What was behind the James Coyne fiasco

Like Walter Gordon after him, James Coyne advocated measures for regaining control of Canada's economy that in the end he couldn't make stick. But in his story there are both greater and pettier issues than most people were aware of in the weeks when Coyne, himself, was the centre of a dispute that divided the country

Peter C. Newman October 19 1963

What was behind the James Coyne fiasco

Like Walter Gordon after him, James Coyne advocated measures for regaining control of Canada's economy that in the end he couldn't make stick. But in his story there are both greater and pettier issues than most people were aware of in the weeks when Coyne, himself, was the centre of a dispute that divided the country

Peter C. Newman October 19 1963

What was behind the James Coyne fiasco

The stories of two national fall guys 2

Peter C. Newman

Like Walter Gordon after him, James Coyne advocated measures for regaining control of Canada's economy that in the end he couldn't make stick. But in his story there are both greater and pettier issues than most people were aware of in the weeks when Coyne, himself, was the centre of a dispute that divided the country

TWO YEARS before Walter Gordon was forced to swallow his ill-conceived ideas on how Canada’s economy might be repatriated, James Elliott Coyne, then governor of the Bank of Canada, attempted a similar crusade, and with even more damaging results. The Coyne affair is worth recalling because many of the dangers he forecast have since come to threaten us and many of the cures he prescribed—although ridiculed at the time—have since been adopted.

Coyne was a most unlikely candidate to lead a crusade of any kind. As governor of the nation’s central bank, he seemed such a cold and aloof patrician that his own staff once toyed with the idea of presenting him at Christmastime with an icicle bound in blue ribbon. (The idea was reluctantly abandoned as apt but incautious.) Yet there was one thing that this cold and complex whippet of a man was passionately concerned about, even to the extent of sacrificing his career for it and humiliating the institution he headed: Coyne was an

ardent nationalist who cared fiercely about the economic independence of his country. He was unalterably convinced that if allowed to go unchecked, the economic excesses of the Diefenbaker administration would ruin Canada’s chances to survive as a sovereign nation. To prove his point, he single-handedly challenged the largest parliamentary majority in Canadian history.

The extent of Coyne’s audacity cannot be fully measured without an examination of just how the institution he headed functioned, and how the government he challenged attempted to weaken it. The Bank of Canada was set up mainly to offset the near collapse of confidence in the Canadian financial system brought about by the Depression. It was charged with regulating “credit and currency in the best interest of the economic life of the nation” and generally promoting “the economic and financial welfare of the dominion.” Under the terms of its incorporation, one of the bank’s primary duties is

to ensure that there is the right amount of money in existence at any given moment for the development of the country’s economy. The bank achieves changes in the money supply by increasing or lowering the funds that the Canadian banking system as a whole is able to lend and invest.

The decisions that direct the monetary management of the nation are taken by the governor of the bank, in consultation with his experts. But the governor himself exercises an unusual degree of authority. He even has the power to overrule decisions taken by Bank of Canada directors— a body of twelve businessmen appointed by the government, who meet seven times a year—although such a veto has to be referred to the cabinet.

The relationship between the Bank of Canada and the federal government has always been touchy, probably because any institution that has the power to create money is naturally subject to political pressures.

Constitutionally, there has been little doubt about the relationship. The continued on page 40

This article is adapted from Peter C. Newman's Renegade in Power: The Diefenbaker Years (McClelland & Stewart, $7.50).

continued from pape 24

“Tight money will vanish under a Conservative administration.”

government is directly responsible for its policies, and the bank must obey government instructions. In case of disagreement, the governor and directors of the bank must resign. When Walter Harris, the Liberal finance minister of the day, during a Commons debate on Aug. II, 1956, retreated from this hard position, he was immediately attacked by Donald Fleming, then opposition financial critic, who scornfully accused the Liberal government of denying its responsibility for what the Bank of Canada was doing. “The government,” he declared, “cannot shed its responsibility for full fiscal policy in the broadest sense of the word, and that must include the actions of the Bank of Canada.”

