back to Ottawa. He set a record of only five days returning to Fort Garry, six hundred miles to the east. Angus McKay, then a fifteen-year-old FIBC apprentice, witnessed that mad dash across the Prairies.

"We first noticed a cloud of dust on the big salt plain near Hurnbolt [sic]," he wrote in his journal. "Then we saw a buckboard, a Red River cart an(] a bunch of loose horses, driven by two men on horseback. When they met our STEAL OF EMPIRE 141.

freight train [of Red River carts], they stopped for a few minutes to ask questions while the men changed a tired horse for a fresh one, driving on again and leaving the tired one on the prairie. [Smith] was strapped crossways on his breast with wide strappings and onto the seat of the buckboard to prevent his falling out when asleep. It was the fastest Journey ever made between Carlton and Winnipeg with horses."

Smith was in his seat when the Commons met on October 2 3, 187 3. He hoped that Macdonald might take this occasion to grant Louis Riel the amnesty that had originally been promised and to pay back the $3,000 Smith had spent bribing the M6tis leader and his followers during the 1870 Rebellion.

The debt was long overdue, and Smith rightly maintained that he had been carrying out Ottawa's instructions, but had to pay the money out of his own pocket because there were no banking facilities in Red River at the time.

The Prime Minister never disowned the debt, but he didn't honour it either.

He was all too aware of how precarious the Conservatives' political situation was and that if word of any amnesty or payments to Riel leaked out, he would lose his remaining ~upport in Orange Ontario.

The Prime Ministers cronies buzzed around Smith, trying to ensure hl~ support, and eventually arranged a private meeting between the two men.

Macdonald had been drinking for most of three days and took exaggerated offence when Smith calmly requested repayment of his loan and then a,lvised the Prime Minister to confess his political sins and ask the country for forgiveness. Instead of trying to appease hii western MP, Macdonald (fared him to make the Riel bribe public, boasting with the false courage of the bottle that he could win Ontario in another election, no matter ~A hat Smith said about him. That barely coherent bombast was followed by a stream of woozy obscenities. as the Prime Minister 142 LABRADOR SMITH.

worked himself up imo red-faced ferinent and finally pa.s.sed out.

The performance didn't impress the puritanical Smith. He let it be known he would probably go against the administration but agreed to postpone his final deci sion until tile night of the vote. Smith met with a sobered-up Prime Minister two (lays later, on Novem ber 4, and vet again asked for his Riel money back.

Macdonald wearily a ' greed, had Smith write out an invoice, and promised he would be paid $3,367.50 the following morning. (Smith had characteristically added an interest charge.) The two men parted warily, as if thev had not yet taken the full measure of one another.

The Commons session that evening was jammed with so many political ward heelers and lobbyists that they were crowded into the s.p.a.ce oil either side of the Speaker's dais. The busiest spot on Parliament Hill was the bar in the Commons bas.e.m.e.nt, as MPs used any excuse to sneak away and toast their fortunes or drown their sorrows.'

At five minutes after one on that moon-washed auturrm night, when tile question oil the government's amendment to the non-confidence motion was put,

-rhere has never been anything unusual (then or now) in having drunken M Ps on the floor of the Commons, but tactics in those (lays were slightly more crude. Whenever the sozzled inernbers got excited, they would throw parliainentary papers (or, on one occasion, firecrackers) into the air, nninic roosters, dogs or bagpipes, perforin jigsup and down the aisles -orjustgo to sleep. An inebriatedJarnes DoniN ille, president of the Maritirne Bank and MP for Kings, New Brunswick, is oil record in I lansard as havin,, addressed the Commons with the flN of his pants open, and Colonel C.J. Carripbell, the MP for Victoria County, Cape Breton, once prostrated himself at the fcet of the Speaker, h.e.l.lowing a dFLItiken chalL.-nge for ailyorie iii governinent, oil Parhanient I lill or froni th~ whole universe to coineand fight hun.

STEAL OF EMPIRE 143.

Smith finally rose to speak. The House of Commons hushed as its members tried to size up the enigmatic "member for the Hudson's Bay Company," the penthouse ofhis eyebrows masking any signal of his intentions. Barely four years removed from the Labrador wilderness, Smith was about to determine whether Canada's founding ministry would survive. He began hesitantly-, as if suddenly aware of how far he had come and how much depended on his decision. He condenined the Liberal Opposition for establishing a case against the government on the basis of purloined letters and telegrams, defending the sanct.i.ty of private correspondence. He meandered on about Manitoba's need to have its own railway, then seerned to harden in his discourse by declaring that the Prime Minister had certainly not taken Sir Hugh Allan's money with any corrupt motive. That satisfied the Tory Whip, who led a troop of relieved Government benchers to the bar, where thev lifted tumblers charged with champagne "To the health of Donald A." It wasn't long before they were chanting "Rule, Britannia!" and "G.o.d Save the Oueen"-the echoes of their ribaldry drifting up to the Commons floor.

