What does the WIZARD OF OZ have to do with the THE BIMETALLIC STANDARD

1. What does the WIZARD OF OZ have to do with the THE BIMETALLIC STANDARD and the CRIME OF 1873?

2. A BIMETALLIC STANDARD is a monetary standard where the monetary unit is defined as consisting of either a certain amount of a metal (gold or silver) or a certain amount of another, with the monetary authority being ready at all times to coin either metal at the legal price.

3. For example, in the United States for the greater part of the 19th century the dollar was defined as: OR SILVER 371 grains = GOLD = 22.5 grains People could bring gold or silver bars at the Mint (the agency responsible for coining money) and they would get gold or silver dollar coins in exchange. (a grain is 0.065 grams)

4. The legal price is fixed ... Legal Gold price of silver or how many tons of silver you need to buy one ton of gold 16 :1 371 grains 23.5 grains of pure silver <= ONE DOLLAR IS DEFINED AS => of pure gold …. but the market price changes. Market Gold price of silver From 1837 to the Civil War 15 :1 One silver dollar One gold dollar 1 $ <= VALUE AS A LEGAL TENDER=> 1 $ You can pay your debt either in gold or in silver at the legal ratio 1.07 $ <= VALUE OF METAL IF MELTED=> 1 $ You will thus pay in the cheapest coin and melt or hoard the other.

5. Whenever the market price of silver (in terms of gold) is sufficiently far from the legal ratio, the economy switches to a monometallic standard, using the relatively cheapest metal as money and removing the other from circulation.

6. Why the market ratio did not move for 75 years ? The fact that the market ratio was very stable despite the massive gold discoveries of the1850's is the consequence of a simple arbitrage. If the market price of silver exceeds the legal price ... ... silver coins are melted and gold jewels are coined, changing the relative supply of both metals. Market price of silver declines and equilibrium is restored.

7. The imbalances can be corrected and the market price be kept in line with the legal price as long as there are big enough countries on a bimetallic standard with the same ratio. Otherwise one metal will be totally drained from the monetary base and what will be left is a monometallic standard. The legal ratio fixes the market ratio if enough big countries are on the same bimetallic system with the same legal ratio. If the oversupply of silver is lasting, all the silver can be drained from the money stock.

8. Why pay dear when you can pay cheap ? The bimetallic Standard offered the debtors something nice : they could repay their debts in the cheapest metal. The market value of the metal that coins (dollars if you want) were minted from changed every day, but the value of the coins when used to repay debts or to buy something was constant. A dollar is a dollar, be it gold or silver.

9. Whenever the market ratio of silver to gold prices rises above the legal ratio, the monetary system will use only gold and it is a de facto monometallic gold standard. That was the situation of the USA for the greater part of the 19th century. So……. What happens when the market silver price of gold differs too much from the legal price ?

10. To understand this, let's assume you have a bar of silver and you need some dollars. You have then two options : 1) you can simply go to the mint and ask for your silver to be coined. You will then receive the legal amount of dollars for your silver, that is 1500/371, because a dollar is defined as 371 grains of silver. RESULT: Silver is undervalued when used as money, so no one will use it. 2) you can first exchange your silver bar on the open (bullion) market at the prevailing price. --Let's assume it's 15:1, which makes silver more valuable here than at the mint, where it is legally set at 371/22.5= 16 grains of silver for one grain of gold. RESULT: Gold is overvalued when used as money, so gold coins will be the only ones to circulate.

11. Between 1871 and 1900 every major country except China left their silver or bimetallic standard for a full gold standard. DATE OF FIRST GOLD STANDARD Germany 1871 Scandinavia* 1874 Denmark 1875 Norway 1875 Sweden 1875 Holland 1875 Belgium 1873 Italy 1873 Switzerland 1873 France 1876 Spain 1876 Austria 1879 Russia 1893 India 1898 USA (officially) 1900 * as a monetary union formed that year

12. The reason is, after the Franco-German war of 1871, the victorious Germans asked for a very heavy "war indemnity" to be paid in gold by France. They used this gold to finance a new gold standard for their country, because the abundant silver supply would have caused outright inflation. That was, at least, the reason invoked to institute a Gold Standard. Please take note that England already was on a gold standard since 1816, and they do not figure in the table, because it was not part of the wave of the last quarter of the century that killed once for all the bimetallic standards.