During the 1957 election, the Conservatives maintained their position. "The little man — the farmer, the fisherman and the small businessman—is being crushed by the Liberal government’s tight money policy,” John Diefenbaker charged at Truro, N.S., on May 2, 1957. He promised that “tight money will disappear under a Conservative administration.” On June 21, 1957, when Diefenbaker formed his first government, the three-month treasury bill interest rate (the foundation of the bank rate) was 3.8 percent. The rate rose to 4.08 percent by Aug. 21, but swung back to 3.74 percent by November and 3.25 percent by Jan. 31, 1958. This was in line with Tory pledges, and Conservative ministers were quick to take the credit. On Jan. 25, 1958, when Donald

Fleming was asked in the Commons whether the government intended to ease the bank rate further, the minister of finance proudly replied: “The answer is ‘yes.’ The government has taken steps towards easing the former policy . . . and hopes to see that this beneficial trend will continue.” Six days later. Fleming further confirmed the government’s direct responsibility for monetary policy. Asked whether the reduction in interest rates was the result of government policy, he replied: “Yes. there has been action on the part of the government.” The next day the House was dissolved for the 1958 election. During that campaign, the interest rate continued to fall, and the Conservatives continued to claim credit for the drop.

But in the twelve months after the 1958 election the size of the 1957-58 budgetary deficit became known, and the even larger 1958-59 deficit was revealed. These deficits helped push interest rates up sharply. On March 19, 1959, Donald Fleming began to retreat from his previously rigid stand that the government controls monetary policy. Asked in the Commons if the government approved of the monetary policy being followed by the Bank of Canada, he retorted: “The Bank of Canada carries on certain of its operations in the market without

any instructions from the minister of finance and it is not inhibited in any way in this regard.” Then, on April 28, 1959, came Fleming’s first outright repudiation of monetary responsibility. "In the matter of monetary policy,” he told the Commons, “this parliament has placed the responsibility . . . and the power in the hands of the Bank of Canada. The government does not exercise any sway in the field of monetary policy.” The Tory about-face was now complete.

The uneasy relationship between the Diefenbaker government and the Bank of Canada was aggravated in the fall of 1959 when James Coyne launched a series of precedent-shattering public speeches. His purpose seemed to be an appeal to the Canadian people over the heads of their elected leaders. Starting on Oct. 5. 1959. in Calgary, the governor began preaching that Canada since World War II had been living beyond its means. The text of his lonely sermon was that by living off the proceeds of foreign capital and covering the resultant deficit by selling an everincreasing share of natural resources to the Americans. Canada stood in danger of losing economic — and eventually political — control over its destiny. "We are now,” he said in one typical sally, "at one of the more critical crossroads in our history, perhaps the most critical of all. when economic developments and preoccupations with economic doctrines of an earlier day are pushing us down the road that leads to loss of any effective power to be masters in our own household and ultimate absorption in and by another.” In another characteristic w'ar cry. he proclaimed: "If we do not effectively change the trends of the past, we shall drift into an irreversible form of integration with a very much larger and more pow'crful neighbor. I do not believe this is what Canadians want. For it means surrendering the very idea of Canadianism, the dream of Canada which gripped the imagination of Sir John A. Macdonald, Georges-Etienne Cartier, and so many Canadians of their time and since.”

Dam up the flow of American capital, Coyne contended, start living strictly on national resources, and Canada would be galvanized into such a burst of new creative and productive activity as had never been seen before. “I feel.” he said, "the time has come when only such an effort can save us." While the governor only vaguely outlined the exact remedies that in his opinion would save Canada, a study of his statements left the impression that he wanted to transform his country into an insular economy, ruled by a government with near-dictatorial powers to retain business ownership in Canadian hands. "The final controls that Mr. Coyne wants,” wrote Dr. J. R. Petrie, a Montreal economic consultant, “would determine where we work, what we build, what we make, what w'e consume and even how we live. This to me, verges on dictatorship, and I believe we should fight against it with all our resources.”

