Mr. Bill Still’s The Secret of OZ ¹ is a popular documentary that has generated a considerable impulse toward restoration of something like the Progressive ‘Greenback’ Movement of the late Nineteenth Century. His premise is that L. Frank Baum encoded the Progressive Era’s unheeded wisdom in his children’s tale so that it might re-popularized at some future time of crisis. It would then (presumably) awaken a receptive public to the wisdom of debt-free fiat money, who would then outlaw [both] government borrowing, [and] fractional reserve lending.

President Lincoln created the greenback as a means to finance a goodly portion of the Civil War in such a way as to avoid burdening the Union with further indebtedness. In doing so he exercised what we should recognize as the sovereign right of coinage: he created money for his first use; this new money did dilute the purchasing power of all money in circulation; thereby raising prices; which, in turn, freed the assets needed to prosecute the war. Greenbacks were money because they were accepted in exchange for war material and as soldiers’ pay. They circulated at a 1:1 exchange rate with earlier paper currency obligating the union to exchange these notes for their equivalent in gold coins.

Greenbacks rather beguiled the public because, unlike war bonds, no interest had to be paid upon them. The cost to the general public of these monetary creatures occurred entirely in terms of the hardship associated with the inflation they caused — which, in time of war, could be easily concealed. This expedient must have seemed innovative to the republican sensibilities of the time, even as much the same expedient was regarded as innovative when the Roman Republic embarked on its transformation into an empire.

America consolidated its manifest destiny in the decades following the war to prevent Southern secession. Prices fell from 1870 on as the creation of new currency did not keep pace with rises in general productivity. Agricultural development of lands wrested from the Plains Indians by Union generals was increasing farm productivity even more quickly, to the end that prices for farm products fell precipitously. The farmers’ mortgages and crop loans had to be repaid in dollars that became more scarce than the dollars in which their financial obligations had been contracted. Those unable to meet their obligations either accepted ruin or became sharecroppers on lands they had developed, but which had since passed into the hands of their erstwhile creditors. Such processes are actually rather commonplace in any long view of history. They became embedded in America by a return to the gold standard in 1879.

Objections to developing debt peonage took form in several popular ‘greenback’ and ‘free silver’ movements. (Silver was then being mined in American west to the extent that it would make an ideal ‘base metal’ coinage because it was both abundant and difficult to counterfeit.) The cause of re-inflation was taken-up by the Democratic Party under the eventual leadership of William Jennings Bryan, whose monetary thought has been said to anticipate that of Keynes himself. Bryan’s ‘Cross of Gold’ speech was delivered at the Democratic Convention in 1896. Baum published The Wonderful Wizard of Oz in 1900. As a mid-west journalist, Baum was certainly conversant in the politics of his time; and there is some evidence indicating leftist leanings on his part.

His story’s arc proceeds from the death of the Wicked Witch of the East, whose silver (not ruby) shoes are given to Dorothy by the Good Witch of the North. The arc concludes when Dorothy clicks her silver heels together and thereby returns home to Kansas. In other words, the secret of her deliverance was with her all along the (golden) yellow brick road; but this truth had been hidden from her by the wicked . . . Morgan Bank of New York? or the pro-gold, pro-business Grover Cleveland? (who had been instrumental in repealing the Sherman Silver Purchase Act, and who was indeed politically moribund by 1896). Debt-free silver coinage would presumably re-inflate farm prices; the farmers’ land would be dis-encumbered of its debts; the bad guys knew this; and they had obscured their knowledge in order to make debt peons of their countrymen.²

Progressivism’s current embodiment is at least somewhat correct in identifying our present circumstances with those of their Nineteenth Century progenitors. There is evidence that bankers of the post Civil War era did exploit their corner on gold/money in order to create artificial booms and busts by which they acquired real property for less than its value. Our most recent decades have seen successive booms and busts in the tech, dot-com, and housing sectors. These bubbles were artificially induced by cynical people in order to absquatulate with the retirement provisions their countrymen had entrusted to professional money managers.

Interpreting the Progressive program as a preventative against these latter-day techniques of economic ruin is challenging because the money created for first use by tech, dot-com, and housing entrepreneurs materialized out of contractual arrangements executed by commercial banks. To be effective, it would seem that Progressivism’s outlawing of fractional reserve banking would have to be extended to a prohibition of all financial leverage — that no dollar could exist until it was created by the central government, and no dollar could be invested until another dollar was saved somewhere else in the system.

If that is to be the program, there should then arise serious questions about how it is to be enforced. The right to make contracts being assured (for excellent reasons) in the U.S. Constitution, there would need to be some rather fine distinctions made between purely financial contracts and vendor financing in the form of one tradesman’s underwriting another’s venture through his accounts receivable. Perhaps the Progressive enthusiast simply does not understand or does not agree with SFEcon’s concept of money’s spontaneous creation in the normal course of business.

In any case, it might be wisest to exercise our existing criminal laws to limit the massive peculations afflicting our era before re-drafting our commercial laws. Fraudulent representations of a contract’s provisions, e.g.: Standard and Poor’s AAA ratings for mortgage-backed securities, would be subject to prosecution by any reasonably vigilant state’s attorney; but erstwhile Assistant Attorney General Lanny Breuer has cited potential huge economics effects as sufficient prophylactic against prosecution.³ If laws against fraud are not going to be enforced, then capitalism is at perils greater than any that are likely to be remediated by currency reform. Civility is co-extensive with its division of labor; and fiduciary performance is among the labor specialties that must be accomplished with professional integrity if society is to hold together.

The financial bubbles remaining aloft at the end of 2016 are kept there by the federal regime’s debts, which enable public investments in the development of various ‘green’ technologies and in the fruits of foreign military adventures. As these investments are coextensive with that portion of money that is the coin of the realm, they would certainly not exist under a fiat money regime in which the federal government was not allowed to borrow. It is, however, difficult to know what authority might restrain those who make laws, pay the police, and have their private uses for sovereign indebtedness.

Ultimately, Mr. Still and his discussants must be credited with the critical insight by which the economic circumstances of 2015 are most usefully described. In summarizing the evils of the Debt Money System, Still states that . . .

Under our current system, the government has to borrow our money into existence, then pay interest on it . . . All our money is created out of debt . . . To reduce our national debt, we would have to reduce our money. And there is already not enough money for the average person.

The situation is indeed one in which goods (led by housing) are idling away their useful lives on glutted markets because their prices remain too high for a sufficient number of people to purchase them. Agreement upon a problem’s nature is, however, much easier to come by than agreement upon a problem’s remedy. The obvious way to address this the public’s lack of purchasing power is to provide them with more; and, for the Progressive, this provision can only take the form of an increased supply of debt-free money.

It is however difficult to imagine how the proposed increase in coinage can possibly fail to increase prices, thereby keeping useful purchases beyond the citizenry’s reach even while provisioning them with more coins. The possibility of increasing purchasing power by decreasing monetary aggregates, and thereby prices, does not appear in the economics of Progressivism.