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PM did not interrupt as I went on to say that I had not reported his threat to use existence or contents memo because consequences of his doing so would be catastrophic. PM interjected “they would be so in Canada.” I said I was not talking of Canada but of reaction in the US. I said if he did this the result in the US would be of incalculable harm with public opinion, in the government and in his personal relations and that consequently I had delayed my departure to urge once more that he abandon any such thought.43
Diefenbaker backed down. He told Merchant that “he had given [the] matter further consideration and in light of what I had said to him on May 4 he had no present intention of using or in any way referring to [the] memo in question. He said if he changed his mind he would personally telephone me in Washington before doing so but he was now decided to discard any such thought.” According to Diefenbaker, only three other persons knew of the memo – Green, Fleming, and Churchill, whom Merchant described to Ball as “all … cool steady men.”44
Merchant noted that Diefenbaker then set off on an “emotional sidetrack” by insisting that the United States was “trying to push” Canada around, but calmed down when the ambassador asked what evidence he could show for such suspicions. He turned instead (“with Gusto”) to the subject of his prairie campaign tour, though bemoaning the time and travels still ahead. The ambassador concluded his report optimistically. “Notwithstanding fact PM nervous and in my judgment on verge of exhaustion, I believe storm has passed and that chances are now minimal that he will embark on all-out anti-American line … At end conversation we both lowered our voices and with complimentary close he bade me warm good night.”
For the time being an understanding had been achieved, but the incident remains puzzling. If Diefenbaker, in a fit of anger and desperation, intended to use the Rostow memorandum, why did he warn Merchant beforehand? Was he hoping to be dissuaded from what would have been a dishonourable and self-destructive act? Did he expect that his threat would lead Kennedy to refrain from any further “intervention”? Why did he lie about the origin of the memorandum, in a way that could only be obvious to Livingston Merchant? Merchant later said that Kennedy had been “astounded and indignant” at this “species of blackmail,” and that he was himself “baffled and finally appalled by Diefenbaker.”45
Merchant’s and Robinson’s observations – that Diefenbaker was “disturbed,” “overwrought,” “extremely agitated,” “excited to a disturbing degree,” “closer to hysteria than I have seen him,” “on the verge of exhaustion” – suggest a man on the edge. Perhaps his threat was not the act of a carefully calculating politician, but of an unsettled – and very fragile – spirit.
Despite his expressions of confidence, Diefenbaker was aware that his government and party were in trouble. The political atmosphere had changed since 1958, and the high expectations of that winter campaign could not be revived. Yet his own confidence and sense of stability rested on continuing signs of public support. The government had borne one critical blow after another since the cancellation of the Arrow in 1959. The prime minister’s moodiness, disorganization, and indecisiveness had undermined the confidence of his own cabinet. Diefenbaker was also bewildered by the complex technical questions of economic, financial, and defence policy that now overwhelmed his ministry. He had managed – temporarily – to contain the nuclear weapons issue, but the others were more immediate.
In the days before his first interview with Merchant, the prime minister faced a perplexing monetary crisis, and on May 3 it became public. The Canadian dollar – alone among the major currencies and in defiance of the fixed exchange rate policy of the International Monetary Fund (IMF) – floated in value on the international markets. From a position in the late 1950s when it stood at a premium against the American dollar, it drifted gradually downwards to a rate of about 95 cents US by the winter of 1961-62. The persisting Canadian recession, five consecutive budget deficits, an increasing deficit on the current trade account, and, it seemed, general uncertainty about the policies of the Diefenbaker government had unsettled the exchange markets. Once the election was called on April 18, an unanticipated stampede in the sale of Canadian dollars began. In the month of April alone, the Bank of Canada’s exchange fund sold $125 million of its foreign reserves to maintain the value of the Canadian dollar. That brought the decline in the exchange fund over seven months to about half a billion dollars, or one-quarter of Canada’s total exchange reserves.
