by Denis Smith
Predictably, Diefenbaker appointed a committee of cabinet to meet with Bank of Canada and departmental officials, and wrangling continued into the evenings. The immediate need was to convince international lenders that the budget deficit would be reduced and the adverse trade balance improved. The prime minister judged such action to mean that “those in the bureaucratic and financial communities” had seized the opportunity of the crisis “to bring about a reversal of the declared fiscal policy of my government.”62 In the sense that “the declared fiscal policy of my government” was an unending series of budget deficits accumulated on political grounds, that was correct. As the reserves declined, the government had no reasonable options. Diefenbaker explained the reversal in his memoirs:
Having failed to win a majority, we had now to stop the run on the dollar by other means. We were a minority government with a crisis on our hands. I had little choice but to accept the advice of the senior officials as to a program of emergency measures. Our exchange reserves had now fallen below the $1,000 million level, which these officials contended was the minimum we could safely hold. There was a danger that they could vanish entirely within a month or two, leaving us at the mercy of the market from day to day. The essence of the problem was to regain the confidence of foreign and Canadian investors in the Canadian dollar. The fact that they were wrong in feeling that we were not paying enough attention to “sound” financial policies was no longer the point. They were the ones whose opinion was important now.63
On Sunday morning, June 24, cabinet agreed to a package of emergency measures: temporary tariff surcharges ranging from 5 to 15 percent on about half of the country’s imports; reduced exemptions from customs duties for Canadian tourists returning from the United States; a reduction of government spending amounting to $250 million annually; and Canadian borrowing of over a billion dollars (US) from the IMF, the American Export-Import Bank, the US Federal Reserve, and the Bank of England. That evening Diefenbaker issued a press statement announcing the austerity program before the opening of Monday’s markets; and the next evening he made a national radio and television broadcast to explain his government’s measures. Simultaneously the Bank of Canada set its rediscount rate at a record high of 6 percent. Diefenbaker insisted that the action was temporary, intended to “relieve the pressure on the Canadian dollar in the exchange field, to bring about greater stability in our international transactions and to strengthen our exchange reserves.” He said that further, long-term measures would be introduced to improve the country’s current accounts, and he called on Canadians to unite in common purpose to support his actions. Surprisingly, he did not recall parliament to discuss the crisis. “I think it well,” he commented, “that Parliament should not meet until after a cooling-off period so that time will be given for political passions to subside and be followed by calm reason which, I have always found, is the basis of effective discussion and consideration.”64 The government, battered and bruised by election losses and the exchange crisis, needed time to regroup.
While the prime minister struggled in cabinet over the austerity program, Leslie Frost wrote to Diefenbaker to reassure him that “you are the only Conservative leader since John A.’s passing in 1891 who has managed to keep on top of the heap through three successive elections. I think this … adds to the measure of people’s appraisal of your personality and ability to meet the challenge of these days and following.” He added that the troubled financial and political situation was a “ready made situation for a leader who will grasp the nettle with both hands.” That meant moving Donald Fleming out of the Department of Finance.
Much as I like Donald, I do not think he can give the confident direction that is required. I think this job is for yourself … By actively assuming the leadership of the tops in industry, business and finance you can be unassailable and none of the competing parties could challenge you. If they do you would have built up a body of opinion which was lacking in this last election which would be enough to turn the scales. I am quite satisfied that our people are prepared to be told what they have to do. We have to work hard, tighten our belts and devote everything to development and expansion.65
This was encouragement to make the economic changes then being forced on cabinet, and to seek renewed alliance with the alienated business and financial communities. When Diefenbaker announced the government’s emergency program, Frost wired two messages of congratulation. The second was a concise sermon: “Remember the positive side more exports hard work lower costs employment. Business incentives in other words an aggressive determined people aiming at a greater more prosperous country.”66
Harold Macmillan also had words of comfort. On June 22 he wrote to say that he was working with the Bank of England to provide assistance in the emergency, and he added some armchair philosophy which pointed more to his own political difficulties than to Diefenbaker’s. “You and I, who have been through the ups and downs of politics, know what a rough life it is. We here are having, as you have had, a strange movement away from the older Parties, which is perhaps a sign of the spiritual pressure upon young people today and the long drawn out contest between East and West. We older people know that it will last our life-time but the younger ones hope to see some sign of dawn. However, whatever the reason, it is rough going.”67
A few days later Davie Fulton offered his advice from the inside. He thought the government’s problem was one of both image and substance – and elaborated on the theme over seven pages. The government’s image “generally was bad”; it was insufficient explanation to say, as Diefenbaker had complained during the campaign, “that Ministers did not get around the country enough or failed to make enough of the right kind of speeches. The trouble was that no coordinated presentation of the work of the Government as a whole was ever developed – or at any rate it was certainly not sufficiently developed, or developed in time.” Before the next election, which he expected soon, Fulton insisted that “a strong picture should emerge of a Government which, even under the present difficult circumstances, accepts responsibility to govern and grapples on a planned basis with the problems now confronting us and introduces programs to meet both the short and the long-term needs of the country.”68 This was criticism that no minister had dared to offer before June 18.