As Coyne continued to make his speeches, the attacks on him grew in intensity. Referring to an interview he’d had with Governor Coyne. W. E.

continued on pape 44

Williams, president of the Procter and (iambic Company of Canada, told a Toronto audience: “I’m not saying he's a nut. but he’s the most illogical person I've ever run into.” Finally, a round-robin letter, signed by twenty-nine of Canada's leading academic economists, was sent to Fleming urging Coyne’s immediate dismissal for incompetence and irresponsibility. Drafted by University of Toronto professors H. C. Fastman and the late Stefan Stykolt, the

letter included this damning paragraph: "We are facing serious economic difficulties in Canada, both in our domestic economy and in our trade and financial relations with other nations. T he undersigned economists wish to express to you that we have lost confidence in the ability of the Bank of Canada under its present management to play its proper role in ameliorating and resolving these difficulties.”

Fleming curtly acknowledged re-

ceipt of the economists' letter, but outwardly at least no action was taken. Behind the closed doors of the Bank ol C anada, however, at stormy cabinet meetings, and in private conferences of finance department officials. tension was growing. James Coyne and John Diefenbaker were inexorably moving toward a collision.

This is what happened, day by day. in that violent encounter:

Feb. 15: Coyne sends Fleming a

confidential, twenty-four page memorandum. outlining his ideas on reducing unemployment to four percent at a time when 11.3 percent of the labor force is out of work, balancing the budget, and eliminating Canada’s trading deficit. "It is urgently to be desired." Coyne writes, "that a strong new initiative be undertaken. aimed directly at achieving increased production and employment in Canada.”

Among the specific measures he recommends arc: a temporary tariff surcharge of ten percent on imported goods to provide a stimulus for Canadian production; abolition for two years of all Canadian tourist tariff exemption privileges; establishment of a National Development Corporation to provide funds for enterprises previously dependent on foreign capital; formation of a federal deposit insurance scheme to encourage higher savings: establishment of a national highways system to relieve provincial governments of part of their financial burden; a temporary three percent surtax on personal and corporation incomes. as well as stiffer taxes on luxuries: pegging of the Canadian

dollar at par with the United States dollar.

Fleming does not acknowledge the receipt of Coyne’s communication: it is not given cabinet consideration. Feb. 20: At a regular Bank of Canada board meeting, anxiety is expressed for the first time about Coyne’s nationalist speeches. The governor agrees not to take any further speaking engagements, except for the two he has already accepted— in New York on March 7 anil at l.ennoxvillc. Que., on March 17. March IS: On this, the day after Coyne's final public address at l.ennoxvillc. Fleming tells the governor that his statements arc embarrassing the government. Coyne insists that he has the right to make speeches but points out he has no other engagements. and promises not to accept any more invitations. The two men part amicably, with Fleming saying he is glad they have at least had a frank discussion.

March 21: John T. Bryden, a Bank of Canada director and general manager of the North American Fife Assurance Company. Toronto, calls on Fleming and. while discussing another matter, refers to the action taken by the directors on Feb. 15, I960, raising the governor’s pension to $25,000 from $11.900 a year. Fleming seems shocked and surprised to learn of the move: Bryden is

equally surprised that Fleming appears not to have known about it, since the assistant deputy minister of finance was present at the meeting that approved the pension increase, and since Bryden remembers discussing the issue with Fleming previously. April 7: Bryden writes a confidential letter to Fleming, outlining the deliberations that led up to the directors’ decision to increase the governor's retirement pay. The letter reveals that Bryden had briefly mentioned the matter to Fleming as early as March 1959. while he and the finance minister were vacationing in Muskoka. Bryden’s note also confirms the opinion of the directors that according to legal advice from the Privy Council

and the Department of Justice, it was within the competence of the hoard to raise pension payments, without reference to cabinet.

