For
another opinion on what was going on in Baum's head, check
out:
The closer you get to the man the more it
smells.
REH
----- Original Message -----
From: "Keith Hudson" <[EMAIL PROTECTED]>
To: <[EMAIL PROTECTED]>
Sent: Tuesday, August 05, 2003 10:50
PM
Subject: [Futurework] The Wizard of Oz
problem
> the real reason why "The Wizard of Oz" was written and then filmed. (I
> don't know whether this film is re-shown these days, or what today's
> children might think of it, but it certainly enchanted me when I was a
> child.) For another, it was a plea to extend the money supply in the 1880s
> to lift the deep depression of those days.
>
> Those who oppose currencies being exchangeable into gold fall into two
> fallacies. Firstly, they assume that the supply of gold, being fixed, must
> also necessarily fix its value. Secondly, they don't appreciate that
> currency started out as a consumer good -- that is, it had intrinsic value
> -- and that until currency is restored to this role then we will have
> continuing currency problems. We will either have rampant inflation for a
> decade or two, or periods of prolonged deflation. In between, there are
> periods when the value of the government currencies is approximately right,
> but this is more by good luck than judgement, and they don't last long
> before we plunge one way or the other again.
>
> The writer, Bill O'Rahilly, has touching faith in the ability of
> governments to engineer themselves out of economic difficulties and quotes
> Franklin Roosevelt's 40 per cent reduction of the dollar against gold in
> 1933-34 with approval. Yes, asO'Rahilly says, it certainly stimulated a
> stock market rally and, of course, being an investment banker, that's what
> he would like to happen right now. Unfortunately, though, Franklin
> Roosevelt's decision in the 30s did nothing at all in making enough money
> available for consumer demand, and unemployment continued much as before
> and was only relieved by the outbreak of WWII and the huge take-up of
> workers in the armaments and allied industries. I hope we don't have to
> wait for WWIII to lift America out of gradually worsening unemployment
> which is bound to affect all of us before too long.
>
> KH
>
> <<<<
> GOODBYE, YELLOW BRICK ROAD
>
> Bill O'Rahilly
>
> Seldom can we draw upon fiction and witchcraft to direct us through
> economic history. But in 1964, Henry Littlefield, a school teacher,
> published a study entitled "The Wizard of Oz: A Parable on Populism". In
> this essay he presented L. Frank Baum's, The Wizard of Oz, as an allegory
> for late 19th century America. His descrikption of this popular novel has
> echoes in today's US economy.
>
> The story covers the1890s, during which the US endured grinding deflation.
> Farming communities in the west, represented by the Scarecrow, saw their
> incomes and asset values collapse and the real cost of debts rise. This
> benefited the bankers in the east -- in the guise of the Wicked Witch of
> the East. Throughout the period the gold standard was in operation,
> represented by the Yellow Brick Road. The supply of money was confined by
> the fixed availability of gold. According to Littlefield, Baum supported
> the Democratic pro-silver candidacy of the time and wove this theme into
> his tale. Dorothy was the US, Oz was gold, the Tin Man was industry and the
> Emerald City was Washington. Perhaps teh allegory was lost on Metro Goldwyn
> and Mayer -- or maybe they employed artistic licence for visual effect. But
> in Baums' original story, Dorothy did not have ruby shoes but silver ones,
> representing the silver campaign.
>
> In a National Democratic Convention debate on monetary policy at the time,
> William .Jennings Bryan, a little-known Democrat, called for a move towards a
> silver standard. Silver would, he said, provide a more abundant reserve
> against which banks could produce money and ultimately reflate the economy.
> Drastic times called for dramatic rhetoric. Bryan's manifesto earned him
> the Democratic presidential nomination that year as he electioneered: "You
> shall not press down upon the brow of labour this crown of thorns, you
> shall not crucify mankind upon a
> cross of gold".
>
> Victory eluded Bryan in the 1897 election and the gold standard remained.
> Not long after, discoveries of gold in the Klondike and the Yukon led to an
> increase in gold reserves, which had the same net effect on liquidity as
> moving to a silver standard -- the US economy eventually reflated.
>
> The big mistake of policymakers in the 1890s was slavish adherence to the
> gold standard. Bryan's call for a break from the prevailing economic
> convention was too revolutionary to countenance. Indeed the gold standard
> remained for another 40 years. It again acted as a policy restraint after
> the 1927 crash, with more disastrous
> consequences. This time here were no serendipitous discoveries of gold. The
> consequence of policy inflexibility was the Depression of the 1930s.
>
> Learning from the past, the Federal Reserve has already gone some way to
> embracing Bryan's school of thought by breaking with policy norms and
> deploying "pre-emptive and forceful" measures. The Fed maintains that it is
> easier to preventt deflation than cure it. If we consider International
> Monetary Fund studies of Japan in the early 1990s, it is clear that the
> onset of deflation can be insidious and can lead to unsuitable policies
> that at the time appear appropriate. This is why, despite signs of
> recovery, the Fed has continuously cut interest rates. Although current
> policies may stoke inflation in the future, the Fed would rather face
> inflation than deflation down the track.
>
> In the deflationary arena, traditional relationships and systems become
> distorted. We can no longer rely on conventional policy responses to buoy
> economic growth. Hence interest rates have been reduced to their lowest
> levels in 50 years, the dollar has declined by 30 per cent against the euro
> and federal taxes have been cut by $350 billion. Though such measures are
> not unusual per se, the combination, speed and degree to which they have
> been invoked recently marks them as dramatic and unforeseen.
>
> Exchange rate policy alone can be highly potent. Consider the effect that
> Franklin Roosevelt's 40 per cent reduction of the dollar against gold had
> in 1933-34. This depreciation led to a surge in money supply that
> precipitated an end to deflation in 1934 and sparked one of the most
> vigorous stock-market rallies in a century.
>
> Some recent economic data indicate that the threat deflation is beginning
> to wane. But the Fed will probably maintain an accommodative stance until
> it is certain of that. During this transition period, we could see an
> outcome that echoes 1999, when the Fed told markets it would provide
> liquidity to protect financial systems against a possible slowdown induced
> by the "millennium bug" (Y2K). Ultimately, when it became evident that the
> advent of Y2K would pass without a ripple, this excess liquidity was sucked
> into markets and fuelled a bull run in equities. If observers today view
> the Fed as over-compensating against deflation, we could see a shift in
> liquidity from bonds and property to equities, prompting another Y2K-style
> bull run.
>
> For the time being the Fed's goal is to ward off deflation if that means
> straying from the Yellow Brick Road of policy orthodoxy,so be it. Any
> unwelcome rise in the longer end of the yield curve will more than likely
> be countered by rhetoric to that effect from Fed members.
>
> Much has changed since Baum wrote his tale. The Scarecrow's fields are full
> of genetically modified soya and the Tin Man has silicon components. Yet as
> before, the Good Witch in the Fed will endeavour to bring Dorothy safely
> back home to Aunt Em.
>
> The writer is a Dublin-based investment banker
>
> Financial Times 5 August 2003
> >>>>
>
>
> Keith Hudson, 6 Upper Camden Place, Bath, England
>
> _______________________________________________
> Futurework mailing list
> [EMAIL PROTECTED]
> http://scribe.uwaterloo.ca/mailman/listinfo/futurework