The government’s chief financial advisers believed that Canada faced a continuing speculative run on the dollar and a potentially disastrous decline in its value. Diefenbaker was informed by Robert Bryce on April 29 that there was an exchange crisis, and senior officials met with Donald Fleming to discuss alternative responses. When they could not agree, Fleming recommended that the Canadian dollar should be pegged at 92.5 cents US. He gained Diefenbaker’s reluctant support for an approach to the IMF to approve the decision, and subsequently arranged for a special meeting of the IMF board for the evening of May 2 in Washington. Early that morning Diefenbaker telephoned Fleming to say he had changed his mind, but Fleming and his officials insisted that the process was under way and could not be reversed. Diefenbaker told him: “It will cost us the election,” and gave way. Cabinet, in the presence of eight ministers under Fleming’s chairmanship, ratified the recommendation, and officials set off for Washington to present the proposal to the IMF board. Meanwhile, Fleming flew back to Toronto for his nomination meeting, where he made no mention of the devaluation. The decision was announced to the press at 11:15 that night.46
Diefenbaker suggested in his memoirs that the policy was mistaken; that Canada should have supported the floating value of the dollar through the election by selling reserves; and that it should have moved to a fixed exchange rate in an orderly way in the next budget. Instead, he claimed, it was forced to an emergency devaluation because the Kennedy administration “spooked” the New York money market “to get rid of my government.” In this American conspiracy Diefenbaker saw the complicity of officials from the Department of Finance, “powerful interests” on Bay Street, the CBC, and the Liberal Party. The Liberals did, indeed, take advantage of the crisis – once devaluation had occurred – to ridicule the competence of the Diefenbaker government.47 But there is no need for so elaborate an explanation of the affair. Diefenbaker admitted he had “no direct proof for his claim, and there were enough objective reasons to explain the run. Once it had begun, pegging at a lower level, with IMF support, offered a reasonable means of stemming the tide.
Diefenbaker’s conspiracy theory had apparently not taken form at the time of devaluation. If it had, he would certainly have added it to his catalogue of Kennedy’s offences when he met Merchant on May 5. But the disturbing evidence of a government that had lost control – something that was bound to feature in the rest of the campaign – preoccupied and unsettled him, and he went into the meeting with Merchant carrying that burden of anxiety. Harold Macmillan had also spent a day in Ottawa after his latest visit to Washington, asserting his commitment to the Common Market negotiations and emphasizing the president’s eagerness to support those efforts.48 If there were no great conspiracies confronting the prime minister, fortune, at least, was not working in his favour as it once had done.
The devaluation, which offered trade benefits for Canada, occurred in the worst possible political circumstances. A Winnipeg Free Press cartoonist lampooned Donald Fleming hoisting the remnants of a dollar to the mast. Jokes about the “Diefendollar” or “Diefenbuck” swept the country, and phony green bills with mutilated ends were soon circulating from St John’s to Whitehorse. The easily caricatured administration seemed to have become its own caricature.
Diefenbaker was convinced that few of his ministers were pulling their weight in the campaign. Alvin Hamilton made an imprudent remark about a cabinet compromise on the dollar’s value and suggested that he preferred a value of 90 cents US. Donald Fleming tried to explain the ex
change crisis, but was too abstract. Ellen Fairclough had mysteriously avoided the press in a campaign visit to Vancouver, and in mid-campaign the prime minister complained that “19 Ministers have cancelled out the meetings arranged for them. I want the daily record of any Minister who did that.”49 In Quebec, a report to Diefenbaker early in the campaign suggested that the organization was “completely ineffectual” and doing nothing.50 Apparently the leader would have to count on nothing more than his old magic on the platform.
