What do you suppose Alan Greenspan, Judy Garland, and the American Civil war have in common?  Give up?  They are all connected to turn-of-the-century U.S. monetary policy, of course! Not so obvious? Let me explain.

Just before the American Civil War broke out, Americans used dollar bills that had been issued by banks. The government didn’t make any money, except coins. When the war began, the government (like all governments at war,) needed a great deal of money fast. President Lincoln decided to print it just like banks did. These early government notes were called “greenbacks” and, as you might expect, printing all those greenbacks led to rampant inflation.

Eventually, about 15 years after the war was over, people who held Federal notes, the greenbacks, could redeem them for gold coin. Few people bothered to make this trade because the war was long over, gold reserves were healthy, and people had faith in the government. Money was once again backed by real gold, but this created a new problem. The government could not print any more money that was not backed by gold, and that constricted the money supply.

People who already had money, that is rich people, didn’t want any more money added to the supply because an inflated money supply, devalues savings. Inflation is always bad for people with money because their money becomes less valuable. But people without money, especially poor farmers, were clamoring for the government to print more. Inflation always helps the poor because debts can be repaid in cheaper dollars and money becomes more available for loans, investments, for everything. By 1874 a new political party called the Greenback Party demanded that the government mint unlimited amounts of coin, print more paper money and give $50 to every U.S. citizen. Poor farmers were demanding an inflationary monetary policy.

The Greenback Party dissolved in about 10 years, but a new party emerged and took up the inflationary baton. They were known as the Populist Party and legions of Midwestern and Southern farmers joined. The Populists eventually supported the Democrats because both parties were part of the Free Silver Movement. Remember the problem with the gold standard: the government couldn’t print any more without discovering more gold to back it up. The Free Silver Movement wanted the government to add silver as yet another standard, in addition to gold. Having two standards would allow the government to inflate the money supply and provide relief to farmers. The price of crops had plummeted but debts still had to be paid in gold backed currency.

On July 8, 1896, during the Democratic national convention, a young 36 year old congressman named William Jennings Bryan gave a brilliant rhetorical flourish to the crowd’s sentiments. Bryan exclaimed: “You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind on a cross of gold.”  The ecstatic crowd elected William Jennings Bryan as their presidential candidate.

The “cross of gold,” of course, referred to the single standard; the rigid link between gold and money. The gold standard, favored by Eastern bankers and financiers, was also known as the “hard money policy.” Bryan and his friends championed bi-metallism instead. With two standards, the government could create and back more money – a policy known as “easy money.” Farmers were burdened by bank mortgages on their farms. They were forced to borrow gold backed notes. But the price of gold continued to go up, while the price for crops continued to go down. If U.S. monetary policy eased the money supply, farmers might have a chance to survive.

William Jennings Bryan lost the 1896 election to William McKinley. He lost again to McKinley in 1900 and then, in 1908, Bryan lost yet another presidential election to William Howard Taft. But the dream of a looser money supply, and hatred of Eastern bankers lingered on. The Democratic and Progressive Parties, and others, adopted some of the economic principles forged in the Greenback and Populist Parties. Most interesting, though, is that the spirit of the Free Silver Movement and its resentment for Eastern bankers found its way into one of America’s most original fairy tales: the Wonderful Wizard of Oz.

In 1900, Frank Baum, the author of the Wizard of Oz, was a staunch supporter of the Free Silver Movement and, like many Americans at the time, he distrusted the East coast banking establishment. And now we learn a fascinating story told to us by anthropologist Jack Weatherford. Weatherford tells us, in his new book THE HISTORY OF MONEY, that Baum’s tale of Oz is a thinly disguised parable of turn-of-the-century monetary policy. The Wizard of Oz is the wizard of the gold ounce, the abbreviation of ounce is, of course, oz.

Dorothy, the lead character made famous in the screen version by Judy Garland, represented the average rural American. Dorothy, says Weatherford, was probably modeled on the populist orator Leslie Kelsey who was known as “the Kansas Tornado.” Dorothy, and Toto, are flung by the tornado to the East where they discover the Yellow Brick Road – meaning a gold road. The road leads to Oz “where the wicked witches and wizards of banking operate.”

The Scarecrow is the American farmer. The Tin Woodman is the American factory worker, and the Cowardly Lion is William Jennings Bryan. Weatherford says: “The party’s march on Oz is a re-creation of the 1894 march of Coxey’s Army, a group of unemployed men led by … Jacob S. Coxey to demand (a) public issue of 500 million greenbacks…for (the) common people.” The Wizard himself represented Marcus Hanna who controlled both the Republican Party and the McKinley administration. The Munchkins “were the simpleminded people of the East who did not understand how the wizard … pulled the levers … that controlled the money, the economy, and the government.”

The simpleminded residents of Oz were required to wear green tinted glasses fastened by gold buckles. Off to the West, the Wicked Witch of the West had enslaved the yellow Winkies, which Weatherford explains, “is a reference to the imperialist aims of the Republican administration, which had captured the Phillipines from Spain and refused to grant them independence.”

At the end of the story the Wizard and the Witches are exposed as crude fakes. This dramatic revelation makes everything better. The scarecrow, who represents the farmer, discovers that he is really intelligent and not stupid. The Cowardly Lion, who is really William Jennings Bryan, finds courage. And the Tin Woodman, actually the American factory worker, “received a new source of strength in a bimetallic tool – a golden axe with a blade of silver.”

In the original edition of The Wonderful Wizard of Oz, Dorothy returns to Kansas by clicking the heels of her silver slippers together. The moviemakers decided that red looked better on screen than silver and that’s the way most of us remember the tale. As you can see, and thanks to Jack Weatherford for pointing it out, most of us have completely forgotten the secret story behind the Wizard of Oz.

Today, the Federal Reserve Bank determines America’s monetary policy, but the Fed wasn’t created until 1913. The modern equivelent of the Wizard of Oz – or Marcus Hanna – is, of course, the ever-charming Alan Greenspan. So now you know. The Civil War, Judy Garland and Alan Greenspan, really are connected.

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