The Nature of Money in the Modern Economy
By Rian Stone
For those who prefer a volunteer has done a reading of the article
I hate how every new-age guru and AI chatbot has devalued the ideas of "you being wrong" or "it’s not X, it’s Y" to the level of cliché, because in this case, it’s true. And while I know there’s a lot of chatter amongst niche groups online, along with high-level talks among nation-state actors, it’s largely left out of the mainstream. It’s not because of malice; the mainstream is just too busy worrying about practical matters, like celebrities, influencers, or the cost of diapers and beef at Costco to care about the underlying reason they are rising.
You don’t know what money is.
The way you think about money and how it functions is wrong. "Wrong" is a strong word, outdated. This matters. It matters because it influences how you look at the world, how you conceptualize the actions of people in the world, and ultimately makes you unable to predict the future, both economically and politically.
Here’s the parable about how you think money works today:
You think the government needs money in order to do things. Your head of state decides to tax people. The people pay those taxes. Those taxes end up in a treasury. That treasury funds government expenses. When they spend more than they take in, they require a loan from a central bank. That bank gets paid back, with interest. That interest is a drain on the economy.
It’s a nice story, and most of you believe it. This leads to what feel like common-sense opinions: you don’t want your tax dollars going toward that thing they are spending it on. When someone grafts the government, they are stealing "your" tax dollars! When they spend too much money, it creates inflation! We don’t have enough money to pay for old-age pensions, and the social safety net is something the productive people pay for, a welfare state of leeches!
It’s not that these opinions are wrong, it’s that they frame the entire system incorrectly.
Here, instead, is the real story of modern money. But first, I have two stories.
The first is from L. Randall Wray, a professor of economics at Bard College, NY. To summarize, the colonies were required to use the British pound but weren’t sent enough, so they had deflation. To fix this, they created a colonial currency and, in order to avoid issues with the King, created a de facto inflation-neutral currency to manage their growing economy.
The power of currency is based on the issuing authority.
The colonies were always short of money. In order to hire armies to fight the Indians and the French Canadians, they started issuing paper moneys. Okay, paper money was created and directly spent by the legislature.
Every paper money issuance included a new tax. So, when they passed a law to authorize printing ten thousand pounds (Virginia pounds), they also imposed a tax that they expected would raise ten thousand pounds. They imposed the tax at the same time that they issued the notes.
Now, why would they impose a tax? Because it created a demand for those notes.
The colonial regular people had a severe shortage of coins, too. They couldn’t have paid the new tax with coins; there weren’t enough. Now, they were allowed to pay taxes with coins, of course; the Virginia colonial government was glad to have the coins. Okay. But they typically paid most of the tax in the form of notes.
When the colonial legislature received the tax revenue, what did they do with it?
They burned it.
They did not spend their tax revenue. They burned it. So, as the notes came in, they burned them.
You always burn your tax revenue. You do not spend tax revenue. You burn it.
The WWII Consensus
If you’ve never heard about this, it’s the Western world’s founding myth in its current iteration. You may disagree. You remember the Wild West and Manifest Destiny. You may remember the Founding Fathers, the Revolutionary War, Johnny Appleseed. If you’re Canadian, you’ve got WWI, or Louis Riel, or Quebec’s Quiet Revolution. Increasingly, everyone is remembering Marx and his god-awful manifesto.
These are all founding myths. They are an aspirational story that a population believes in. It’s not a prediction, a policy proposal, or a description of how people got to a place. It’s aspirational. It tells people who believe in it the direction they are going. To adequately describe the idea would take a whole other essay, so for now I’m asking you to accept it so that the rest of this makes sense.
The current founding myth that we use is the World War II consensus: the idea that the bad guys were the Germans, the good guys were the West. Right-wing is evil and liberalism is good. Global trade is good because no one fights a trading partner. Peace and prosperity. America defends the world so the world can replace military spending with social programs. I’m butchering the whole story, and if you want to find out more, it’s not hard to get into that particular rabbit hole.
Everyone has one. The Romans had one, Christianity has one, Communists have one. We used to have one, but now we all have this one.
But, and this is the part where I get to people being wrong about money, out of the World War II consensus, there was a new economic concept of money that became part of the founding myth. And this is where everyone is outdated.
The Monetary Consensus
I’ll borrow from a speech. This is L. Randall Wray again. To summarize: taxes don’t pay for government expenditures. Taxes are to reduce inflation. The government cannot default on its debts because it can create money. Its only restrictions are full employment and inflation.
WWII Economic Consensus
Beardsley Ruml was the chairman of the New York Fed. He wrote an article at the end of the war titled "Taxes for Revenue Are Obsolete." We do not need tax for revenue. We need them for other purposes. We need them to fight inflation. We need them to change people's behavior, so we tax cigarettes, and so on. We don't need them for revenue purposes, he says. That is what the war taught us.
How did it teach us that? We were running budget deficits of 25 percent of GDP with no negative impacts on the economy at all.
During the war, the Federal Reserve bought large amounts of government bonds to keep interest rates near zero. Representative Wright Patman asked how the Fed managed to pay for the purchase of those two billion dollars in government securities. Ruml explained that the Fed simply created the money.
Patman pressed further, asking, "Created it out of what?"
