“You’ve always had the power, my dear, you just had to learn it for yourself.”
—Glinda, the Good Witch of the North, The Wizard of Oz (1939)

You probably saw the movie version of The Wizard of Oz as a kid, as so many of us did. You might even recall the crucial line just quoted, which comes in the story’s culminating scene. Glinda, the Good Witch, is explaining to Dorothy what her long ordeal (being swept away by a great storm from her home in Kansas) could possibly mean.

The big lesson is: You’ve had the power to go back to Kansas all along—by tapping your shoes together. You merely didn’t realize it. So you had to learn it for yourself. But you can empower yourself, now, by understanding what you’re capable of.

That sounds like a message of female empowerment, and it may well have been. But today we often forget that the film, based on a children’s book by L. Frank Baum, is ultimately a parable about money. Baum was not only a one-time actor and the author of numerous tales about the land of Oz, an imagined American utopia, he was also a political activist who once owned a newspaper. The story we think we know so well was responding to the economic crises of his day.

This book is not a parable, but if it has a big thesis, it’s that we still haven’t taken Glinda’s (and Baum’s) lesson to heart, even a hundred years later. The lesson is: Although we Americans have suffered through financial crises, we’ve had the power to take control of our money all along. But we haven’t fully realized how it can help heal our society. Now the time has come to empower ourselves by understanding what we’re capable of.

Really? The Wizard of Oz—a neglected tract of political philosophy, the key to future prosperity and maybe to saving the republic? Yup. Just think back to that famous scene when Dorothy and Co., having followed the yellow brick road, finally arrive at the Emerald City. The great wizard is putting on an awesome spectacle. Suddenly, Toto the dog pulls back the curtain, revealing a coy, bumbling man conjuring with smoke and mirrors. We now use “pulling back the curtain” as a cliché for unveiling or unmasking. We’ve largely forgotten what the original parable was pulling back the curtain on.

When Baum’s book was published in 1900, it was meant to expose the “gold standard” as an illusion. There was no “yellow brick road,” paved in golden rocks, to a green Emerald City of shared prosperity. That was always mythology, so much propaganda.

Just recall the main characters. Who was the bumbling “Wizard of Oz” behind the curtain (“oz.” meaning “ounce,” which is of course the unit of measure for precious metals)? Government officials of the day.

Who were the Wicked Witches of the East and West? The bankers of the East and West Coast cities, who propagated the gold myth for private profit—profit that came at the expense of the great hinterland.

And the Cowardly Lion? The political class and intellectuals that let the bankers have their way.

What about the Tin Man without a heart? The industrial workers in the cities, who never aligned with the farmers.

Who, then, was Dorothy? A daughter of the Midwestern farm families, who suffered under a recession and wave of home foreclosures in the 1890s. The recession was the great cyclone that swept Dorothy from her home in Kansas.

If this isn’t obvious, consider the crises of Baum’s day, the ones he lived through. By 1900, the American economy had been starved of money decade after decade. That was the whole point of the “gold standard,” after all—to limit the supply of money to the scarce supply of certain specific yellow rocks dug up from the ground. So when the gold diggers out west or in Australia or South Africa had a bad year, well, there just wasn’t going to be enough money for a growing economy. That brought what economists call “deflation,” or “too little money chasing too many goods,” and thus economic contraction in the Midwest. Farmers outside of the big cities, in Kansas for example, were hit hardest.

