Most people—including many economists and policymakers—misunderstand how money actually works. These misconceptions lead to harmful policies: unnecessary austerity, artificial unemployment, and unnecessary human suffering. To understand why Commons Currency is designed the way it is, you first need to understand what money actually is and how it operates in the real world.
Common belief: Governments are like households. They must collect money (through taxes or borrowing) before they can spend.
Reality: Countries that issue their own currency don't borrow their own money—they create it. The government-household analogy is fundamentally misleading and leads to disastrous policy decisions.
Think about it logically: Where did the first dollar come from? If the government needs to collect dollars before spending them, where did those dollars originate? The answer is obvious once you ask the question: governments that issue currency create it when they spend.
There are two fundamentally different monetary situations:
The constraints on currency issuers are real resource limits—workers, materials, productive capacity—not financial limits. A currency issuer cannot "run out" of its own currency any more than a bowling alley can run out of points.
When a government with its own currency spends, here's what actually happens:
No tax collection happened first. No borrowing occurred. The spending itself created the money. This is not a theory or opinion—this is the operational reality of how government spending actually works.
When banks make loans, they don't lend out depositors' money. They create new money by making accounting entries:
Banks don't lend existing money—they create new money when they lend, limited only by regulatory capital requirements and creditworthy borrowers.
When you pay back the loan, that money disappears (is destroyed). Money is constantly being created through lending and destroyed through loan repayment.
If governments can create money by spending, why can't they create infinite money? What prevents money from becoming worthless?
The fundamental source of currency value is simple: you need it to pay your taxes.
Consider: Why does anyone accept US dollars? Because:
This isn't the only reason money has value (habit, network effects, and legal tender laws matter too), but the tax obligation is the foundational driver of demand. Without it, why would anyone want government-issued paper or digital entries?
Understanding the sequence is crucial:
Taxes don't fund spending—taxes create demand for the currency and remove excess money from circulation. The government must spend before anyone has the currency to pay taxes with.
If governments can create money, why don't they print unlimited amounts? The constraint isn't financial—it's real resources.
Inflation happens when spending (from any source—government, households, businesses) exceeds the economy's productive capacity. If there aren't enough goods and services to buy, more money just chases fewer goods, driving up prices.
The constraint on government spending is not "running out of money"—it's:
As long as there are unused resources—unemployed workers, idle factories, unmet needs—additional spending increases production without causing inflation.
The primary purpose of taxation isn't funding—it's inflation control:
If the economy is overheating (too much spending chasing too few goods), raise taxes to remove money. If the economy is sluggish with unemployed resources, reduce taxes or increase spending to add money.
This is the correct way to think about fiscal policy: as a tool for managing aggregate demand to match productive capacity, not as a household budget.
For currency-issuing governments, "debt" doesn't mean the same thing as household debt.
When the government "borrows" by issuing bonds, it's not borrowing in the household sense. It's offering interest-bearing savings accounts:
Government "debt" is the private sector's savings. When the government "owes" $30 trillion, that means the private sector (households, businesses, foreign investors) owns $30 trillion in safe government bonds.
A government that borrows in its own currency literally cannot run out of that currency. It can always create more to pay its obligations. The US cannot involuntarily default on dollar-denominated debt. Japan cannot involuntarily default on yen-denominated debt.
Countries that DO default have borrowed in foreign currencies they don't control. Argentina defaulting on dollar debt, Greece in the Eurozone—these are currency USERS defaulting, not currency ISSUERS.
The meaningful question isn't "can we afford it?" but "do we have the real resources to do it without causing inflation?"
Understanding how money actually works transforms policy debates:
This assumes government needs to find money before spending. Wrong framework.
Are there unemployed workers who could build infrastructure? Idle factories that could produce medical equipment? Unmet needs that real resources could address?
For currency issuers, the debt-to-GDP ratio is not the binding constraint.
Is spending (total spending, from all sources) pushing beyond what the economy can produce?
When governments cut spending during recessions to "balance the budget," they:
Austerity during recessions is exactly backward. It's like treating pneumonia by removing oxygen.
If the constraint on spending is real resources (not money), and we have millions of unemployed workers willing to work, then unemployment is a policy choice, not an economic necessity.
There is no financial reason for involuntary unemployment. If there are workers willing to work and useful work to be done (infrastructure, education, healthcare, environmental restoration), a government with its own currency can employ them.
The question is political will, not financial capacity.
Understanding these monetary fundamentals is essential for understanding Commons Currency's design:
Nations can issue Commons Units within democratic quotas because the constraint is real productive capacity, not finding money first. See: Currency Issuance & Distribution
Global tax minimums work because taxation drives currency demand and controls inflation—it's not about "finding revenue." See: Global Tax Coordination
Trade deficit countries don't need to impose austerity because the constraint is real resources, not money. Surplus recycling maintains demand. See: Automatic Trade Rebalancing
Every nation can pursue full employment because financial constraints are illusory—the only real constraint is productive capacity and inflation.
Bonds serve to manage interest rates and provide savings vehicles, not to "fund" government spending. See: Bonds & Financial Services
Now that you understand how money actually works, you can see why Bitcoin is not money and cannot solve real economic problems.
Bitcoin treats money as a scarce commodity (like gold)—this is fundamentally wrong.
Many people think: "People find money (like finding gold), then government taxes it away to fund spending." This commodity theory leads to false beliefs:
Reality: Money is a system of credits created by government spending. Government spends first (creating money), then taxes (destroying some money to control inflation). Taxes don't fund spending—they create currency demand and manage inflation.
Historical evidence confirms this: For 5,000 years, money has been credit/debt systems (Mesopotamian tablets, medieval tally sticks, temple accounting). The "barter-to-gold" story is myth—anthropologists have never found a pure barter economy evolving into money. Gold as money is the historical exception, not the rule. Markets have always required government authority; they never emerged independently.
Bitcoin recreates the gold standard's fatal flaws: rigid money supply, deflationary trap, inability to respond to recessions. The gold standard caused the Great Depression. Bitcoin would create the same disaster while ignoring all of human monetary history.
Bitcoin is built on the discredited commodity theory of money. It's gold standard thinking in digital form—a speculative asset, not money.
→ Read the full analysis: Why Bitcoin Is Not Money
No. The limit is real resources and inflation. If you try to spend beyond productive capacity, you get inflation. The point is that before you hit that limit, financial constraints are artificial. Don't let people starve when there's food, don't leave workers unemployed when there's work to be done, don't underfund schools when there are teachers willing to teach—all because of imaginary financial constraints.
These hyperinflations occurred when:
None of these situations involved governments carefully managing spending relative to productive capacity. They involved catastrophic supply collapses with governments printing money desperately trying to compensate.
The US/UK/Japan running moderate deficits with their own currencies while maintaining productive capacity is nothing like Zimbabwe losing 80% of its economic output.
Mostly institutional habit and political economy. Bond issuance serves some useful functions (providing safe assets, interest rate management), but it's not financially necessary. Many economists argue governments could simply spend without issuing bonds at all.
No—it correctly identifies the real constraints (productive capacity, inflation, real resources) versus fake constraints (government needing to "find money"). This leads to better policy: focus on managing real resources efficiently, not obsessing over arbitrary debt ratios.
This understanding of money comes from careful study of how monetary operations actually work in central banks and treasury departments. It's been confirmed by:
Key point: This isn't ideology or theory—it's description of how the monetary system actually operates right now. The question is whether we acknowledge reality and design policy accordingly, or continue with harmful misconceptions.
Understanding these fundamentals is essential for evaluating Commons Currency's design and understanding why conventional objections are often based on faulty premises.