May 30: Kenneth Taylor, the deputy minister of finance, phones Coyne at noon and asks him to meet Donald Fleming and himself in the minister s office at 3 p.m. Coyne interprets the request as the long-delayed reaction to his memorandum on the need for a new' economic policy, sent to Fleming three months previously. But when Coyne walks into Fleming's office he is greeted by a thirtyminute verbal onslaught from the minister. Fleming informs Coyne that he has been instructed by the cabinet to tell the governor that he would not be reappointed for another term. Fleming also requests Coyne’s immediate resignation and tells him that the government wants the Bank of Canada directors to name a successor at their next meeting, on June 12.

They discuss the pension issue. Fleming condemns Coyne for not having vetoed the directors’ ruling that raised his own retirement pay. He also charges Coyne with not having informed him of the change, and w'ith not having published the amended by-law in the Gazette. Fleming lists one other reason for the resignation request: that the government is considering certain programs it feels the governor would doubtless oppose. The details of these proposals are not revealed. At the end of the interview, Coyne asks again about the pension and is told: “The matter is still under consideration.” The governor interprets this reply as an unspoken promise that if he goes quietly, he’ll probably get his full pension.

June 2: Coyne seeks advice from Graham Towers, the former governor, now living in semi-retirement in Rockcliffe. Towers gives the hypothetical opinion that if a government, about to call an election, wants to use the Bank of Canada governor as a scapegoat during the campaign, the governor has a duty not to resign. June 5: Coyne telephones J. T. Bryden. He tells him about Fleming’s accusation of May 30, that as governor he had been guilty of a dereliction of duty in not vetoing the directors’ decision to raise his pension and in not submitting the pension by-law amendment to the cabinet. Bryden replies: “What complete and utter God-damned nonsense,” and im-

mediately sends Coyne a copy of his April 7 letter to Fleming in which he had established that the minister of finance must have been aware of the pension increase for more than a year.

June 9: Coyne writes to Fleming, covering the pension dispute. Byquoting precedents and statutes he documents his contention that Bank of Canada pension by-law changes do not have to be approved by the cabinet, or listed in the Gazette.

June 12: The Bank of Canada directors meet in Quebec City, under instructions from Fleming to demand Coyne’s resignation. They delay their decision for one day.

June 13: The board reconvenes at 9.30 a.m. Fleming telephones one of the directors from Ottaw-a and delivers his final ultimatum. Coyne asks the gathered directors: “The door is closed? There is no possible avenue of exploration left?”

“That’s right,” is the reply. “We’re sorry but we can't budge him.” Coyne asks to be excused, retires to his room at the Chateau Frontenac Hotel and just before 1 1 a.m. transmits a press statement to his Ottawa office announcing that he will not resign even if the directors request him to do so. George G. Crosbie. a Bank of Canada director from St. John's. Nfld., visits Coyne in his room, to express his regrets. “We all belong to the same party. We all know what we must do.” he sadly tells the governor.

Coyne returns to the board meeting at 12.15 p.m. and informs the directors of his stand. After he has read his press release. C. Bruce Hill of St. Catharines. Ont., acting Board chairman, moves the resolution requesting Coyne’s resignation. The resolution is carried nine to one, with Coyne himself abstaining and Crosbie voting against it. Coyne adjourns the meeting.

The House of Commons meets at 11 a.m., with no one yet aware of the new's from Quebec City. At 1 1:20. Liberal frontbencher Paul Martin is called out of his parliamentary seat by a telephone message from one of his press-gallery friends and told about Coyne's statement. He rushes back into the Commons, and without even taking the time to inform Lester Pearson bf the news, rises in his seat, glances at Donald Fleming and says: “May I ask the minister of finance a question? Is it a fact, as now reported by the Canadian Press, that the min-

ister of finance has asked for the resignation of the governor of the Bank of Canada?” Fleming is surprised. “I have not seen the report,” he mumbles, “and I do not think I wish to make any comment on that matter until I have had an opportunity to examine the report.”

