Former U.S. President Donald Trump said earlier this month that if he returns to the White House he won’t reappoint Federal Reserve Chair Jerome Powell. The two often sparred during Trump’s tenure as president, a rarity in U.S. politics.
Back in the early 1960s, Canada too saw a very public dispute between the elected government and the appointed head of the Central Bank. It was dubbed the Coyne Affair and resulted in the resignation of the second governor of the Bank of Canada.
History usually portrays John Diefenbaker, the populist Progressive Conservative prime minister, as the villain for playing politics with the economy, whilst James Coyne, governor of the Bank of Canada, is presented as a flawed hero who was wronged for speaking out boldly in the interest of Canadians and an independent central bank. A simple internet search will bear this out.
In reality, both the Liberal and Conservative parties found Coyne difficult and disapproved of his actions.
It is true Coyne was a 1931 Rhodes Scholar. But most Canadians at Oxford University between the wars were odd men out who compensated by playing a great deal of ice hockey together.
More important than being smart, Coyne had already worked at the Central Bank since the mid-1940s. He had the right background and connections. And moreover Louis Rasminsky, the better-qualified man who was supposed to get the job and whom everyone expected would be named in 1955, was Jewish. St. Laurent deemed a Jew unacceptable to Quebec and to senior officials. Indeed, otherwise, Coyne’s appointment over Rasminsky was inexplicable.
And so the Coyne Affair would never have occurred without that initial anti-Semitic mishap.
Fleming was finance minister from 1957 to 1962. Between Coyne, Fleming, and other Diefenbaker cabinet ministers there were differences of opinion about monetary and fiscal policy: a tight money supply (backed by Coyne and the previous Liberal government) versus government stimulus (favoured by Diefenbaker).
Coyne recommended a 25 percent tax increase and a 25 percent reduction of imports. When Tory MPs would not listen to him, Coyne wept. “Two or three times I have seen him weep, just in frustration that we were so dense that we couldn’t see his way, which was to restrict the economy,” said Alvin Hamilton, Minister responsible for natural resource development. “He was very unstable when it came to anything like his views being crossed.”
Even while Coyne was deputy chairman of the Wartime Prices and Trade Board before a brief stint in the Royal Canadian Air Force, his aloofness and elitism, according to Stursberg, prompted Ottawa reporters to refer to him as “Jesus E. Coyne.”
Coyne thought he was the expert and MPs mere amateurs, though in fact Tories Hamilton, Dick Bell, David Walker, Gordon Churchill, and Mike Starr were distinguished and accomplished men. Not only that, but the Conservatives had a hugely popular mandate, having just won the largest election victory in Canadian history in a massive landslide in 1958.
Ironically, Fleming should have been a natural ally for Coyne. Both thought that fiscal and monetary policy should go hand in hand. Fleming believed the governor of the Central Bank enjoyed a wide independence in advising the minister of finance—as long as the latter worked in collaboration (obviously) with the minister and the elected government.
But in spite of Fleming and Bell’s efforts at dialogue, Coyne “decided to go out on a program of making speeches” without consulting Fleming, according to Stursberg’s book. In a cross-country tour in 1960, Coyne not only put forward his own economic ideas but directly attacked the elected government, causing “supreme embarrassment.”
According to Fleming, Coyne offended provincial governments, the chartered banks, and “He was getting me in trouble constantly.”
Liberal stalwart Paul Martin, Sr. (father of the future prime minister) called the tour an “irresponsible thing for the governor to do. The governor has no right to pit himself against the government that he serves.” In fact, Fleming was told that the Liberals, in particular high-profile MP C.D. Howe, had contemplated axing Coyne before the 1957 election. Even Jack Pickersgill, a Liberal minister who called Coyne “my closest personal friend,” said, “I did not really approve of his campaign of speech-making.”
Diefenbaker, with his customary dramatic delivery, said in the House of Commons that Coyne had “sat, knew, listened, and took.”
But according to Fleming, the board “had, at the request of, and with the full participation of, Mr. Coyne, (emphasis added) voted him a substantial increase in his pension.” Coyne rebuffed Fleming, saying his compensation was exclusively a matter for the bank and not the minister of finance.
Fleming, the board, and senior officials discreetly offered Coyne the option of retiring quietly but Coyne “stormed out” and called a press conference. The government tried to pass legislation through Parliament to remove him but the Senate blocked it.
So why has Coyne gone down as a difficult hero, while Diefenbaker is cast as an opportunistic villain?
The answer is that some politicians are better at the game than others. If Fleming had played hardball, they could have won that battle.
In the House, Paul Martin asked if Fleming would allow Coyne to have his say before the House of Commons Banking and Commerce Committee. If Fleming had said yes, Conservatives “had the majority on the committee, and we had some very clever people who would have made a monkey out of Mr. Coyne,” according to George Hees, then the influential minister of trade and commerce.
But Fleming, well-known for his gentlemanly approach to politics and not wanting to embarrass and disgrace Coyne any further, said no—thus falling into Martin’s trap.
That gave the Liberals, who controlled the Senate, their chance. They invited Coyne “to have his day in court”—which actually Coyne had already had, by holding media events all over the country. Majority senators then stage-managed the Senate Standing Committee on Banking and Finance hearings to help Coyne look “quiet, articulate, and knowledgeable,” a victim persecuted by the Conservative government.
As George Hees lamented, the majority senators, “very able lawyers, ... made Mr. Coyne look like God, and were absolutely able to murder us ... whereas on the other committee [in the Commons] we would have murdered him.”
Coyne resigned after his success at the Senate and was replaced as governor by Louis Rasminsky.
It was the Liberal government of Lester Pearson that implemented the 1964 recommendation by the Royal Commission on Finance that in policy matters ultimate responsibility lies with the government—and if the governor disagrees, he should resign.
