The Wizard of Oz: The Great American Fairy Tale and its Surprising Modern Relevance

There's a story that the Wizard of Oz is about politics and money in a time not quite so different from today. And not just the new movie version of Wicked.

The Wizard of Oz is a classic, and original American Fairy Tale. L. Frank Baum’s best-selling book spawned a series of sequels, a stage play, musical, and movies.

The story of a smart and capable young orphan farmgirl, Dorothy Gale, who is living with her uncle and aunt in Kansas when her farmhouse gets picked up in a tornado and dropped in a magical country of Oz, crushing the Wicked Witch of the East who has been oppressing the local folk, the Munchkins.

As Dorothy progresses on her journey, it’s notable that most of the people she meets aren’t what they seem, and none of the adults are particularly effective or helpful. She meets a scarecrow who needs a brain, a tin man who wants a heart, and a lion who needs courage. They’re told to follow the yellow brick road to the Emerald City where the Great Wizard Oz will help.

The Wizard proves to be of no help either - he tells Dorothy that she is the one who has to do something about the Wicked Witch of the West, which she does, by dousing her with a bucket of water.

When Dorothy and her friends return to the Emerald City, the Wizard of Oz turns out to have no magic powers at all. He, too, is from the U.S. - a circus magician who arrived in the land of Oz when his hot air balloon carried him away. It turns out that Dorothy had the power to return home all along - she just needed to click her silver slippers together. (The film changed them to ruby to look better on screen).

Given all the magic, flying monkeys, talking trees, charlatans, it’s hard to see what any of this has to do with the real world.

There’s an argument that the Wizard of Oz is actually an extended kind of political cartoon about economic justice in the U.S.

If you’re thinking “well, that’s a sure-fire way to drain the joy out of a beloved classic” you could not be more right.

I actually have degrees in English literature, which means I understand that dissecting joyful stories can be like dissecting a beloved pet. You feel terrible and the story (and pet) are ruined.

However, the political interpretation of the Wizard of Oz is arguably so weird enough on its own - that it doesn’t detract from the story that much.

Is the Wizard of “Oz.” the Wizard of Ounces (Of Gold?)

The political allegory version of the Wizard of Oz suggests that it’s a story about farmers’ fight with the US Government about money - a debate that really did drive political movements, policy and ideas.

“In 1964 Henry Littlefield, a Columbia University-trained historian, wrote a breakthrough article in the scholarly American Quarterly titled “The Wizard of Oz: Parable on Populism.” In the article, Littlefield made the bold claim that Frank Baum's 1900 book "conceals an unsuspected depth." The Wonderful Wizard of Oz was, Littlefield thought, “a Midwesterner’s vibrant and ironic portrait of this country as it entered the twentieth century.” Specifically, Littlefield argued that the story of The Wizard of Oz was an elaborate metaphor for the Populist movement (a rising political force in the 1890s) and a critique of the complicated national debates over monetary policy.”

You can access the original essay here.

If you’ve ever heard of a “gold standard” it’s the idea that money is “backed” by gold. In the U.S., money was backed not just by gold, but also by silver.

It was a “bimetallic standard” and silver was worth 1/16th the value of gold.

In 1873, the U.S. changed that standard during their “gilded age”.

Bimetallism was primarily the monetary policy of the United States until Greenbacks were issued during the Civil War. In the early years, the U.S. operated on a “bimetallic standard,” using both gold and silver coins as currency, with gold valued 16 times higher than silver, or a 16-1 ratio. In 1873, the Coinage Actdemonetized silver and started the U.S. on the path to the Gold Standard. The debate over Bimetallism contributed to the Free Silver Movement and an intense debate over monetary policy in the U.S. during the Gilded Age.

As it happened, there was also a massive crash in Europe and the U.S. causing an extended period of misery - just as new silver mines were being discovered in the U.S.

That Gilded Age was marked by political violence and social uprisings, because then - as today - the colossal and growing concentration of wealth and income at the top was a consequences of loss of wealth and income by other segments of society that had been transferred upwards.