13. In the last decades of the 19th century a battle raged in the United States that gave rise to a national debate that dominated the last two presidential elections of the century. William Jennings Bryan

14. What is known in Populist rhetoric The Crime of 1873 was the demonetization of silver enacted by the Coinage Act of 1873. Alexander Hamilton had set the United States on a bimetallic standard in 1792 and, with the exception of the Civil War, the country had not moved from this system. In practice this was a continuous switching from a gold standard to a silver standard. When the legal price of gold in term of silver then nobody would bring gold to the mint and the country would be on a de facto monometallic silver standard.

15. The consequences of this technical decision were enormous, and it seems to be clear in the view of recent research that many people suffered from until the end of the century. *Immediately after the United States went for a gold standard regime in 1873, the market price of gold in term of silver began to rise, starting from about 15 in 1870 to reach a maximum of about 40 in 1900. The demonetization of silver was accompanied by several circumstances which led to a strong secular deflationary trend of about 1.7 % a year in the general CPI from 1875 to 1896.

16. Macroeconomic Consequences The decision to remove the American dollar from bimetallism in 1873 did not have immediate consequences because silver was undervalued at the legal ratio and nobody used it anyway. *But as one country after the other switched to the Gold Standard at the end of the century, the demand for gold rose tremendously and a flow of silver was freed from monetary purposes in France, England, Germany and most other big countries.

17. The result was that the dollar (and so the American monetary mass and ultimately output and employment) was linked to a metal that was getting scarcer and scarcer. The monetary mass could not keep pace with the strongly expanding economy, and price measured in gold declined strongly. This deflationary effect was hindered to some extent by the spreading monetization of the American economy and a more efficient banking system that allowed to pile up more paper money on a given currency base (that is, gold)

18. We see between 1875 and 1896 a deflation of about 1% a year in the general CPI. A the same time the output rose by 6 % a year. **The growth made the prices go down. With a fixed quantity of money if the number of transactions rises and the velocity cannot rise sufficiently, then prices have to fall. All this led to a depression so great that you would have to wait for 1932 to see the same again. Unemployment peaked at 18 % in 1894. But some people suffered more than others.

19. Political agitation in favor of the free coinage of silver On the monetary side, this deflation made many bank loans turn sour, as the debtors struggled to honor their obligations with rising real value of their debts. Particularly hurt were the net debtors, and among them the peasant class at most because they had to face a rising real value of their (generally heavy) debts combined with a decline in agricultural prices of about 3% a year.

20. The silver producers, the Populist Party, the peasants and other classes were behind William Jennings Bryan, candidate of the Democrats for the Presidential elections of 1896 . **Bryan is the only man to lose four Presidential elections.

21. The urban electorates, the net creditors (bondholders, bankers and financiers) and other apostles of "sound money " joined the platform of the Republicans led by their nominee William Mc Kinley.

22. Bryan lost the 1896 election due to a swing of the farm vote (following a rise in agricultural prices) and the following, but became Secretary of State. According to some theorists (Rockoff), The Wonderful Wizard of Oz, a children’s book written by Frank Baum in 1900, seems actually to be an allegory of the battle for bimetallism, Hugh Rockoff makes a good case for it in his 1990 paper.

23. Conclusion Monetary policy and even monetary regimes can be debated by non-specialists and can even be a crucial element of a political party’s platform. Monetary policy is the object of deep interest struggles, not a neutral variable affecting all people equally and better left to non-accountable specialists. There can be a strong output growth even with secular deflation.

24. So what does Bryan’s Cross of Gold speech have to do with the Wizard of Oz published in 1900??

25. The author of TheWizard of Oz, L. Frank Baum, was involved in an important American political debate at the end of the19th century. At the time, the United States was part of the worldwide gold standard, whereby the country's money supply was limited by the amount of gold.

26. When a depression in the US economy in the early 1890s led to high unemployment and falling prices, the radical Free Silver Movement (the Silverites) responded by calling for the end of the gold standard. The Silverites believed that the gold standard put too many restrictions on the US government's ability to rectify the depression, since all money was redeemable for a certain amount of gold.