In London, Ontario, the prime minister was joined on stage by Leslie Frost, his successor John Robarts, and most of the federal cabinet. Diefenbaker opened the campaign by defending the government’s record and laying out a tedious “prosperity blueprint” – the Hamilton-Frost mélange of spending promises and business incentives, which did not add up to a coherent or inspiring program. The audience stewed in 90-degree heat and was not roused.51 By mid-May Diefenbaker was complaining publicly about complacency among Conservative supporters. Later in the campaign, when he went on the attack, he could still bring his audiences alive with his furrowed brows, jokes, insinuations, and one-liners. Pearson’s brains trust, he said, was “a cacophony of paragons, pseudo-economists, economic centralizers, and former bureaucrats.” In the west he offered more promises of aid, and met his hecklers wittily – including a gaggle of Doukhobor women in Trail, British Columbia, who stripped naked before him – until the mass meeting in Vancouver on May 30.52 That night he faced an arena audience of 7000 that was well sprinkled with protesters. Diefenbaker kept his temper in the face of constant interruptions, but could not silence them. Charles Lynch described the scene: “With the concessionaires taking a hands-off attitude, the prime minister was left to cope with the situation himself. Perspiring, running his hands through his flying hair, his eyes flashing, he talked of organized anarchy. He said he liked good fun too. He spoke of an Elizabethan sense of a grand design for Canada. He hammered on unity. All this was to no avail … John Fisher, bathed in perspiration, kept scribbling notes and passing them up to his chief … nothing seemed to work.”53
Two days later, in Chelmsford, Ontario, the Diefenbakers faced “the ugliness and invective of a hysterical mob” as they made their way to their car with the local Conservative candidate. Diefenbaker used the demonstrations to suggest planned obstruction by the Liberals and the NDP: “They thought they silenced that speech, but they did far more for the Conservative party than all the speeches of the campaign.” On June 7 Joey Smallwood handed Diefenbaker the evidence of collusion by forcing the St John’s Rotary Club to cancel its invitation to Donald Fleming to address them on devaluation. An exhausted Diefenbaker found himself refreshed and aroused when cast in the martyr’s role.54
When the Liberal Party advertised its claim that devaluation would bring higher prices for consumers, Diefenbaker issued a stern warning to the big companies: “I don’t want any group or corporation in this country no matter how successful they may be, to take advantage of this situation. I serve notice here and now that if, in the next few days, this kind of thing is going on there will be action as effective as it is drastic.” That left producers and retailers puzzled and fearful. Alvin Hamilton added his own threat that the government might undercut oil prices by building a national oil pipeline to Montreal.55
Despite outbursts of the old fire, Diefenbaker rarely created the excitement of 1958. But his challenger Mike Pearson aroused even less enthusiasm on the platform. By early June reporters were widely expecting a minority parliament. They watched rural Quebec with special fascination as the colourful leader of the Quebec Social Credit Party, Real Caouette, brought out the crowds in the Quebec City, Saguenay, and Beauce regions with his rough-hewn words and promises of bliss. As the campaign ended, the prime minister appealed more and more to ethnic and anti-American sentiments. At the Ukrainian Hall in Montreal on June 11, he joked bitterly about the abuse of his name: Diefenbucks, Diefenbliss, Diefenbunkum; double, double, Diefentrouble/Diefenboil and Diefenbubble. “If I didn’t have the name I have I don’t know what the Liberal party would do … The playing with my name indicates what they think of those of non-French and non-English origin.” He reminded his audiences that he was the leader who had dared to confront Khrushchev at the United Nations, while Pearson was curiously soft on communism. In the prime minister’s leaping rhetoric, Pearson had become simultaneously the candidate of big business, John Kennedy, and Nikita Khrushchev. Diefenbaker was the candidate of the people – except, it appeared, in rural Quebec, where Caouette matched his populism.56
In the last three weeks of the campaign, the Liberal lead in the Gallup Poll narrowed from 44-36 percent to 38-36 percent as voters drained away to the NDP and Social Credit. Diefenbaker and the Conservatives held their own. The Globe reported that “there is a vague, difficult to measure lack of confidence in Canada’s political leadership of any stripe … The Conservative campaign has been essentially a one-man show with Mr. Diefenbaker the man. If they fail to win, he must take the blame; if they do win he can claim the victory, no matter how many seats they lose, for his own.”57
Oakley Dalgleish offered the Globe and Mail’s measured support for the Diefenbaker government in a front-page editorial on June 5. The Liberals had offered “negative and destructive criticism,” and had spent their time in opposition “fashioning new planks to fasten on the shaky structure of the Liberal Welfare State. Liberal irresponsibillity has been amply demonstrated in this campaign. While the party spokesmen have gone about the country heaping criticism on the Government’s budget deficits, alleging financial mismanagement, they have simultaneously promised, if returned to power, to launch vastly expensive new schemes for health and welfare and capital programs. The Liberals, in fact, have been consistent only in their inconsistency.” “Our readers,” the editorial continued, “will not need to be reminded of the occasions – far too numerous for our liking – when we have felt it necessary to criticize the Conservative Government in sharp terms.” But those criticisms were usually directed not at its decisions, but at “its methods of implementing them.” Sometimes the government had gone “too far, too fast,” in redeeming its promises, but it had met those promises “more faithfully than any government since the turn of the century.” Now Diefenbaker promised that the task of his government would be to create the business climate “to pay the bills and meet the challenge ahead,” and he was bound to make “a sincere effort to translate these words into national policy.” The editorial concluded: “On the record of the parties, without minimizing the mistakes of the past Conservative Administration, the Government, in our opinion, should be given a vote of confidence by the people of Canada.”58 That was no ringing endorsement, but it matched the sceptical mood of the country in the summer of 1962. The Montreal Gazette commented that the prime minister had “failed to make an effective appeal to Quebec, despite the fact that he has enlarged the flow of money to this province to a remarkable extent.” In general, he had “left the impression of blurred aim and clumsy method.”59 The Edmonton Journal, which had supported Diefenbaker in 1958, switched its allegiance to the Liberals.
