My child asked me about the history of the gold standard, so I related about how she already knew a lot about it because she had read "The Wizard of Oz.”
The movie and the book are full of plausible allegorical representations of economic concepts. The Wicked Witch of the East represents eastern industrialists who control the munchkins, "the people." The Tin Man is the heartless industrialized worker, while the Scarecrow is the naive farmer who has to be led around by Dorothy. The heroine herself, according to Brian Attebery, is Mary Lease, “the Kansas firebrand who told farmers to raise less corn and more h---.”
Then, there is the Wicked Witch of the West who, killed by water, represents the drought in the late 1800s that was stopped by rain. The Cowardly Lion is the presidential candidate William Jennings Bryant, who was too afraid to follow populism ideals. Oz himself represents any president who is all huff and puff but only just a person behind a facade of pomp and circumstance. The Emerald City — green to represent money — is not New York City, but Washington, D.C., the center of spending and taxes.
The gist of the conflict surrounds the “Yellow Brick Road,” which is a euphemism for the gold standard, and Dorothy’s slippers — in the book they were silver slippers — represent the silver standard, or the idea of lending more money (silver coins) to farmers, so they could use the silver to invest and expand their farms. Notice that “Oz” is the shortened version of “ounce,” as in an ounce of gold.
Actually, it was the rather severe recessions of the 1880s and 1890s that may have inspired the book and caused so many jobless workers to leave the Lower 48 and stampede to Dawson City and Fairbanks to become miners. But that is not the only reason I share this with you.
The book goes right to the heart of the Great Financial Crisis of 2008, not the over-lending part, but about how the Federal Reserve — "the Fed" — helped end the financial crisis exactly the way the Wizard of Oz book shows. The Fed used quantitative easing, which is a way to print money, such as minting more silver coins.
In "The Wizard of Oz,” the idea is that, instead of following a gold standard, where the amount of money lent to farmers is always fixed and limited, the country will follow a silver standard where more silver coins are “printed” and where they allow more lending. Maybe former Fed Chairman Ben Bernanke actually was a fan of the book.
The idea of lending money is important for small businesses, too. For example, when I was in Kazakhstan just after the fall of the Soviet Union, I visited a farm; it was still owned by the government. The manager lamented that, even though he was given power to manage the farm and manage the expenses, because he did not own the farm, he could not get a bank loan based on its collateral in order to expand it and add new equipment. It's kind of similar to the situation Dorothy’s aunt and uncle face in the movie.
On the other hand, Texas billionaire Sam Wyly started out with $1,000 and an idea. And with the help of a bank loan, he started a business that eventually made him a billionaire. He essentially made the use of a large computer more affordable to small businesses by setting up a connection between his computer and the businesses that needed computing power using phone lines. All this was before the internet. Actually, he almost made something like the internet by buying up railroad telegraph wires that could send computer signals faster than the telephone lines of the day. But, unfortunately, the telegraph owners were reluctant to sell access to their wires.
Nevertheless, if you have the need to expand your business, then you should borrow money. Be sure you get advice from a financial adviser and put together an appropriate business plan that explains such things as location, demand for your products or services, potential income, suitable employees, sensitivities to fluctuations, competitors and legal risks. You may experience adversity like Dorothy but with as good an adviser as Glenda, as well as your straw, tin and roaring companions, you can get through the rough spots and back to Kansas.
Douglas B. Reynolds is a professor of Economics at the University of Alaska Fairbanks’ School of Management. He can be contacted at DBReynolds@Alaska.Edu. This column is brought to you as a public service by the UAF Community and Technical College department of Applied Business and Accounting.