Scholarly thinking on empires is changing. These scholars see empires as flexible states which are fully capable of meeting the challenges of modernity. This newer line of scholarship challenges the standard narrative of the emergence of nations. Recent scholarship stresses that the history of successor states is not a complete break from the imperial past, but rather that the empires impacted the nature of both the successor states and the nations within. This thesis examines the Confederation of Canada and the Ausgleich, which resulted in the creation of the Dual Monarchy of Austria-Hungary, as successful imperial responses to challenges facing each empire. The subsequent development of national consciousness and national identity among the Canadian and the Hungarian elites emerged as a constituent part of the empire, rather than as a challenge to imperial legitimacy.