CHAPTER 28MONEY GROWTH AND INFLATION647CASE STUDYTHE WIZARD OF OZAND THE FREE-SILVER DEBATEAs a child, you probably saw the movie The Wizard of Oz,based on a children’sbook written in 1900. The movie and book tell the story of a young girl,Dorothy, who finds herself lost in a strange land far from home. You probablydid not know, however, that the story is actually an allegory about U.S. mone-tary policy in the late nineteenth century.From 1880 to 1896, the price level in the U.S. economy fell by 23 percent.Because this event was unanticipated, it led to a major redistribution ofA SPECIAL COST OF UNEXPECTED INFLATION:ARBITRARY REDISTRIBUTIONS OF WEALTHSo far, the costs of inflation we have discussed occur even if inflation is steady andpredictable. Inflation has an additional cost, however, when it comes as a surprise.Unexpected inflation redistributes wealth among the population in a way that hasnothing to do with either merit or need. These redistributions occur because manyloans in the economy are specified in terms of the unit of account—money.
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