Coyne’s statement, copies of which are distributed to the parliamentary press gallery at 11.30 a.m., takes strong exception to Fleming’s contention that he should have vetoed the pension increase approved by the directors. “This slander upon my own integrity I cannot ignore or accept,” he declares. “It appears to be another element in a general campaign of injury and defamation directed against crown corporations, their chief executive officers and other public servants. I cannot and will not resign quietly under such circumstances. For the sake of future governors of the bank, and in the interest of propriety and decency in the processes of government and in the conduct of public affairs, I feel myself under an obligation to ensure that this matter is brought into the open in order that it may receive full consideration and discussion.” Just before noon, word of the demand for Coyne's resignation reaches the Toronto and Montreal financial districts. It is here that the governor’s saddest requiem is written. Bond prices react to the news by advancing strongly, with some issues up as much as a full point.

June 14: Fleming rises in his seat just after the House meets to announce that his 1961 budget will be brought down on June 20. He remains standing to deliver a long statement about Coyne's press release. He accuses the governor of a rigid attitude on the maintenance of high interest rates. “DLiring Mr. Coyne’s period in office.” he says, “There has been a steady and deplorable deterioration in the relations of the Bank of Canada with the public. The governor, by a course of ill-considered action and a series of public declarations of policy on public issues quite outside the realm of central banking, and by his rigid and doctrinaire expression of views, often and openly incompatible with government policy, has embroiled the bank in continuous controversy with strong political overtones.”

Then the minister of finance moves on to the pension issue. He charges Coyne with “lacking a sense of responsibility” in accepting the higher pension “without ensuring that the matter was brought to the attention of the government.” He concludes by announcing that he plans shortly “to take appropriate legislative action to meet the needs of the situation.” It is Fleming's contention that he was not told about the pension increase granted to Coyne by the Bank of Canada directors on Feb. 15, 1960. Fleming points out that Ken Taylor, his deputy minister, had to be in Toronto on the day of the board meeting to make funeral arrangements for a relative, and that A. F. W. Plumptre, his assistant deputy minister, attended instead. Fleming states flatly that he received “no report ... no copy of the minutes.” In his later testimony, Coyne does not involve Plumptre. but he in-

sisls that the pension proposals had been discussed a week before the Feb. 15. 1960. board meeting with Ken Taylor, and that the deputy finance minister had said that he considered the proposal reasonable. The core of the case comes dow n to the question of crediting Fleming's contention that Ken Taylor, one of Ottawa’s most conscientious civil servants, had failed to inform his minister of an important decision taken by Bank of Canada directors.

June 23: Fleming introduces Bill

C-114 to the Commons. It has only one clause: "The office of governor of the Bank of Canada shall be deemed to have become vacant immediately upon the coming into force of this act.”

June 26: Second reading of Bill C-314 begins with Fleming delivering one of the best speeches of his parliamentary career. "I have found to m\ great regret.” he declares, "that the governor has not possessed the confidence of the public and of those institutions in the Canadian economy with which the Bank of Canada must work.” Lester Pearson and other Liberal spokesmen attack the Conservatives for denying Coyne "the justice” of a full hearing before a Commons committee.

That afternoon, Coyne issues an open letter to Fleming, accusing the finance minister of "misrepresentation . . . blackmail tactics . . . and undermining the independence of the Bank of Canada.” "You. Mr. Fleming.” he writes, “behind the shelter of your parliamentary immunity, have brought serious charges of misconduct against me in relation both to the pension fund and other matters . . . 1 demand that they be reviewed by a parliamentary committee where I can be given a fair opportunity to be heard, and where they can be submitted to the judgment of public opinion.”

June 27—July 6: The Coyne debate degenerates into the most unruly parliamentary spectacle since the pipeline hassle of 1956. David Walker, the minister of public works, calls Coyne “an anarchist” and accuses J. W. Pickcrsgill of writing Coyne’s letters. Cirant Campbell, the Conservative member for Stormont, suggests that Coyne should really be in jail "for misappropriation approaching larceny in using the facilities of the Bank of Canada to promote his private purposes.” Paul Martin of the Liberals calls repeatedly for Fleming's resignation, while Yvon Dupuis. Liberal MP for Saint-Jean-IbervilleNapierville, shouts that the least the minister of finance could do would be to submit himself to a lie-detector test.