Matt Stoller writes in his Dec 6 2024 newsletter on Monopolies:

In his speech for the Sherman Antitrust Act in 1890, Senator John Sherman of Ohio made a number of legal points about how to understand competition. But the thrust of his argument was about law and order, for the specter of violence was hanging over a nation that had within living memory experienced a massive and traumatic civil war. And there had been significant, and violent, strikes involving railroads, sometimes nationwide.

Sherman believed America as a free people simply could not sustain the rise of immense concentrations of power in the industrial corporations he saw in his day. Congress had to act, or chaos would reign. Here’s what he said:

You must heed their appeal or be ready for the socialist, the communist, and the nihilist. Society is now disturbed by forces never felt before. The popular mind is agitated with problems that may disturb social order, and among them all none is more threatening than the inequality of condition, of wealth, and opportunity that has grown within a single generation out of the concentration of capital into vast combinations to control production and trade and to break down competition.

Just two years earlier, President Grover Cleveland, in his 1888 State of the Union, discussed that same social chaos in the wake of the rise of large corporations and the inequality they brought.

Communism is a hateful thing and a menace to peace and organized government but the communism of combined wealth and capital, the outgrowth of overweening cupidity and selfishness, which insidiously undermines the justice and integrity of free institutions, is not less dangerous than the communism of oppressed poverty and toil, which, exasperated by injustice and discontent, attacks with wild disorder the citadel of rule.

The social contract, in other words, goes both ways. It’s not just mean for a small clique to run a corrupt system, but Americans who are put upon, if given no peaceful options, will fight back violently. And such a view was not mere rhetoric. In 1892, an anarchist named Alexander Berkman shot Andrew Carnegie’s partner, Henry Clay Frick, who had just broken the most important strike of the decade, of Homestead workers in Pennsylvania. A few years after that, in 1901, an assassin killed President William McKinley. That was a violent time, a post-Civil War era with large number of men trained in weaponry, along with a raw increase in power imbalances.

In response, there was a demand from farmers and others wanted a return to “Free Silver” - creating new money, to “re-inflate” the economy, which had collapsed.

“Littlefield believed that Dorothy was a stand-in for the average American, and that the magic silver shoes represented the late 1890s free silver movement.

During the severe depression of 1893-1896, many Populists believed that the federal government should adopt an inflationary monetary policy, freely minting silver money, in order to re-energize the national economy. In contrast, Littlefield thought Oz’s yellow brick road represented the existing gold standard, which fixes U.S. paper currency to a specific price for gold bullion. In his reading, the Emerald City, the terminus of the yellow brick road, is Washington, D.C.”

According to Littlefield, the scarecrow, displaying “a terrible sense of inferiority and self doubt,” represents the American farmer (who made up the bulk of the Populist Party). Littlefield cites an 1896 article which accuses Kansas farmers of “ignorance, irrationality and general muddle-headedness.” By extension, the tin woodman represents the hoped-for other faction in the People’s Party—the factory worker. Dehumanized, the simple laborer has been turned into a machine.

The actual story of the Tin Woodman in the books is pretty alarming. Originally, he was a human being - a woodcutter - whose ax had a spell put on it, with the result that he kept cutting off his parts of his body, which were replaced with mechanical parts, one by one.

Littlefield suggests that the “Cowardly Lion” was William Jennings Bryan, a progressive populist who played a significant role in U.S. history, both as a populist and as the lawyer arguing against evolution in the Scopes monkey trial.

In 1896, Bryan delived a speech at the Democratic National Convention in favour of “Free Silver” and expanding the money supply beyond the limits proscribed by gold reserves.

It is considered one of the greatest speeches in U.S. history, where Bryan said Americans were being “crucified on a cross of gold.” Bryan won the nomination to be the Presidential candidate.

His Republican opponent, William McKinley “ran for president on a protectionist plank. Pledging support for American workers, he sought high tariffs to make foreign manufactured goods unattractive and he supported the gold standard.”

There have been other essays that dismiss the arguments, including one of Baum’s descendents, who described this interpretation as “insane.”

However, as Stoller notes, the economic crisis and the politics we are facing today are similar, as they tend to be.

Today, we have a protectionist U.S. President who is raising tariffs and who supports cuts and austerity with the intended goal of preserving the value of money - fighting inflation.