Fulton accused the prime minister of making a false claim about the exchange crisis; what was worse, the claim was not believable. “The question is being raised: How could a situation of such proportions have arisen only in a few days? This in turn leads to the suggestion that the true facts are not being told.” The government had to speak quickly and truthfully in a policy statement that would guide all ministers.
My suggestion is that the general effect of the statement would be to remove the impression that we are saying that the crisis developed only after the Election. We should, on the contrary, admit that the situation was serious prior to the Election (that is, during the campaign) and we should not minimize the fact that we took the action of pegging the dollar to meet a situation that was serious. We should not pretend otherwise. We should go on, however, to point out that the situation did not reach crisis proportions until just before actual voting day and in the four days immediately following.
…It seems to me to be … particularly essential to guard against the possibility of Ministers in their individual interpretations continuing to suggest that there was nothing to worry about until the Election was over – and then something suddenly developed. The public simply will not buy this and it would play into the hands of our opponents.
While his emphasis was on public relations, Fulton made clear that his worries related to deeper inadequacies in the government’s performance. His letter came close to a declaration of non-confidence in Diefenbaker’s leadership. Privately, Fulton had certainly lost that confidence.69 Diefenbaker was shaken by Fulton’s accusation that he had misled the public.70
The election results, the exchange crisis, severe press commentary, and Diefenbaker�
�s correspondence all pointed to the need to give the cabinet a new face. Diefenbaker knew it, although he could not admit that he had actually done anything to justify the public’s loss of faith. Partly, the problem was to replace five defeated ministers; partly, it was to shift the two ministers – Fulton and Fleming – who seemed to threaten his confidence most directly; partly, and most urgently, it was to recover some support in the business and financial community. The prime minister cast about desperately for advice, and in his conversations with Gordon Churchill he talked frequently of resignation.71
In that atmosphere Oakley Dalgleish offered his frank counsel, which he hoped would not seem “an impertinence.” He recalled his previous support for Diefenbaker since 1956, and especially his suggestions after the 1958 victory that Diefenbaker should create an inner cabinet of half a dozen strong ministers and an advisory group of “proven and respected business and financial men to consult on … fundamental policies … I mention these conversations now, simply because they define the steps which I now urge on you. With the right group of consultants you can overcome the obvious deficiencies in the cabinet. Moreover, I am confident by this means you can take action on several fronts (which still needs to be taken) boldly and confidently, in the knowledge that the business community will co-operate and that the Liberals will have to go with you.” Dalgleish told Diefenbaker that he wrote as a friend, not a partisan, “who shares your aspirations for this country.” He pledged his own and the Globes aid in doing “anything and everything we can in the cause.”72
The next day the prime minister’s old confidant Bill Brunt, to whom Diefenbaker had just offered the speakership of the Senate, was killed in a car crash as he drove home to Hanover, Ontario. Brunt, like David Walker, had been his loyal supporter, electoral financier, and counsellor since 1942. Now Diefenbaker had lost one in defeat and another in death within three weeks.73 The burdens grew heavier.
On July 12 the Diefenbakers attended Brunt’s funeral in Hanover, in the course of which the prime minister talked at length with Leslie Frost. In his desperation, Diefenbaker proposed that Frost should join the cabinet as minister of finance – and once more, as in the previous autumn, Frost declined. His first response was lengthy and ambiguous, reasserting the view that his best service would be as an informal link to the business community and repeating most of Dalgleish’s pro-business advice.74 Diefenbaker noted on July 16 that “I phoned Frost and said I could not make anything out of his letter and would like to know what he meant.” He meant no – but Frost suggested that Diefenbaker should let Dalgleish explain.75 Diefenbaker persisted, in several telephone conversations with Frost and Dalgleish. Failing acceptance of the Finance portfolio, the fallback was a senatorship. Frost resisted all the prime minister’s pleadings.76
Instead, he and Dalgleish proposed that Diefenbaker should invite Wallace McCutcheon of the Argus Corporation to join the cabinet. McCutcheon was unknown to Diefenbaker, and Frost recalled that the prime minister “was most diffident.” Over several weeks, with no other prospects for strengthening the cabinet from Toronto, Frost and Dalgleish wore Diefenbaker down. McCutcheon was willing. He would resign his directorships and accept appointment to the Senate as a minister without portfolio. By early August Diefenbaker was reluctantly convinced, and at the same time smugly satisfied that he had mended his bridges to Bay Street.77
Meanwhile he was juggling other possible changes in cabinet with his usual uncertainty – a state worsened by exhaustion, the gloom of defeat, and personal grief. On July 13 Diefenbaker was stunned by the news that Macmillan had brusquely dismissed one-third of his cabinet, including the chancellor of the exchequer. This was ruthlessness beyond Diefenbaker’s capacity and temperament. “I wish,” he told Elmer the next day, “that I had enough members to make possible a general reconstruction, but that is impossible.” 78
