Adair Turner's account of financial markets is insightful but misunderstands the role of the state in creating financial crises.
Mention “bimetallism” today—the coining of both gold and silver as legal tender—and the eyes glaze over immediately. However, in late 19th century U.S. politics, along with the tariff, bimetallism was the major political obsession of the era. Everyone talked about the subject. It featured as the foremost political issue in the presidential election of 1896. William Jennings Bryan won the Democratic nomination due to his “Cross of Gold” speech at the convention advocating bimetallism. So obsessed was the era with this policy debate that a line of scholarship in the latter half of the 20th century argues the well-known children’s book, The Wizard of Oz (originally titled The Wonderful Wizard of Oz), is an allegory of the era’s political conflict over bimetallism.
The Coinage Act of 1873 ended the U.S. mint’s legally-authorized practice of converting silver bullion into legal tender at no cost. The “free silver” slogan referred to the price the mint would charge to convert bullion into coins: free coinage. Prior to this, except for the Civil War, the U.S. had a bimetallic monetary standard, coining both silver and gold at a fixed exchange rate.
Congress statutorily fixed the exchange rate between silver and gold in 1834 at sixteen ounces of silver to one ounce of gold. After the Civil War, however, the ratio of silver prices to gold prices consistently exceeded that standard, with the ratio reaching 32.8 in 1894. William Jennings Bryan’s “free silver” position would have legally reestablished mint prices far below the ratio of market prices, at the old sixteen to one ratio. “Free silver” effectively was an inflationary policy. Free silver meant that loans taken out in dearer gold dollars could be paid back in cheaper silver dollars.
Note, however, that bimetallism is not inherently inflationary. Bryan’s platform would have caused inflation only because it proposed to set the exchange rate between silver and gold at the earlier legal level, a level that diverged significantly from the existing market price ratio. There would be no inflationary effect if the exchange rate were set at extant prices and allowed to float. Indeed, Milton Friedman argued the evidence showed greater monetary stability under bimetallism than under the monometallic gold standard. That makes sense given that combined variance in the supply and demand for both silver and gold would generally be less than the variance of one metal alone. So prices denominated in a bimetallic standard would vary less than with a monometallic standard of either gold or silver.
Several scholars have posited The Wizard of Oz as an allegory for the politics of bimetallism during this period. Perhaps the best-known and best-argued is economist Hugh Rockoff’s 1990 article, “The ‘Wizard of Oz’ as a Monetary Allegory,” in the prestigious Journal of Political Economy. The evidence, however, is entirely circumstantial. Rockoff and others argue the circumstantial case is compelling. Other scholars beg to differ.
Important to note first is that the allegorical reading riffs off L. Frank Baum’s book, not the 1939 film. The most pertinent difference between the book and the film is, in the book, the slippers/shoes Dorothy gets from the Wicked Witch of the East are silver, not ruby. So Dorothy journies clad in silver shoes on the yellow brick (gold) road, to the Land of Oz (“ounce,” of gold or silver). Both silver and gold take her there. Bimetallism.
Dorothy is whipped out of Kansas by a tornado with her little dog “Toto” (short for teetotalers, who made a loud noise yip-yapping but were otherwise ineffective political companions). On her way to the Land of Oz, Dorothy picks up her electoral coalition. First, the Scarecrow, representing western farmers. According to Rockoff,
He thinks that he has no brains because his head is stuffed with straw. But we soon learn that he is shrewd and capable. He brings to life a major theme of the free silver movement: that the people, the farmer in particular, were capable of understanding the complex theories that underlay the choice of a standard.
Next, the Tin Man (or Tin Woodman). The working class man, once a true human, is now just a cog in the industrial machine. Piece by piece his human body was replaced by metallic parts. He is now little more than a machine, a heartless (literally) machine. The Populist hope of the era was a grand farmer-labor coalition that never quite solidified—and we still see residual evidence of this hope in the official name of Minnesota’s Democratic Party, the Democratic-Farmer-Labor Party.
The Cowardly Lion, then, was William Jennings Bryan himself. Capable of a great roar—his speeches were legendary—alas, to mix metaphors, he was all bark and no bite.
Once they gain admission, the Great Oz instructs the small group, “In this country everyone must pay for everything he gets.” Rockoff writes “this Wizard who speaks through various figure heads and adheres to . . . a purely Republican world view” could be none other than Marcus Alonzo Hanna, a “close adviser of McKinley and the chairman of the Republican National Committee.”
Rockoff continues to unfold the allegory with considerable detail, but the above provides a flavor of his argument.
Rockoff concedes that “Baum left no hard evidence that he intended his story to have an allegorical meaning.” He judges the circumstantial evidence to be “considerable. Economist Bradley A. Hansen, writing in the Journal of Economic Education twelve years later begs to differ, pointing out how important parts of the story don’t fit the politics of the time, and arguing at length that Baum would not have sympathized with populist politics in any event. I tend to agree with Hansen on this point, at least: The circumstantial evidence is not as compelling as Rockoff suggests it is. Nonetheless, whatever Baum intended, Rockoff’s allegorical reading of The Wizard of Oz is a great way to teach an important, but overlooked, controversy in American political history.