What is the difference between money and currency? Most
readers (not in the financial sector) would be surprised that there is a
difference, and an important one at that. The short video included in the link
at the end of this article gives an
engaging and enlightening explanation of the difference between the two, and
how the worldwide economy thrives on its modern monetary systems, which not
only make local trade possible, but also exchanges on a worldwide scale.
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| American Civil War 1861 - 1865 |
The American Civil War can serve as an excellent example of
how nations can live or die by the strengths or weaknesses of their monetary
systems. It shows the benefits of a fiat-based currency over a commodity-based
one, and what happens when commodities fail, and how counterfeiting and ‘bad
cash’ can cause rampant inflation and total governmental collapse. (Quick reminder: A commodity-based
currency is money backed by a commodity, such as gold, or cotton. Fiat based,
on the other hand, draws it worth from and by the decree of a governing body;
‘fiat’ means ‘let’, or, more formally ‘by order of’.)
Side Note: Is
bitcoin, then, a fiat currency? That is an excellent question, and one not simply
answered. Technically speaking, a fiat currency is backed by a governing body, who
sets its worth and value based not on commodities directly, but rather on the supply
and demand and movement of those commodities. Bitcoins, on the other hand, are currently
not backed by any government, or regulated or issued by any banks – yet. For now,
that makes them something else and continually redefined by use and debate.
During that conflict, the North and the South were roughly
equally armed and manned, with the same amount and caliber of soldiers,
officers, and weaponry. (In fact, many personnel on both sides had attended the
same military academy, West Point, and were often members of the same extended
families.) So why did one triumph so decisively over the other? In the end, it
was not guns, superior generals, soldiers, or firepower, or even the
‘rightness’ or ‘wrongness’ of each side’s cause; it was, finally, money, or the
lack of value thereof.
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| Southern Cotton Plantation |
Simply put, the North had a robust industrial economy, which
backed a strong, fiat-based currency (called ‘greenbacks’),
giving it great wealth. (That was during the 1860s, a time when the government
of the North was well able to back its currency.)
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| Union Greenback |
The South’s economy, on the other hand, was old, even
‘ancient’, and agriculturally based, depending on brutal manual labor (slavery),
and the constant, steady harvesting of cotton
and other cash crops, all at the whim of fickle nature and the physical ravages
of war. Its commodity-based currency became worthless by an inability to back
it reliably, and rampant (Northern) counterfeiting of Confederate bills, which
caused inflation, and made the currency worthless.
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| Counterfeit Confederate Bill |
(One reason is that more of the war took place in the South,
often on the very land where the South’s cash crop, cotton, was harvested. Those
valuable lands, and their grand old estates, were systematically destroyed by
war’s end.) In the end, the South was literally starved into submission, reduced
to a bartering system, and making it (confederate currency) worthless, and the
butt of jokes to this day.
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| Actual Confederate Bill |
What eventually happened to the South is described precisely
in the video at 8:31, where aliens effectively destroy the Earth by prohibiting
the use of money (thereby rendering it useless, exactly like Confederate
commodity-based currency.) The modern, worldwide economy is based on a system
of roughly interchangeable currencies. Such a wide-ranging economy would be
unwieldy, if not downright impossible, with a bartering system. (Whether
fiat-based currency is better than commodity-based is may still be considered
debatable.)
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| Northern Industrial Factory |