The reality of all of these policies is that they do not deliver relief or change, because they are not based in increasing returns through new capital investment business and new jobs, but in further entrenching and preserving and seeking greater returns for existing wealth.

While preserving existing wealth of course seems like a strong principle for stability, it does so at the expense of future wealth and income. It mistakes stagnation for stability.

Today, instead of mining silver and using it as money, people are mining bitcoin and other cryptocurrencies and demanding that it should be used as money.

This is a terrible idea. Throughout history, inflation and financial crises that collapse national economies are driven by creating money based on happenstance access to a particular metal.

In economics, there is a phenomenon known as “Gresham’s Law.”

Gresham’s Law was an idea that “bad money chases out good,” based on two kinds of coins circulating, some with more gold and some with less. People hoarded the higher quality coins and the lower quality coins were left in circulation. It’s known worldwide and has occurred for thousands of years.

It’s similar to what is known as the “lemon” problem when it comes to used cars. George Akerlof asked himself why it was that the used car market tended to be dominated by cars with defects.

On the one hand, there is an obvious answer, which is that owners want to keep cars that work and get rid of ones that keep breaking down.

What confuses the issue is that you can’t tell by looking at a car whether it is a lemon or not. A car that needs a new transmission looks exactly the same as a car that doesn’t. There’s missing information.

The same is true for coins, which are superficially similar, but may be counterfeit, or one set of coins has higher levels of precious metals.

The 30 years war in Europe was preceded. The From 1619 to 1623 was the Kipper und Wipper. It was a time when states - and individuals - were manipulating their money, minting counterfeit coins.

How Financial Collapses drive Extremism and War

“Kipper” means “clipping” because people would take coins made from precious metals, and trim the edges off, pile the trimmings together, melt them down, and make fake coins. (The ridges on the edge of coins were invented to prevent clipping. They were invented, or at least introduced, by Sir Isaac Newton, who was the head of the Royal Mint).

“Wipper” refers to the scale, teetering back and forth, because people also mixed other metals in with precious ones to make more coins.

The states would mint lower cost coins and send them to another state, where they would be exchanged for better ones - ones with more precious metal content. Then the process would continue. It turned into a boom that undermined the rest of the economy, even before the crash: peasants and farmers could make more money clipping coins than they could doing their regular work.

“Mints sprang up ‘like mushrooms after warm rain’ and debased coinage ‘poured from them in avalanche proportions.’” The financial craze affected everyone. One source wrote, “Doctors leave the sick and think more of profits than Hippocrates … judges forget the law. The same is true of other learned folk, studying arithmetic more than rhetoric and philosophy.” Another said “Agriculture laid down the plow... arts disdained mechanical tools… Goods became Proud.”

One account says that “various states in the Holy Roman Empire attempted to finance the Thirty Years’ War by creating new mints and debasing subsidiary coins, leaving large-denomination gold and silver coins substantially unaffected.”

However, this puts the cart before the horse. States did not say to themselves “we are going to have three decades of war, we must mint money to pay for it”; rather, the collapse of a working financial system led to deprivation and conflict.

Some peasants were duped into trading their good metal for bad coins. The rich hoarded massive stores of coins and precious metals - which held their value - while the poor suffered. From 1619 to 1621, in Augsburg, Germany, workers’ wages fell by half in just two years. Trade ground to a halt because merchants refused to be paid in the debased coin, and riots broke out as people broke into exchange houses or confronted councils. Hundreds of people were injured, and many were killed.

Following a coin clipping crisis that precipitated a market meltdown in England, required the coin to be reissued 1696, Macaulay wrote:

“Yet it may be doubted whether all the misery which has been inflicted on the English nation in a quarter century by bad Kings, bad Ministers, bad Parliaments and Bad Judges, was equal to the misery in a single year caused by bad crowns and shillings.”

It may be difficult to understand how money going wrong could possibly do more damage than a war, which involves death and atrocities. While the scars of war are lasting, the destruction stops and the possibility for healing and restoration begins with peace.

When money becomes worthless, it all stops working, and there may be no recovery, unless there is a deliberate, economy-wide effort at some kind of restoration or reform.

