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The disposition of the prizes of the Seven Years' War was causing serious agitation in England. Many forces were operating to determine the destiny of Canada. Pitt's reign ended with the death of George II in October 1760. With the accession of a king in George III Bute and the other personal favourites assumed the direction of British policy. To King George and his party Pitt and his 'bloody and expensive war' were alike distasteful, and it was their hope that by concluding the war the foundation of Pitt's popularity and influence would be shattered. Pitt's policy of pursuing to the full the advantages of his more recent conquests would most probably have placed Britain in a position to dictate terms of peace. But now the war policy was discontinued and the negotiation of the peace was entrusted to the advocates of compromise.

Yet another and more potent factor was forming the character of the settlement. The mercantile theory of empire still received the homage of ardent devotees and very largely determined the attitude of Britain towards colonial possessions. The Empire was economically self-sufficient, and the colonies existed for the express purpose of contributing to the welfare of the motherland. The division of labour in the empire was simple, yet it produced an exceedingly well-balanced process: the motherland provided articles of manufactures; the West Indies produced sugar; Africa supplied slave labour; while America contributed farm products for both the motherland and the West Indies. This theory of empire had already fixed the main channels of trade; vested interests had been created which in any readjustment of empire would permit no destruction of the perfect scheme of commerce. The problem which British statesmen had to solve was to decide which of the conquered territories it were best to retain and which should be restored to the French king. The economic principle of selection placed Canada in the balance against Guadeloupe, one of the West India sugar islands wrested from France. In favour of Guadeloupe were its rich sugar trade and the extensive shipping which its acquisition would secure. Canada's shipping was insignificant, and its great possibilities had not yet been unfolded. On the other hand, in favour of Canada it was argued that its market would give to British manufactures a rich monopoly; its natural resources would in time be discovered; while its climate rendered it more suitable for colonization than the southern islands. In any event the demand for sugar was already being supplied, and it was urged with calm assurance that with North America British the acquisition of Guadeloupe would be a mere incident.

The effect on the American colonies of the proposed addition to the Empire became, if not an actual determining factor, at least a most interesting phase of the peace discussions. Arguments advanced from that angle in general favoured retaining Guadeloupe rather than Canada. The production of sugar in the West India Islands would encourage agriculture in the American colonies, and, in consequence, would reduce the inclination to establish manufactories which would decrease the export trade of Britain. The safety of the Empire seemed to depend on maintaining in the American colonies a population of farmers. A still more subtle argument was evolved for the restoration of Canada. The power of France in the northern half of the continent would operate as a most effective check on insubordination in the American colonies. This clever freak of political sophistry had not yet been fully developed, and was compelled to wait for several years in order to receive serious consideration. In fact, the advocacy of such a policy would much more probably have hastened rebellion. After the American colonies had aided substantially in the reduction of French dominion in the north, what greater treachery could Britain have perpetrated than the conversion of Canada into a shackle for the restraint of those very colonies?

In the end Canada won, and time has justified the wisdom of the choice. By the Treaty of Paris, concluded February 10, 1763, France renounced all claim to Nova Scotia and ceded to Britain Canada, Cape Breton, and everything which depended upon them. The king of England agreed 'to grant the liberty of the Catholic religion to the inhabitants of Canada' and, to that end, undertook to order that 'his new Roman Catholic subjects may profess the worship of their religion according to the rites of the Romish church, as far as the laws of Great Britain permit.' Such of the inhabitants of the colony as wished to return to France were given liberty to do so, and were granted eighteen months in which to dispose of their estates.

Now that the destiny of the colony had been determined, the subjects, both new and old, were able to enter on definite plans for the future. To many of the ancient inhabitants the Treaty of Paris was a distinct disappointment. What emigration to France took place affected the cities and towns alone, and was confined to the officials of the former government, the professional men and the wealthier merchants. Not a few of these faithful subjects entered the service of their fatherland, where they attained positions of honour and distinction.