27. Baum sympathized with the Silverites and wrote The Wizard of Oz after the failure of Bryan's crusade for silver coinage. The book's hidden story highlights the potential dangers for Americans of retaining the gold standard.

28. Dorothy, the heroine, symbolizes mid-America at its best -- honest and openhearted. • Uprooted by a tornado, she is enticed to follow a yellow brick road to the fantasyland of Oz (an ounce of gold). • *The Scarecrow she meets symbolizes the Western farmer who thinks he has no brain but turns out to be more capable and intelligent than he realizes.

29. TheTin Woodman who joins them represents the American workerwhose grinding labors have left him, at least for a time, rusted and heartless.

30. *He's so dehumanized he doesn't have a heart. *He is the workingman. In the book we learn that he was once flesh and blood but was cursed. As he worked, his ax would take flight and cut off part of his body. A tinsmith would replace the missing part, and the Tin Woodman could work as well as before. Eventually there was nothing left but tin. *For Rockoff he represents the Populist and Marxist idea of the alienation of the industrial worker. He once was an independent artisan but is now just a cog in a giant machine. *Traditionally, the ax is a symbol for “that which is above the king,” or commercial law above the sovereign.

31. And theCowardly Lion who tags along depicts none other than William Jennings Bryan,the leader whose lack of courage finally caused him to betray the pro-silver cause.

32. The good witch tells Dorothy that the Wizard of Oz might help her get home. "The road to the [Wizard's] City of Emeralds is paved with yellow brick... so you cannot miss it," the witch explains The yellowbrick road: In the book it is actually a choice of gold or silver, not gold or ruby. Walking on the yellowbrick road with the silver slippers represented the bimetallic standard Emerald City represents Washington D.C. The color is suggestive of paper greenbacks.

33. The cyclone is "the free silver movement itself. It came roaring out of the West in 1896, shaking the political establishment to its foundation" The Munchkins are subjects of the eastern banking and industrial interests, i.e., eastern workers who didn't vote for Bryan. While attempting to take Dorothy home in his hot-air balloon, the bumbling but well-meaning Wizard takes off leaving Dorothy stranded. But the charm of the silver shoes kicks in again and saves the day. The power was there all along.

34. The Wicked Witch of the East Ritter identifies as Eastern capitalism . Recall that her counterpart in the first part of the film was “Almira Gulch”, who supposedly “owned half the county” (or perhaps half the country).  Miss Gulch had arrived at Dorothy’s farm with an “Order from the Sheriff” demanding that Toto be handed over, because allegedly he had bitten Miss Gulch.  The Wicked Witch of the West was dressed in black, the choice of color for judges’ robes.  Thus, she also represents the judges and attorneys, essentially the American legal system, who are the primary henchmen for transferring the wealth of America from the people to the banksters.

35. The Wizard himself, Littlefield says, is "a little bumbling old man, hiding behind a facade of papier mache and noise, might be any President from Grant to McKinley" Prior to the storm, the Wizard is a fortune teller traveling in a cart with the words, “Professor Marvel, Acclaimed by Crowned Heads of Europe, Let him read your Past, Present & Future in his crystal. Also juggling and sleight of hand.” In the Emerald Palace they enter 7 passages and climb 3 flights of stairs. (Crime of 1873)

36. The field of poppies reference the “drugging or doping of America.” The authentic people/animals sleep, while the fake beings call for help.

37. The group reaches the Emerald City (Washington DC) and, once they have donned green-tinted (money-coloured) glasses, enter the opulent Emerald Palace (the White House). After various adventures involving the Great Wizard and the Wicked Witches (who represent various pro-gold political figures (wicked banks)), Dorothy and her friends return to Oz, where they unmask the Wizard as an imposter. Dorothy is then able to return to the security of home by clicking her silver (not ruby, as in the movie) slippers.

38. Seen in this light, the moral of Baum's story is that thedishonest claims of the pro-gold forces will finally be unmasked. *To a large extent this predictions has proven correct. While the populists were viewed in their own day as simplistic cranks, their wariness of the gold standard, especially during economic slumps, is now supported by most monetary economists.

39. The End Compiled by Virginia Meachum, Economics Teacher, Coral Springs High School SOURCE: http://www.micheloud.com/FXM/MH/Crime/index.htm