These were all terrible economic ideas, BTW

It does have to be said, that the idea of “gold and silver standard” - where the amount of money you have in the economy depends your access to kinds of precious metal doesn’t make sense.

Yes, Americans did need economic relief that could have been changed or altered by the way monetary policy worked.

The entire idea of getting your money by digging it out of the ground and creating your own money privately (or using computers to crack prime numbers and generate “cryptocurrency” has, consistently led to economic disasters going back thousands of years.

So-called “gold bugs” are fixated on the idea that if a coin is made out of precious metals, that the value of the coin is determined by the value of the metal, not the symbol on the coin.

People then think, that since silver or gold are used to make coins, then if they get silver or gold, they can make more of their own coins with it.

What is missed in this is that the value of the money is related to the certainty with which it will be accepted, and whether it is “real money” - of which there is a specific amount in the economy - or whether it is counterfeit.

Where they get it right: reinflating and rebalancing the economy after a crash

While the idea of printing coins and just creating money for the sake of creating money doesn’t work, injecting money into the economy for a specific purpose to achieve a goal can and does work.

The role that debt plays in financial crashes is all-important.

Imagine a boom town - someone strikes gold or oil. The economic activity in a boom town depends on the commodity price staying high, but establishing all of the infrastructure required to support that business means that the economic activity is intense, and amplifies the boom.

Capital investments in the machinery and infrastructure required to extract the commodity are investment and labour intense. These are funded by investors. As wages rise, so do property values, which adds to the bubble. People and businesses take on debt on the expectation that incomes and economic activity will stay at the same elevated rate.

If the price of the commodity drops, the entire future revenue stream on which all these ventures depends dries up, but the debt that was taken on in expectation of those future revenues remains in place.

The result is a spiral of deflation and debt, with the debt overhang acting as a drag on both individuals as well as the greater economy.

This is the basic shape of financial crises. They’re caused by private debt, fuelled by debt, and they are prolonged by private debt. This was the case with the Depression in U.S. and Canada in the the 1930s, Japan in the 1990s, and the Global Financial Crisis after 2008, and it is what is happening today, after the Pandemic.

After the First World War, the winners imposed punitive reparations on Germany. John Maynard Keynes quit the Paris Peace Talks of 1919 at Versailles and wrote “The Economic Consequences of the Peace” warning that it would cause another war in 20 years. In 1939, he was proven right.

For once, after the Second World War, people learned their lesson and instead of imposing punitive measures, a Marshall Plan was launched that not only provided assistance in reinvesting in new capital, but also found ways to reduce debt.

In Germany in 1948, a new currency was introduced that replaced savings at 1 to 1, and debt at 1:10. Savings and property were preserved while debts were reduced by 90%. In the U.S. and Canada, the high-pressure economy of the war effort had driven unemployment and personal debt to record lows.

Between 1938 and 1945, the U.S. doubled the tool stock of the entire country at public expense, and while the war effort was paid for in both taxes and bonds, 15% of the cost was achieved by the U.S. Federal Reserve directly printing money and using it to finance Government investments.

The political mania we are experiencing right now - the drama, the fear, plutocrats, conflicts of interest, corruption, and scams - if the economy were normal. It is not.

If you read Charles MacKay’s supremely entertaining “Extraordinary Popular Delusions and the Madness of Crowds” it’s clear the social symptoms we are experiencing are waves of mania that are known to happen during times of pandemics and financial manias.

The problem is that despite these manias being a common occurrence throughout history, we haven’t learned much about how to resolve them, because it angry mobs are notoriously immune to being placated, whether they are in a medieval square, online, or whether they are flying monkeys.

The real problem is uncertainty, when people need certainty, including economic certainty. That is what makes the difference. That is why people gravitate towards strongmen - they promise certainty.

The problem is that they deliver it though trying to control everything from the top - by asserting more control over everyone, when people need more control over their own lives.

That’s why New Deals and Marshall Plans that empower individuals and communities work, and austerity doesn’t.

It’s been said that “Those who don’t know their history are doomed to repeat it,” and that “history repeats itself, first as tragedy, then as farce.”

We don’t know our history, and we are repeating it. But the solutions are there for the taking. Even though it certainly feels like we’re not in Kansas anymore.

-30-

DFL