As a child, you probably saw the movie The Wizard of Oz. based on a children’s book written in 1900. The movie and book tell the story of a young girl, Dorothy, who finds herself lost in a strange land far from home. You probably did not know, however, that the story is -actually an allegory about U.S. monetary policy in the late 19th century.

From 1880 to 1896, the price level in the U.S. economy fell by 23 percent. Because this event was unanticipated, it led to a major redistribution of wealth. Most farmers in the western part of the country were debtors. Their creditors were the bankers in the east. When the price level fell, it caused the real value of these debts the rise, which enriched the banks at the expense of the farmers.

According to Populist politicians of the time, the solution to the farmers’ problem was the free coinage of silver. During this period, the United States was operating with a gold standard. The quantity of gold determined the money supply and, thereby, the price level. The free-silver advocates wanted silver, as well as gold, to be used as money. If adopted, this proposal would have increased the money supply, pushed up the price level, and reduced the real burden of the farmers’ debts.

The debate over silver was heated, and it was central to the politics of the 1890s. A common election slogan of the Populists was .We Are Mortgaged. All but Our Votes.One prominent advocate of free silver was William Jennings Bryan, the Democratic nominee for president in 1896. He is remembered in part for a speech at the Democratic party’s nominating convention in which he said, “You shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.” Rarely since then have politicians waxed so poetic about alternative approaches to monetary policy. Nonetheless, Bryan lost the election to Republican William McKinley, and the United States remained on the gold standard.

L. Frank Baum, author of the book The Wonderful Wizard of Oz. was a midwestern journalist. When he sat down to write a story for children, he made the characters represent protagonists in the major political battle of his time. Although modem commentators on the story differ somewhat in the interpretation they assign to each character, there is no doubt that the story highlights the debate over monetary policy. Here is how economic historian Hugh Rock off, writing int he Journal of Political Economy in 1990, interprets the story.

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