The Secret of Oz: Anti-central bank, anti-gold standard

This film was certainly interesting and well-made.  It is in favor of fiat money which is controlled not by central banks but by democratic government.  The title is based upon Hugh Rockoff’s allegorical interpretation of the 1900 children’s book Wizard of Oz, setting the story in the political controversies at the time of the author, L. Frank Baum (1856-1919).  According to this interpretation, the silver slippers are representative of silver money in competition with the gold standard, the Scarecrow, who is actually smarter than people think at first, is the American farmer who is destroyed by deflation, the Tin Man is the American industrial worker, who is in need of liquidity (oil), who comes along side the farmer in common cause and the cowardly Lion is William Jennings Bryan who was in favor of silver money and the US government issued greenback.  The wicked witches of the East and West were two major banks, and the water that kills the witch is the easy liquidity of the government’s own ability to create fiat currency which is not debt-based.

In my opinion the films successfully show how the gold standard can be manipulated by big banks and can have depressive effect on money–which can (1) stifle the growth of an economy and (2) create serfs out of people who cannot pay back their debts because of inadequate liquidity in the system.

The film fails to show how giving control of fiat currency to government can stop the government from politicizing the money supply and ultimately from creating hyperinflation.  The film also mistakes fiat money creation for wealth creation:  While it is true that wealth creation requires liquidity, it is a mistake to confuse wealth creation with the creation of fiat money.

I would conclude that restrained form of monetarism could be the best system in that it would grow the money supply in conjunction with economic production–but that all systems of money are open to manipulation and greed–and this is why the Austrians point out that all paper currencies eventually become worthless.  The advantage of a system of money which is based on precious metals is that neither a central bank nor a government can steal people’s wealth through the excess creation of money.  A stable currency would also encourage saving, as currency would be store of wealth.  The disadvantage of the gold standard is that liquidity can be dried up and there can arise situations in which money becomes too scarce.

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