July 7: The day begins in farce. Bank ot Canada messengers trying to deliver Coyne’s latest missive are chased. Keystone Cops fashion, down parliamentary corridors by Commons guards whose commander. J. P. L. Ciroulx. huffily declares that only his men are allowed to deliver mail to MPs' offices. C. H. Richardson, the Bank of Canada deputy secretary, hurls back the charge that he won't stand for his messengers being interfered with by the Commons’ guards. An open clash is prevented when the Bank of Canada messengers agree to continued on page 50

deposit their releases with the Commons post office for distribution to the MPs' mailboxes. "We'd deliver it if it was dynamite,” boasts Yvon Lavoie, the Commons postmaster.

And dynamite it is. For the first time, Coyne brings the prime minister into the dispute. “Mr. Diefenbaker has been the evil genius behind this whole affair,” he charges. “It was his unbridled malice and vindictiveness which seized on the Bank of Canada’s pension fund provisions with respect to the governor and deputy-governor as a clever stick with which to beat me. and intimidate me. If he had succeeded in getting me to resign meekly under such a threat, he would then have launched a smear campaign against me, which would have been represented as all the more damning because I had meekly resigned and admitted my error and guilt. Mr. Diefenbaker boasted about this in advance to some close friends. One of these was not so close as he thought.”

In the House of Commons, meanwhile. the final debate on Bill C-l 14 is in progress. John Diefenbaker sums up for his administration. Personal attacks and recriminations are not to his liking, he says, but it is "impugning a man’s integrity to say that he sat, knew, listened and took?” The governor’s letters and statements, he charges, “reveal an attitude which, if accepted by the government, would result in two sovereignties in Canada, the government of Canada and the governor of the Bank of Canada; but not in that order. They would set up a rival government.” Mocking the opposition’s concern for a fair hearing, the prime minister jubilantly tells the Liberals: “Before we are through with this we are going to have you all lined up with Mr. Coyne’s thinking. That is the position you are putting yourselves in, and that is the position I want you to put yourselves in.”

Diefenbaker then proceeds to reveal another reason for advocating Coyne’s dismissal.

Mr. Diefenbaker: Rt. Hon. Louis St. Laurent, a man who gave devoted service to his country for the greater part of nine years as prime minister and who is today practising law, receives a pension of less than three thousand dollars a year. That is because he was a member of this House. Here we are considering a pension of $11,900 a year which was increased to twenty-five thousand a year within the last two years of the term the governor was going to serve.

Mr. Pearson: It was increased by action of a Tory board.

Mr. Diefenbaker: And at fifty-one years of age. The less I say about that, the better.

Mr. Pearson: That is right.

Mr. Diefenbaker: Flow' many people in public life receive a pension of that size? I have been in public life longer than Mr. Coyne. When I retire, no matter how many years from now' it may be, I will be in the same position as Mr. St. Laurent.

Mr. Pearson: Oh. that is the reason. Mr. Diefenbaker: Yes.

Mr. Pearson: Now we know.

Paul Martin follows Diefenbaker and once again calls for Fleming’s resignat-on. He pleads that Coyne should at least be allowed a Commons committee hearing, as “even Eichmann had his day in court.” but the Conservatives refuse. The bill is then read for the third time and passed by a vote of 129 to 37, with the NDP joining the Liberals in opposition.

July 8: Bill C-l 14 comes up for consideration before the Senate, itself under attack by the Conservative administration for refusal to pass the “class or kind” tariff legislation. The Liberal majority in the Senate moves quickly to refer the contentious Coyne bill to its banking and commerce committee, where the governor can get the hearing denied him by the Tory majority of the Commons.

July 10: Thirty-three senators, puffed up with seldom accorded importance, gather at 9.30 a.m. to begin their committee consideration of the Coyne affair. Ten minutes after they meet, they lose the spotlight to the governor, who begins to read a massive sixteen - thousand - word statement, which reviews his version of the events leading up to the request for his dismissal. Two new issues are introduced: Coyne debunks Flem-

ing's contention that he was being fired because he might oppose some of the measures in the 1961 budget, since “the only concrete measures of any consequence . . . turned out to be a meagre selection from a number of recommendations in my memorandum of Feb. 15.” He also reveals for the first time the details of his June 2 conversation with Graham Towers, the former governor.

