Disciplining the bond vigilantes with the Province of Ontario Savings Office .. a teachable moment from the 1930sAug 8th, 2011 | By Counterweights Editors | Category: In Brief
The Sage of Omaha, Warren Buffet, may have come up with the wittiest pronouncement on Standard and Poor’s downgrade of the US credit rating from AAA to AA+. It “doesn’t make sense,” he has said: “The US, to my knowledge, owes no money in currency other than the US dollar, which it can print at will. Now if you’re talking about inflation, that’s a different question.”
There is also Paul Krugman’s contention that “it’s hard to think of anyone less qualified to pass judgment on America than the rating agencies … The people who rated subprime-backed securities are now declaring that they are the judges of fiscal policy? Really?”
Stock markets nonetheless remain troubled at the moment. And here in Canada’s most populous province, a few collectors of obscure historical narratives may be reminded of a brief interlude in the middle of the 1930s, when Ontario’s populist Liberal premier Mitch Hepburn (aka “Canada’s Huey Long”) briefly did battle with “the centre for entrenched finance” in the Canadian private sector of the day — and won (well, sort of, more or less, for the time being, etc, etc, etc).
The story has been told at greater length in an article by Dr. Randall White in the March 1995 issue of the journal Ontario History, entitled “The Province of Ontario Savings Office, 1922–1990: A Case Study in the Complexities of Ontario Political Culture.” A very quick condensed version might run as follows:
The Province of Ontario Savings Office was a non-bank financial institution established in 1922 by Ontario’s unique Farmer-Labour government, led by Ernest Charles Drury. Strangely enough, it managed to survive for some 80 years, before finally being privatized and sold to the Quebec-headquartered Desjardins Credit Union early in 2003, during the last days of the Harris-Eves “common sense revolutionary” Conservative government.
Back in 1934 when he first became Liberal premier of Ontario, Mitch Hepburn himself apparently had thoughts about getting rid of the Savings Office. But he and several of his cabinet ministers also had ties with the old Drury government. For sentimental reasons, as it were, the Hepburn government kept the organization alive. And this would soon enough prove fortuitous. We quote directly from Dr. White’s article of 1995:
“In the spring of 1935 the Hepburn government passed legislation enabling the repudiation of contracts for surplus hydroelectric power, negotiated under the [previous] Ferguson and Henry administrations with the so-called power barons of Montreal. This incensed assorted financial interests in Montreal and Toronto to such an extent that when the Ontario treasury launched a routine provincial bond issue early in June 1935, it found no takers. This incensed Mitch Hepburn. The premier had ‘heard rumblings that the financial interests were going to discipline us by making no bids for our bonds.’ He declared that ‘the centralized money machine … must be taught that the power of money stops somewhere.’ On 17 June 1935 a $20 million provincial bond issue was successfully sold through the branches of the Province of Ontario Savings Office and the provincial treasury headquarters — the first such issue to be handled solely by the Ontario government. If the private financial community would not attend to the business of ‘the people of Ontario,’ Queen’s Park had an alternative. There was talk of opening as many as thirty to fifty new Savings Office branches. And six new branches actually were opened over the next eight months.”
Inevitably, no doubt, cooler heads finally prevailed on both sides. The power barons of Montreal agreed to renegotiate the old surplus hydroelectric power contracts of the roaring 1920s at reduced rates, more suited to the 1930s Great Depression. Premier Hepburn did not finally turn the Province of Ontario Savings Office into a major publicly owned financial institution, competing with the Canadian private sector “centre for entrenched finance” in Ontario’s capital city.
In the second decade of the 21st century, however, this tale of the dirty 1930s does suggest that duly elected democratic governments in countries like Canada, with millions of thrifty families among the mass electorate, do not have to be entirely at the mercy of so-called private sector “bond vigilantes” — if they are prepared to show at least a little gumption and courage every once in a while!
(Oh and btw, the old agrarian democratic Province of Ontario Savings Office was finally privatized in 2003: but even today one Canadian province does retain a similar institution. Check out, eg, what is now called ATB Financial — the heir of the old Alberta Treasury Branches, established in 1938 in emulation of the Ontario Savings Offices by Bible Bill Aberhart’s Social Credit government in Edmonton, er Redmonton, aggressively attacked in the Great Depression as an economic “Frankenstein” by the Toronto-based Financial Post!)