All I can tell you is that it sounds for all the world like a load sensing system. Ford used this system with tandem gear pumps and closed center load sensing valves in conjunction with an unloading valve from the early 80's onwards.
If you want to understand the basic function of it, it works like a standard PFC hydraulic system except that the pilot flow actuates teh unload valve instead of the stroke control on a variable piston pump.
Does it have a third, small load sense line coming from the valve banks? That would be the calling card for that system.
I'm not familiar with those old hoes, but given that IH was quite early to the PFC game (I think with the 86 series), it's not impossible that they did some experimentation on the backhoes similar to what Ford did... It was a matter of giving most of the benefits of CC control to the durability and simplicity of an OC gear pump system.
If that's what you're dealing with it sounds as though there is a problem with one of the shuttles in the valve bank or line that is not seating properly. When you cause demand on the loader, that opens the sensing valve which would then supply oil to the hoe... that's my guess as to why it works like that. However, if it's a purely open or tandem center system, you've got me stumped.
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