July 11: The Senate hearings continue and in the torrent of words, the case finally assumes its proper proportions. Coyne has obviously been a troublesome governor. Two Tory senators consult the Senate law clerk to see if Coyne could be “arrested” for violating the oath of secrecy in his testimony.

Clearly. Coyne's usefulness as the head of the central bank is at an end. But if the governor has been tarnished so has the administration of John Diefenbaker. At no time has the government come up with a convincing reason why, having managed to co-exist with the contentious governor for four years, it should suddenly become essential to fire him five and a half months before his term is due to expire. Is the real reason that the Conservatives need a scapegoat for the failure of their economic policies?

continued on page 52

Docs Diefenbaker really dislike Coyne that much because of the pension issue? Or have the Tories simply bumbled myopically into this mess?

By basing its case on the governor's failure to veto a by-law amendment passed by the bank's board of directors, the Diefenbaker administration has stretched credulity past accepted limits. Fleming's contention that he didn't learn about the pension issue until the spring of 1961 is open only to two interpretations: cither

he is acting to save face for Diefenbaker or his department is not properly run.

In the Commons debate on Fleming’s motion to dismiss the governor, the finance minister insists that during the winter of 1957-58 Coyne had “firmly and angrily’’ rejected a government request that the Bank of Canada case its tight money policy, although “no communication in writing passed between the governor and myself in respect to this inci-

dent." Coyne is able to prove that the suggestion had been rejected only after the experts in Fleming's own department had decided that an easy money policy was not advisable. He also produces three letters exchanged between Fleming and himself on the subject.

In his many statements on the case, Fleming is never able to establish that his government’s monetary policy had actually been opposed by the Bank of Canada governor — though

this is the very core of the case for his dismissal. In the 1961 budget speech Fleming insisted that James Coyne had been guilty of standing in the way of “expansionist” policies. Yet in his 1958 and 1960 budgets Fleming himself had preached against the dangers of easy money. “If we go too far.” he said in 1958, “we might find that we have planted an inflationary time bomb which might later go off with a dangerous explosive effect.” Coyne’s case, though he never admits it, is rooted in moral not economic grounds. Since he is a civil servant appointed “during good behavior” and not “during pleasure,” he believes that the administration has no fair grounds on which to seek his dismissal. He feels that he has disproved, or at least Fleming has not been able to prove, that the reasons given for demanding his resignation constitute “lack of good behavior.”

July 12: The muggy weather intensifies official Ottawa’s uneasiness about the Coyne hearings. There is a feeling among everyone touched by the affair that this inexhaustible governor, who continues to look like a champion tennis player just out of the shower, and his damned drawerful of incriminating private correspondence, must quickly be exiled far, far from Ottawa, so that the decent cloak of anonymity can again fold around the inner processes of federal administration.

The senate committee meets again, but does not come to life until 11:05 a.m., when Coyne rises to make his final statement. “I regret having said certain things, and I regret having done certain things — since May 30,” he begins. “I felt I was fighting for important principles, and fighting very largely alone against an extremely powerful adversary—so powerful, indeed, that it was bound to win in the end. There could be no question of that. The object of removing me from the Bank of Canada was certain to be achieved within a short period, but it was important to fight against . . . the attack on the integrity of the position of the governor of the Bank of Canada, whoever the holder of that office might be.”

After affirming that it has become impossible for him to continue in the Bank of Canada governorship, Coyne reaches the final, key paragraph of his statement. In a barely audible tone he speaks of personal honor: “A vote in favor of this bill is a verdict of guilty,” he murmurs to the hushed committee room. “I shall be marked for life as a man . . . unfit to hold a high office of parliament.” Then he pauses, and very close to tears, delivers his final plea. “A verdict of not guilty will not prevent my immediate departure from office, but it will permit me to retire honorably, and to hold up my head among my fellow citizens as one whom this body of honorable senators of Canada declared to be a man of honor and integrity, devoted to the interests of the Bank of Canada and to the general welfare. This can only be said if this bill is defeated . . .”