The old cabinet met weekly for routine business while Diefenbaker shuffled his lists and hesitated. On the weekends he retreated with Olive to Harrington Lake, where she urged him to get away for a longer holiday. On July 21, as he stepped off the verandah onto wet grass, Diefenbaker turned his ankle in a gopher hole and heard “a sharp snap followed by severe pain and swelling.” He had broken a bone, and was sent to bed by his doctors – who may have been prescribing for low spirits as much as for a broken ankle.79 “Their advice was medically sound,” Diefenbaker wrote in his memoirs, “but politically disastrous. An invalid’s bedroom is neither an ideal place for Cabinet meetings nor a location suited to keeping track of the political manoeuvrings about one. But flat on my back I remained.”80 His secretary, Bunny Pound, suspected that he had chosen the accident: “Dief didn’t want to go to the office … he wanted to be by himself for a while … so he fell in the gopher hole. This was sort of psychological. He didn’t want to have any of this trouble. He just wanted to sit there in his bed, and grumble and growl and think about things … I think, possibly, he realized that he had bitten off more than he could chew. He had all of these talents, all this sort of semi-genius, but he had no control over it.”81 By mid-August, however, he was reassuring his brother that “I have been around the house now for several hours during the last few days and should be out of here soon.” As he compared himself with “other members of the Cabinet whose health has been undermined by work,” he reflected gratefully that “I have been so fortunate in not having been laid up at any time since becoming leader of the Party in 1956, excepting one mishap in January 1959 and the present one. I do not recall when I have been in better health.”82
Diefenbaker had steeled himself to move Donald Fleming from Finance and Davie Fulton from Justice, and at the end of July he began meeting ministers to discuss the changes. Fleming recalled that when they met, Diefenbaker spoke with “disarming frankness … wistfully,” as “a sorely troubled, almost beaten, man.” Fleming recorded his words. “Don, you and I are in the doghouse. I think you should be relieved of the portfolio of Finance. You get the blame for everything, and it’s hurting your future chances. I think you should have a portfolio that will give you a fair opportunity. I don’t know how we will replace you in Finance. You know more about finance than anyone else in the House of Commons. In fact, you know more about finance than all the rest of the House of Commons put together.”83 The minister was struck by Diefenbaker’s “unchallengeable sincerity,” and concluded that “I must aim to be helpful, constructive and, above all, unselfish” as the prime minister struggled to keep the foundering ship afloat. He accepted Diefenbaker’s wish that he should move to Justice, providing Fulton understood that the choice was the prime minister’s.84
Negotiation with Davie Fulton was more troublesome. Diefenbaker began aggressively by claiming that “I found it difficult to speak fully with him because if the future was anything like the past it would find its way into the papers.” He cited two incidents, most recently their December 1962 conversations over the previous cabinet changes. Fulton denied that he had passed reports of their private talks to reporters for personal advantage: “Mr. Diefenbaker, that’s quite wrong, and if you persist in thinking that I am disloyal to you on a personal basis, there is only one course: you must ask for my resignation.” Diefenbaker did not want that, and told Fulton he would be moving to National Revenue. Fulton replied that he could not accept such a demotion. On August 9, the day when Diefenbaker expected to announce his new cabinet, Fulton proposed Public Works as an alternative. After consulting his ministers informally, Diefenbaker agreed. But Fulton was alienated and already thinking about a move back to British Columbia to contest the provincial party leadership in the new year.85
Later in the day, Governor General Vanier met the cabinet at 24 Sussex Drive for a round of musical chairs. This cabinet shuffle was utterly unlike Macmillan’s “night of long knives” less than a month before. No one was dismissed; three new ministers took their oaths; and six ministers shifted jobs. The only public surprise was the appointment of Wallace McCutcheon as a senator and minister without
portfolio: “Kennedy’s got McNamara,” Diefenbaker boasted, “I’ve got McCutcheon.” George Nowlan became minister of finance; Fleming, minister of justice; Fulton, minister of public works; and Ellen Fairclough left Immigration for the Post Office. Besides McCutcheon, the other additions were Richard Bell in Citizenship and Immigration, and Paul Martineau in Mines and Technical Surveys.86 Green and Harkness, two equally loyal and upright ministers who were still at odds over nuclear weapons, were left where they were to carry on the combat. Diefenbaker, in his preoccupation, had not thought about that issue since the election. By some miracle of postponement it might simply evaporate. Pierre Sévigny wrote that the swearing-in “was not a very pleasant occasion. Though everything was done with admirable elegance and appropriate solemnity, we all knew that something was wrong, desperately wrong, and those who were present looked and must have felt uncomfortable.”87
The cabinet changes couldn’t bear much assessment. The press expressed general sympathy for Fleming, welcomed McCutcheon and Bell, noted Fulton’s disappointment, and pointed to the cabinet’s continuing weakness in Quebec. With the promotion of Nowlan and the accession of McCutcheon and Bell – none of whom had been Diefenbaker supporters in 1956 – the new cabinet seemed somewhat less a one-man show. Whether that meant anything would have to be tested.88 Diefenbaker braced himself for the new parliament by rereading Donald Creighton’s biography of John A. Macdonald and taking courage from “his victory over that ‘malignant host’ of enemies who tried to thwart his nation-building work.”89 The Chief could see his own malignant hosts gathering all around.
