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

What does the WIZARD OF What does the WIZARD OF OZ have to do with the OZ have to do with the

THE THE BIMETALLIC BIMETALLIC

STANDARD STANDARD

and theand the CRIME OF CRIME OF 1873?1873?

A A BIMETALLIC STANDARDBIMETALLIC STANDARD is a monetary standard is a monetary standard

where the monetary unit is where the monetary unit is defined as consisting of defined as consisting of

either a certain amount of either a certain amount of a metal (gold or silver) a metal (gold or silver) or a certain amount of or a certain amount of

another, with the monetary another, with the monetary authority being ready at authority being ready at all times to coin either all times to coin either metal at the legal price.metal at the legal price.

For example, in the United For example, in the United States for the greater part States for the greater part of the 19th century the of the 19th century the dollar was defined as: dollar was defined as:

People could bring gold or silver bars at People could bring gold or silver bars at the Mint (the agency responsible for the Mint (the agency responsible for

coining money) and they would get gold or coining money) and they would get gold or silver dollar coins in exchange. silver dollar coins in exchange.

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SILVER

371 grains =

GOLD

= 22.5 grains

(a grain is 0.065 grams)(a grain is 0.065 grams)

OROR

371 grains 371 grains 23.5 grains23.5 grains of pure silver <= ONE DOLLAR IS DEFINED AS => of pure silver <= ONE DOLLAR IS DEFINED AS => of pure gold of pure gold

Legal Gold price of silver Legal Gold price of silver or how many tons of silver or how many tons of silver you need to buy one ton of you need to buy one ton of

goldgold

16 :116 :1

The legal price is fixed ...

…. but the market price changes.

Market Gold price of silver Market Gold price of silver From 1837 From 1837

to the Civil Warto the Civil War

15 :115 :1 One silver dollar One silver dollar One gold dollar 1 $ One gold dollar 1 $ <= VALUE AS A LEGAL TENDER=> <= VALUE AS A LEGAL TENDER=>

1 $ 1 $ You can pay your debt either in gold or in silver at You can pay your debt either in gold or in silver at

the legal ratiothe legal ratio

1.07 $ <= VALUE OF 1.07 $ <= VALUE OF METAL IF MELTED=> 1 $METAL IF MELTED=> 1 $ You will thus pay in the cheapest coin and You will thus pay in the cheapest coin and melt or hoard the other.melt or hoard the other.

Whenever the market price Whenever the market price of silver (in terms of of silver (in terms of

gold) is sufficiently far gold) is sufficiently far from the legal ratio, the from the legal ratio, the economy switches to a economy switches to a monometallic standard, monometallic standard, using the relatively using the relatively

cheapest metal as moneycheapest metal as money and removing the other and removing the other

from circulation.from circulation.

Why the market ratio did not move for 75 Why the market ratio did not move for 75 years ?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.

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.

Why pay dear when you can pay cheap ?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.

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 ?

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. 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: Silver

is undervalued

when used as money, so no one will use

it.RESULT: Gold is

overvalued when used as money, so gold coins will be the only ones to circulate.

Germany 1871 Scandinavia* 1874 Denmark 1875 Norway 1875 Sweden 1875 Holland 1875 Belgium 1873 Italy 1873 Switzerland 1873 France 1876 Spain 1876 Austria 1879Russia 1893 India 1898 USA (officially) 1900

* as a monetary union formed that year

DATE OF FIRST GOLD STANDARD

Between 1871 and 1900 every major country except China left their

silver or bimetallic standard for a full gold standard.

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.

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

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.

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.

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.

Macroeconomic ConsequencesMacroeconomic Consequences

*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.

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)

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.

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.

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.

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.

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.

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 Wizard of OzOz, 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.

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.

So what does Bryan’s Cross of Gold speech So what does Bryan’s Cross of Gold speech have to do with the have to do with the Wizard of OzWizard of Oz published published

in 1900??in 1900??

The author of The Wizard 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.

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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 The Silverites believed that the gold standard put too many restrictions on standard put too many restrictions on

the US government's ability to the US government's ability to rectify the depression, since all rectify the depression, since all money was redeemable for a certain money was redeemable for a certain

amount of gold.amount of gold.

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.

•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.


Dorothy, the heroine, symbolizes mid-America at its best -- honest and openhearted.

The Tin Woodman who joins them represents the American worker whose grinding labors have left him, at least for a time, rusted

and heartless.

*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.

And the Cowardly 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.

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.




The cyclone is "the free silver free silver movementmovement 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.



The Wicked Witch of the East Ritter identifies as Eastern Eastern capitalism .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.

QuickTime™ and aTIFF (Uncompressed) decompressor

are needed to see this picture.

QuickTime™ and aTIFF (Uncompressed) decompressorare needed to see this picture.QuickTime™ and aTIFF (Uncompressed) decompressorare needed to see this picture.

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.

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)



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


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.

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).

Seen in this light, the moral of Baum's story is that the dishonest dishonest claims of the pro-gold claims of the pro-gold forces will finally be forces will finally be

unmaskedunmasked.

*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.

The End

Compiled by Virginia Meachum, Economics Teacher, Coral Springs High School

SOURCE: http://www.micheloud.com/FXM/MH/Crime/index.htm

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

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