Finally drained of his bravado, the governor turns away from the senators and leaves the room. His wife, who has attended all the sittings,

rushes out too. Her hair flying, she catches up to him at the top ®t the tower steps and they walk, hand in hand, down Parliament Hill.

Back in the committee room. David Croll speaks for his fellow senators when he says: "1 move that the committee adjourn until two o clock to enable us to think about this . . . we are not emotionally in a position to deal with the matter at this moment.”

When the committee reconvenes, the senators are uncertain about the next step, because they expected Coyne to announce his resignation. Without fully knowing his intentions, but remaining convinced that Coyne must leave the governorship, they debate procedure through the afternoon. But when Senator Gunnar Thorvaldsen, also president of the Progressive Conservative Association of Canada, complains that the committee has ' been dominated ‘‘by a solid phalanx of senators appointed by the Liberal government (which) has suffered this body to pass through the darkest hour of its long history,” the majority of the members of the committee become determined to give Coyne the ‘‘not guilty” verdict he asked. It is possible to detect the rekindling gleam of old political loyalties in the rheumy eyes of even the oldest senators.

At the Bank of Canada, Coyne is taking part in an unusual ceremony. Four hundred of the bank's senior staff members attend the presentation to the departing governor of a gold medal inscribed as follow's: ‘‘Presented to James Elliott Coyne by his staff for his courage and integrity' in defending the position of governor of the Bank of Canada, June and July, 1961.” July 13: The nation's attentionis focused for one final time on the senate committee. A motion by Senator Walter Aseltine. Conservative leader in the upper chamber, to report Bill C-114 without amendment is defeated, 19 to 7. The commi.tee then votes, 16-6, in favor of a motion by Senator David Croll that "this bill should not be further proceeded with, and the committee feels that the governor of the Bank of Canada did not misconduct himself in office.”

The Liberal senators meet in private caucus over the lunch period, still uncertain whether Coyne will, in tact, turn in his resignation. At 1.30 p.m., Coyne telephones a prominent Liberal friend to assure him that he fully intends to resign, as soon as the Senate rejects Bill C-l 14.

I he full Senate meets at 3 p.m. On a vote of thirty-three to sixteen, the committee's "not guilty” verdict is confirmed.

I en minutes after the senate vote, Coyne issues his resignation, effective at 5.30 p.m. the same day. The statement proclaims Coyne's view that by its vote, the Senate has vindicated his conduct, his personal honor and the integrity of the position of governor of the Bank of Canada. He calls the result of the proceedings "a precedent which will deter any government in the future from adopting methods designed to remove any person from any high office established by parliament to be held during good behavior, such as the

methods which have been attempted in the present case.”

(But Coyne's most important victory was to force the Conservative government to reverse its stand on the responsibility for monetary policy. In an exchange of statements with Coyne's successor, Louis Rasminsky. Fleming underwrote the new governor's assertion that “if there should develop a serious and persistent conflict between the views of the government and the views of the

central bank with regard to monetary policy . . . the government should be able formally to instruct the bank what monetary policy it wishes carried out. and the bank should have the duty to comply with these instructions.”)

At 5.45 p.m.. a Bank of Canada official flashes the word to the parliamentary press gallery that the governor will be leaving his office at 6.15. Reporters and photographers rush across Wellington Street. At

6.21. six minutes behind schedule, a bulging black briefcase in his left arm. and guiding his misty-eyed wife with his other hand, Coyne steps out of the bank's elevator. He shakes hands with the elevator operator. Seeing the wall of newsmen, he barks out a brusque “No comment.” then catching one of the reporters questions. "Do you have any 1 st words?” he replies: "No. Not for another forty years.” Then he walks out of public life. ★