Last night, while I was cooking dinner, I started listening to an LSE lecture on The Social Life of Money by Nigel Dodd. Mainly because I don’t want to read the book. I mean no offence to Nigel, but academic sociologists write books that feel a lot like work – and in any case, I’ve learned that most academics will give you the main points in a key note lecture without shame*.
*I’ve actually learned this the hard way: by listening to the lecture, and then deciding to read the book because the lecture was so interesting, and then realising that there was absolutely no reason to read the book.

Anyway, his introductory section mentioned “The Wonderful Wizard of Oz” as an allegory for monetary reform in the US in the late 1890s.

To which I was all “Whaaaaat?” and then “Oh that makes so much sense – Oz and oz. and yellow brick gold standard roads and a greenback emerald cities – Mind. Blown.”

Which is totally a nerdy moment – but I thought I’d share it anyway.

Here is a picture:

Thanks this website
Thanks this website

The Background

In the early 1890s, America had entered a depression. What had happened (thanks Wikipedia):

  • In 1873, America had experienced a depression (funny how stories about depressions generally begin with stories about earlier depressions).
  • In a bid to be stimulative, Congress had decided that what America really needed was cheaper money (sound familiar?).
  • Only, America was only using gold dollars at the time.
  • So Congress pushed through a bimetallism bill (the Bland-Allison bill), making Silver a concurrent standard alongside Gold, and requiring the US Treasury to buy lots of silver every month from Western American mines and minting these into silver dollars.
  • All the cheap money resulted in massive expansion and economic growth, largely driven by heavy investment into America’s railroads. And also, what often follows with lots of new money, railroad speculation.
  • Some of these profits were also funnelled into Argentinian farming ventures (all the rage).
  • All was well, until the farmers and miners of the American Mid-West realised that they were heavily indebted, having taken advantage of all the cheap money to expand and overproduce.
  • What the farms and mines wanted was for the US treasury to buy more silver, in order to drive up inflation, so that their debts could be paid back with cheaper silver dollars.
  • Congress obliged by introducing the Sherman Silver Purchase Act of 1890 (QE2?).
  • Which, awkwardly, included an in-hindsight-incredibly-stupid buyback clause.
  • That is: the silver being purchased from the mines was paid for with Treasury Notes that could be redeemed for either silver or gold.
  • Because when you do that, and you fix the gold-silver exchange rate, but you continue to pump new silver into the economy – you’re setting yourself up for a serious drama.
  • All it needed was a trigger.
  • And then the trigger arrived in the form of an Argentinian wheat crop failure and a coup in Buenos Aires.
  • Investors panicked, and followed the bank run route of converting all their money to Gold because that was the better metal.
  • Sparking off a serious depression.
  • Not helped by a drought in the Mid-West (making life even more difficult for the farmers).
  • Oh, and also, in 1893, the Sherman Silver Purchase Act was repealed by President Grover Cleveland – making a bad time of it for the silver miners, who’d just lost a significant buyer.

So when you get depressions of this scale, you get the rise of the populist movements. After all, America was split into:

  • The Debtors – who were the farmers, miners, industrial workers, and average Americans, who’d borrowed money and now had to pay it back; and
  • The Creditors – who were the big corporations and bankers of Wall Street, who’d done all of the evil lending and now were being presumably unpatriotic in wanting it to be paid back.

That populist movement was the Free Silver movement – and although it had existed before the 1893 – 1896 depression (after all, the Sherman Silver Purchase Act was definitely in line with the Free Silver ideal), it became particularly prominent during the depression (after the Sherman Silver Purchase Act had been repealed). And it was a key part of the 1896 presidential election campaign of William Jennings Bryan (he lost).

The Silverites wanted cheap silver money, exchangeable into gold at a rate of 16 silver ounces to 1 gold ounce – when the market rate was closer to 32 to 1.

At those exchange rates, gold would have been driven out of circulation, and silver would have become the dominant currency – happily inflating away consumer debt with every new ounce of silver mined.

Baum’s Wonderful Wizard of Oz

I’m going to give you quite a long quote, from the Money Reform Party’s website:

So the story of the Wizard of Oz starts with a cyclone in the form of imagined electoral success for Bryan…

Dorothy, a sort of proverbial ‘Everywoman’, lands on the Wicked Witch of the East (the East-coast bankers), killing her, so freeing the Munchkins, the down-trodden poor, but the Wicked Witch of the West (the West-coast bankers) remains loose.

To deal with her and to get back to Kansas (normality), the Good Witch of the North… tells Dorothy to seek out the Wizard of Oz (‘oz’ being short for ounce, the means of weighing both gold and silver). She also gives her a pair of silver slippers (as they were in the book – they became ruby ones in the film). Only these silver slippers will enable her to remain safe on the yellow-brick road, representing the bankers’ gold standard, as she heads towards the Emerald City, representing Washington DC.

On her journey, Dorothy encounters a Scarecrow, representing the farmers, who do not have the wit to understand how they can end up losing their farms to the banks, even though they work hard to grow the food to feed a hungry nation. If only they could think it through!

Next, she encounters a Tin Woodsman, representing the industrial workers, rusted as solid as the factories of the 1890s depression, and who have lost the sense of compassion and co-operation to work together to help each other during hard times. Also, a spell cast upon him by the Wicked Witch of the East meant that every time he swung his axe, he chopped off a bit of himself – he downsized!

Then the growing party encounters a Cowardly Lion, representing the politicians. These have the power, through the power of Congress and the Constitution, to confront the Wicked Witches, representing the banks, but they lack the courage to do so.

Dorothy is able to motivate these three potent forces and leads them all towards the Emerald City, whence ‘greenbacks’ had once come, and an encounter with the omnipotent and wonderful Wizard of Oz.

The Wizard of Oz is initially quite majestic and apparently awesome, but he turns out to be a little man without the power that people assume he possesses. He does, of course, represent the President of the United States. With the Wizard’s illusion of power shattered, he is replaced by the Scarecrow who would ‘be another Lincoln’.

The Wicked Witch of the West, fearful for her own power, then attempts to destroy Dorothy but is herself dissolved in a bucket of water, as rain relieves the Mid-West drought, saves the farmers’ livelihoods and prevents repossession by the banks.

The Good Witch of the South, representing the Southern electorate, tells Dorothy that her silver slippers, silver-based money, are so powerful that anything she wishes for is possible, even without the help of the Wizard. Dorothy wishes to go home. There all is now well, because the land has a stable and abundant money supply.

How is that for a fairy tale?

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at