Most people are familiar with the popular 1939 movie The Wizard of Oz. Far fewer, however, are familiar with the deeper storyline of the original book written in 1900 by Frank Baum as both a children’s novel and a parable about money reform in the late 1800s.  It also addresses the corresponding Midwestern political movement led by William Jennings Bryan, who became famous for his “cross of gold” speech and his stance against the effective gold-standard of his day. Interestingly, the money reformers of the late 19th century only advocated replacing gold with silver as the new monetary standard, arguing that a switch to the more plentiful silver would make money more plentiful—but it would still have been anchored to the price of this other metal. Ultimately, in 1971 the US currency was separated entirely from gold or any other metal, and was instead converted into a fiat currency backed only by the full faith and credit of the US government. At that point, the formal links between the major world currencies and real commodities were forever severed; the gold standard has not been used in any major economy since. And yet, more than a hundred years after the publication of this influential and entertaining book, the main issues seem to persist and this precious yellow metal continues to impact capital markets and economic debate.

Bryan and his supporters accused Eastern banks and railroad companies of oppressing farmers and industrial workers—primarily through the manipulation and control of the money supply tied to gold. Bryan ran for president in 1896 and again in 1900, during the same time that Baum wrote his allegory. The story opens in grey overtones, representing the particularly cloudy financial backdrop of the period as well as the frequent and punishing Midwestern droughts. Indeed, 1896 was a time of severe depression. Dorothy, from rural Kansas, represents the moral and good-hearted commoner. Her ultimate dream takes her “over the rainbow” to the Land of Oz; and oz is the abbreviation for ounce, which is the measure for gold and silver. The Scarecrow is portrayed as the typical farmer who does not scare anyone or anything and who is not really alert enough—and “doesn’t have a brain”—to understand his own political interests and overall situation. The Tin Woodsman is the industrial worker, rusted like the many shuttered factories of the day. The Cowardly Lion is Bryan himself, who is possessed of a loud and persuasive “roar” but little real political power. The Good Witches of the North and South—combined as Glinda in the movie—represent the innate, magical potential of the people of these regions. The Wicked Witch of the East, who is destroyed when Dorothy’s house lands on her, obviously represents Eastern bankers.

Dorothy’s triumphant arrival in Oz frees the Munchkins, who are the “little people” everywhere. She then takes the witch’s silver slippers, which represent the desired silver standard, and sets out on the Yellow Brick Road—the prevailing gold standard—on her trip to get help and enact change in the Emerald City, or Washington, DC. In the original book, the Wicked Witch of the East wore silver slippers in an obvious reference to the money reformers of the period; but these were changed to ruby slippers in the famous film in order to take full advantage of the new Technicolor process in cinematography. Along the way on her difficult and scary journey, Dorothy is also hounded by the Wicked Witch of the West, representing the West Coast elite—especially land barons. When she and her new friends finally arrive in Oz in the hopes of having their dreams fulfilled, the truth about the Wizard—who appears almighty—is quickly revealed.  He is but an illusion and simply someone pulling levers behind the scenes.

Today, the Federal Reserve’s levers are far more powerful and potent; but mounting worries about debt and deficit spending and the value of our currency continue to test the over-arching promises of the Emerald City—so vividly representing the emerald-green color of paper money. Gold’s fluctuations are a direct reflection of loose monetary policy and its effectiveness in stimulating the economy, particularly following the Great Recession of the past few years. We have long-maintained exposure to gold in our portfolios through the use of various funds, and despite its lack of income-generation we recognize its merits as an uncorrelated holding to other major assets. Given the ongoing state of the world—and the recent pullback in its price—we continue to examine the appropriate role that gold should play in our allocations.