John and Olive were on their railway car in Prince Albert for election day on June 18 after a final rally in Hamilton and a weary appearance on national television over the weekend. The first news from the Atlantic provinces showed the Tories losing about a quarter of their seats to the Liberals; but as the polls closed and the count moved to Quebec and Ontario, the outlook darkened. In Quebec the Créditistes decimated the Conservatives in the countryside, taking twenty-six seats, to thirty-five for the Liberals (a gain of ten) and only fourteen for the Tories (a loss of thirty-six). In Ontario the Conservatives held their edge outside the cities, while the Liberals and the NDP made huge urban gains. The Conservatives were down to thirty-five, a loss of thirty-two seats. The government would be saved or overthrown in the west. Across the prairies, Diefenbaker’s followers kept the faith: The Chief held forty-two of forty-eight ridings. In Saskatchewan
the Conservatives actually increased their popular vote over 1958. Finally, maverick British Columbia split four ways to steal the majority away. Next morning Diefenbaker surveyed the wreckage: He held 116 seats to the Liberals’ 100, Social Credit’s thirty, and the NDP’s nineteen. Five ministers – David Walker, William Hamilton, Noël Dorion, Jacques Flynn, and Bill Browne – had been defeated. The loss of ninety-two seats was devastating and incomprehensible. But the minority victory kept Diefenbaker clinging to power against an opposition whose unity was uncertain. Groping for words to a reporter, the prime minister took refuge in some typical advice of Sir John A. not to do anything quickly: “Precipitous action did not always result in wise decisions.”60
Overnight, the Conservative Party had been transformed, in parliament, into a rural, English-speaking minority party. The Liberals and the NDP swept the cities, where they took over half the popular vote to the Tories’ one-third. Even the ethnic vote was lost to the Liberals and the NDP; and young voters, similarly, turned away from the Conservatives. John Diefenbaker kept his strength among western farmers and the beneficiaries of his party’s regional development grants. Those were narrow constituencies. The Liberals were disappointed that they had failed to overcome the government at a single blow, but the initiative had passed to them.
While Diefenbaker absorbed the electoral setback, he was faced with a second and more serious exchange crisis as he flew back to Ottawa. From the end of May the Bank of Canada’s exchange fund had been forced to renew its massive selling of US dollars after a three-week respite. On election day alone, $41 million was sold into the exchange market, and in the next two days the bank’s reserves fell by a further $110 million in the effort to maintain a 92.5 cent Canadian dollar. The speculators had descended in a horde, expecting a further devaluation as Canada exhausted its reserves. Fleming, with Diefenbaker’s approval, was determined to maintain the dollar at its pegged rate, which required quick and massive support for the exchange fund from abroad. Louis Rasminsky and the senior officials of the Department of Finance rushed to design a program of borrowing and economic restraint that would meet the conditions of the International Monetary Fund and the foreign banks, and on June 20 the cabinet went into five days of continuous session to argue over its acceptance. Every hour was crucial, as reserves continued to decline by more than $40 million each day.61