There the mood had changed. Donald Srnith had turned sour. "I would be most willing to vote confidence in the Government," he said, baiting the trap, "if I could do so conscientiously." Then, with that special brand of righteousness reserved for middle-aged Scots with long beards, he p.r.o.nounced his verdict: "For the honour of the country, no government should exist that has a shadow of suspicion resting upon it; and for that reason, I cannot give it my support." A page hastily whipped down to the bar to inform the revellers: "Donald A. has gone over to the Grits."

Members rushed back to vent their fury at the treachery of their colleague from Red River.

144 LABRADOR SMITH.

The Commons was adjourned without a recorded vote, but the government knew it was beaten and resigned the following afternoon. As Sir John A.

Macdonald walked out of the chamber that momentous night, he turned to one of his cronies and remarked with bitter bite: "I could lick that man Smith quicker than h.e.l.l could frizzle a feather." In the parliamentary bas.e.m.e.nt, the Liberals now had their own bellies to the bar, singing "Sir John is dead and gone forever," to the tune of "My Darling Clementine."

Behind Smith's switch in allegiances was a web of motives that became clear only in retrospect. Charles Tupper, in an 1877 speech at Orangeville, Ontario, described the HBC executive's 1873 tactics: "Mr. Smith was a representative of the Hudson's Bay Company and he had been pressing a claim on his Right Hon. friend [Macdonald] for public money; Sir John had been holding back, and Mr. Smith came to the conclusion that it would be just as well to jump the fence if there was to be a change of Government. But Mr.

Smith was a canny

*Ironically, Macdonald's last act before leaving office was to implement one of Smith's recommendations in his report on the Red River Rebellion: creation of a North West Mounted Police to rid the plains of American whisky pedlars and proclaim Canadian sovereignty~ (in the summer of 1873, twenty-two a.s.simboines were ma.s.sacred by the rotgut traders in the Cypress Hills of what is now southeastern Alberta.) Their first commanding officer, Lieutenant-Colonel George French, head of the Canadian Militia Gunnery School at Kingston, treated his troops more as a cavalry regiment than a police force. That impression was heightened by their first uniforms: red jackets modelled on the BritishArmy's red coats, cut to resemble those ofHussars, black breeches with red stripes as worn by the British cavalry, lances like those carried into battle by the doomed Light Brigade in the Crimean War, and pillbox hats held on with chinstraps-later replaced by Texas Ranger stetsons.

STEAL OF EMPIRE 145.

inan; he held back and sat on the fence and watched the course, certainly not in the interests of his country, because he did not want to jump too soon and find that lie had jumped into a ditch. But, when he came to the conclusion that the Government was going out, he made the bolt, and he (Dr. Tupper) had no doubt but that he had had a great deal of reason since for congratulating himself on having jumped as he did." But beyond such strategic considerations was Smith's ambition to build the Pacific railway himself In their wonderful Lords of the Line, popular historians David Cruise and Alison Griffiths unlock the mystery. "The key to Smith's actions most likely lay in the awarding of the Pacific railway com ract, in which he had a clear personal interest. Certainl~ no one knew better than he the potential wealth of the northwest, and he wasn't anxious that the lush Red River territory be entrusted to the whims and self-interest of Hugh Allan That imputing of motives rings true, but it doesn't do full justice to Smith's baser side. There was yet another reason for his betrayal of Macdonald.

By aligning his syndicate with Jay C ooke's Northern Pacific, Allan had virtually guaranteed that his Canada Pacific Railway Company would have to utilize an extension of the American promoter's railway from the international boundary to Winnipeg. Cooke had for years wanted to expand the Northern Pacific into Canada, and this would have been his ideal opportunity. But a competing syndicate, led by Smith and including his cousin George Stephen, had already applied for a railway charter to serve the link between the border town of Pembina and Winnipeg-just sixty miles away. Smith was also protecting his private investment in the Pembina venture.

In the 1874 election that followed, Smith ran as a Liberal supporting Alexander Mackenzie, the Sarnia 146 LABRADOR SMITH.

stonemason who became Canada's second Prime Minister.* Smith's political antics had begun to concern London. The HBC Governor pointedly wrote to James Grahame, the Company's Canadian Chief Commissioner: "We are now simply a trading corporation and wish to confine ourselves to our own business, cultivating the most friendly relations with those in authority, but taking no side with one party or another. . . ." Smith paid no attention to such admonitions and won his seat with a 102-vote margin. At one meeting, local Tories, furious at his defection, pelted him with raw eggs until he was unrecognizable. "Few figures in political history apart from Benedict Arnold ... have incurred the opprobrium directed at the member from Selkirk," noted the business historian Gustavus Myers.

Back in Ottawa as one of Mackenzies most influential advisers, Smith began to lobby for his Pembina charter. The Liberal Prime Minister had a.s.sumed the Public Works portfolio himself, determined to build the transcontinental railway as a government enterprise without increasing taxes or pledging incentives to greedy promoters.