The early American colonies were short on precious metals, so they used book credit, paper called “scrip,” and even tobacco or shell beads as moneys. Then the founders of the post-Revolutionary republic took over and declared a new unit of account, “the dollar,” officially tying it to both gold and silver. But in practice it was often the one or the other, depending on what metal was available. During the Civil War, paper money “greenbacks” were issued with no strict connection to either gold or silver, as Treasury bonds were now deemed to be “good as gold.” To a degree that seems strange to us now, by the mid- to late-nineteenth-century major political movements—the “Greenbackers” and then the “free silver men”—feverishly organized around monetary policy decisions. It was a coinage act later called the “crime of 1873,” which gave us what we now call “the gold standard,” that would eventually draw particular ire. Word had it that London and New York bankers such as the Rothschilds and the Morgans had duped gullible congressmen to “demonetize” silver in last-minute, dead-of-night legislation. And so, during the cycle of depressions that followed, distrust and suspicion only heightened. By 1896, William Jennings Bryan, the loudmouthed “populist” US representative from Nebraska, condemned the exclusive tie to gold in what some regard as the most famous speech in American history. “You shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold,” he thundered.

Bryan was an unsubtle man with a serious proposal, in line with what Americans had done in the past when they turned to shells, scrip, and other forms of currency: if there aren’t enough dollars out there, just issue more of them, now backed by silver alongside gold. Baum, a progressive former journalist and early feminist, well aware of the politics of his era, seemed to agree. In his original story, Dorothy wore a silver slipper, alluding to “bi-metallism,” the use of two metals as a monetary standard. How do you “click the shoes together” and “go back to Kansas”? Officials need only call off the exclusive commitment to gold, in a public announcement. More money in circulation would “re-inflate” the economy for the benefit of farm workers, at that time still a major economic constituency.

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In this book we argue that the “green menace” of runaway debt and inflation isn’t that different from the “red menace” hysteria Richard Hofstadter and Stanley Kubrick understood and spoofed so well. Indeed, irrational fears have always stood in the way of a sound understanding of money. They drive the popular appeal of films such as Goldfinger (Special Agent James Bond foils a plot to steal gold from Fort Knox), as well as suspicions about whether there still is gold in Fort Knox, and, if not, where it all went. They also drive more consequential developments such as fiscal austerity after the 2008 crash, and the re-emergence of goldbugs like former congressman Ron Paul, who over decades called for investigation into “the Fort Knox issue,” a return to a gold standard, and even the Fed’s outright abolition (“End the Fed”).

The paranoid style of politics explains why money cranks, hucksters, and zealots have always emerged from the shadows after a financial crisis, and why in the wake of the 2008 crisis, Senator Ted Cruz would call for a gold standard yet again, imagining he’d score points for sounding serious to his supporters. To be sure, paranoia is not just a malady of the political right. In part due to the Fed’s mismanagement of the pre-2008 boom years, and in part for the inequities of its first efforts at relaxing the money supply (“quantitative easing”), some Occupy Wall Street protesters joined Ron Paul’s call for the Fed’s abolition.

Alas, things today are not so different from a hundred years ago, when the Federal Reserve was just getting started, as we ask ourselves how best to ensure capitalism works for most everyone, or even ask whether it’s up to the task. The bargain that emerged last time gave us American capitalism’s “golden years” and the once seemingly ineluctable rise of liberal democracy with a “mixed economy” of relatively free markets and social insurance. Today, established democracies the world over are “backsliding” into authoritarianism, rule by the richest or least competent, and crony capitalism. The viability of the very idea of a democratic republic is in question.

So we really should wonder: Have we taken the full measure of Glinda’s (and Baum’s) lesson? Do we really understand the power of money, of what we are capable of as a society? Might understanding money better usher in a new “golden” age?

It happened once. It could happen again.

Our hope is that reading this book will help you appreciate how crucial money is to our shared political project. You’ll see how the Federal Reserve can better work in your favor. You’ll even become savvier about the money in your pocket and bank account. Some investors rake in serious money for having that kind of advanced knowledge. But shouldn’t we all understand our money, which, after all, is one of our major public institutions? Surely that’s essential to a working democracy.

If you really want to understand money, though, you probably shouldn’t ask a conventional academic economist. You wouldn’t know it from all the coins and dollar signs featured on the covers of economics textbooks, but mainstream economists in the major US universities pay very little attention to money and banking. Better to ask a central banker, a market trader, or a financial law expert—the people who tend to know how our institutions actually work...