At about this time, Smith's interest quickened in an awkwardly named relic of American railway speculation called the First Division of the St Paul and Pacific line. That preoccupation dated from his first meeting with James J. Hill, the Canadian-born entrepreneur from St Paul, Minnesota. The two men had tented together in 1870 when Smith was returning to Ottawa from settling

*Mackenzie's background contributed to his reputation as Canada's most close-mouthed Prime Minister. While he was working as a stonemason, a hunk of cut stone weighing more than a ton dropped on his toes. He uttered not a soundand during his five years in office said very little about anything important.

STEAL OF EMPIRE 147.

the Red River Rebellion. They had jointly acquired the Red River Transportation Company-possibly the most profitable steamship line in North Arnerica.* Now that their shipping monopoly was threatened by the advent of railways, Hill came to Ottawa early in 1876 and stayed with Smith at the Bank of Montreal's residential "Cottage" on O'Connor Street.

He had arrived late in the afternoon of St Patrick's Day in the vanguard of a fierce blizzard, and the two men talked for most of two days about what could be done. Their thoughts quickly turned to the First Division of the St Paul and Pacifi~, which had gone bankrupt and was being reorganized by a trustee, John S. Kennedy, and the line's receiver, Jesse P. Farley. The main bondholders were six hundred Dutch investors, headed byJohan Carp, who were owed $2 8 million. Hill knew they had become disillusioned by long-overdue payments and were open to offers. The two Promoters agreed that Hill would obtain more details about the insolvent property, reach a realistic estimate of what salvage price the Dutch might accept, and put feelers out to the railways receiver.

Smith had frequently travelled aboard the unfinished St Paul and Pacific on his way to and from Red River. Seldom out of bankruptcy, the ravaged company

*With their partners Norman Kittson and Captain Alexander Griggs, Hill and Smith had turned the Red River Transportation Company's monopoly into a formidable cash cow. Although it discounted HBC transportation invoices by one-third, helping to maintain the London firms oligopoly in the area, the transportation company still turned such a huge profit that annual dividends of 80 percent were not unusual. One of Sinith's critics calculated that regular freight charges along the Red River Transportation Company's three hundred miles of slack navigation cost customers double the rates paid for taking grain across the Atlantic and that freight could be sent the length of the Mississippi for half as much.

148 LABRADOR SMITH.

maintained the link between St Paul and Breckenridge with an increasingly decrepit railbed. By 1873, the right of way was littered with rotting ties and twisted remains of collapsed bridges. The tracks were a crazy-quilt of fifteen different types of rail, all made of iron instead of steel so that pa.s.sage of a train made the whole rusty works tremble. Several stretches could be crossed only by handcar. James J. Hill's investigation revealed that despite its grotesque physical plant, the road was still an immensely valuable property. He discovered that an investment of only $5.8 million (most of which could be borrowed from the Bank of Montreal) would be enough not only to buy out the Dutch bondholders but also to complete the tracks to St Vincent, a town on the international boundary, which was the cut-in point for the 2.6-million-acre state grant that the woefully underfinanced railway had never been able to trigger. The road also had an exclusive charter to build up to the Canadian border. Because most of the land in the grants was in counties that were now well settled, Hill estimated that the bankrupt railway's real-estate a.s.sets alone were worth at least $20 milfion.

To complete the deal, Smith enlisted the cousin, George Stephen, he had first met while still a Factor in Labrador. Stephen had meanwhile become president of the Bank of Montreal and a dominant figure in Canadian finance. He was sufficiently interested to visit Amsterdam, where he obtained an option to buy the Dutch bonds at a third of their nominal value. He then arranged to have the Bank of Montreal underwrite a loan to take out both the railway's mortgage holders and the Netherlands group, while Smith, Hill and their partner Norman Kittson rolled their Red River Transportation Company shares over into railway stock. In 1878, the Smith-Hill-Stephen-Kittson partnership won clear t.i.tle to the line and renamed it the St Paul, Minneapolis and STEAL OF EMPIRE 149.

George Stephen

Manitoba Railway. They put up only $283,000 in cash for what turned out to be a bonanza. Within a decade the railway would be worth $60 million and over the next thirty years Smith and his partners received an estimated $500 million in interest-bearing securities, not including dividends, from the once-defunct property.

The full potential of the renamed St Paul line could only be realized with completion of the Canadian link to Winnipeg. Prime Minister Mackenzie had promised to build that branch line to provide citizens of the newly incorporated province of Manitoba with outside access.

Construction was painfully slow, but by the spring of 150 LABRADOR SMITH.

1878 the Pembina Branch was snaking the sixty miles to the American border.

The first spike had been driven on September 29, 1877, in St Boniface when the Governor General, Lord Dufferin, and his wife had each driven a silver spike into the first tie. The viceregal couple had been entertained by Smith at Silver Heights, his estate outside Winnipeg. "It is impossible to describe to you," Dufferin wrote to Mackenzie about that visit, "all that Donald Smith has done for our comfort. Had he been a great Duke in the old country receiving the Queen, lie could not have made greater a.s.sertions,-In fact, I am quite vexed about it as the expense of his preparations must have been very considerable, and they quite exceed what we needed, for instance, he has built a large Reception Room, and two offices for the Colonel and myself, which are quite equal to those at Rideau, and in the minutest details has forgotten nothing. . . ."