Ruml replied, "Out of the right to issue money, credit. And there’s nothing behind it except the government’s credit."
Patman noted, "But we have the government bonds."
"That’s right," said Ruml.
Patman then asked, "So credit is essentially just another government debt?"
"Exactly," Ruml confirmed. "We’ve created money that is government debt, and all that backs it is more government debt."
Patman wondered if people should generally pay their debts when they can.
Ruml responded, "That depends on the individual. But if there were no debt in our money system, there wouldn’t be any money."
Patman concluded, "So, if everyone repaid their debts, there wouldn’t be any money to conduct business with."
Ruml agreed, "That’s correct. Our system is based entirely on debt."
What does this mean? It defines money.
The government defines a currency. The power behind that currency is that you can pay taxes to the government in that currency. The government will print money, or more accurately, borrow money from a Central Bank in order to fund spending. This spending takes the form of employment (civil service, military, etc.), social services (welfare, subsidies, etc.), and public spending (buying things the private sector produces).
Whatever money the government spends becomes the economy of the nation. The private sector has a pile of government spending (debt) that it circulates between people. That’s markets. The government then, ideally, creates sufficient taxes in sufficient ways to remove that money from the economy. But since paying all debts would remove all money in circulation, it runs a deficit. In a perfect world, as productivity increases, government spending increases. It doesn’t have to, but the idea of a dollar today being worth a dollar tomorrow makes it so people, over their lifetime, can conceptualize the value of money; things are stable, which means business can take more risks, which means greater productivity gains.
This is why I say we do not pay for government spending. They can spend whatever they want; it’s just a button on a computer to add numbers to a spreadsheet. What they collect taxes for is to reduce the inflationary effect their spending has. It’s not the only way. Offshoring money temporarily takes money out of the economy, but it’s a small example, basically insignificant.
This is why your idea of money makes bad decisions.
Instead of thinking that the government is wasting your money, which you and your fellow citizens put into a pot for them to manage, it’s more like the government deciding to devalue your income and inflate your assets in order to transfer real wealth. This causes winners and losers and has a limit.
Someone collects welfare, corporate or personal, it doesn’t matter. The government can either collect more taxes to keep the value of money stable and have no inflation. You notice you pay more taxes. Or the government can not collect more taxes and instead have inflation eat the cost. You can’t buy things you used to be able to, and your assets are worth more on paper. In reality, they represent the devaluation of the currency. Finally, the productivity of the private sector can increase. More money is needed, or else you get deflation, or more productive people chasing fewer dollars.
This creates winners and losers. If you own a home in Canada, you’re a winner. It’s inflation resistant, to a point. If you have stocks, they go up in value, not because companies are more productive, but because dollars are worth less. If you trade time for money, you’re a loser. Dollars are devalued and your labor stays consistent. On top of that, if the government hires more people, or invests in a sector, or subsidizes one, it is competing with the private sector for resources. If there are excess resources, it doesn’t matter. Once the government has to compete for them, then it also causes inflation.
A simplistic example is the wartime economy. Manufacturing needs planes and tanks. There aren’t enough unemployed engineers and factory workers around, so they take factory workers and engineers away from building cars and fridges. Cars and fridges cost more because there are fewer of them, and so you have roundabout inflation.
So it’s not that the government is mismanaging your money, they are taking your productivity and giving it to someone else. I’m not adding a value judgment to this; it can be good or bad to you, depending.
Information Economy
In the information economy, the smartest people leverage the smartest tools and create scalable income. Information leverages capital, which leverages capital. That’s just how distributions work. Bill Gates is smart and can make a billion dollars with his empire. You have no chance at your job even competing with the scale of his productivity, let alone absolute amounts. So when you iterate that through the system for long enough, everything floats to the top. It’s cyberpunk dystopia: the Tyrell Corporation and the minimum wage worker.
And poverty doesn’t destabilize nations; relative inequality does. The Medicis of Italy learned this the hard way. Once you have a large enough percentage of the economy, relative to everyone else, pitchforks come out and torches burn buildings. Off topic, but it’s why a lot of the palaces of the time were plain and unadorned from the outside. Conspicuous consumption was just asking to get mobbed.
One of the purposes of taxes was to encourage economic decisions. So, in an ideal world, government taxes could have an effect on maintaining a level of inequality that stays below the mob justice threshold.
Of course, it’s not ideal. We are global. Governments are competing for the top capital, so no one can stop the transfer or they just move somewhere better. Can’t fault them; I would do the same.
Luckily, we were very smart, learning to make things cheaper, which helped mask the inflation we all had. This is why TVs and clothes cost almost nothing today, yet homes are unaffordable. We can’t manufacture land, so it reflects inflation.
And we have hit the limit, I’d argue. Shirts and TVs are so cheap now that we notice. They don’t function as they used to. That issue where nothing works, and tech doesn’t work, and entertainment is now slop. It’s been a slow process where we knew that things were slightly worse, but their cheaper cost offset things so we didn’t care. We just can’t make things cheaper now without crossing the minimum viable product threshold.
This is one reason why people are just talking about this now. The guardrails are failing. Houses are inflated outside of people’s ability to pay for them. Consumer goods are so bad now as to be useless and not worth buying. Yet homeowners have never been richer (on paper). This is why the Boomers are yelling at Zoomers to pick themselves up by their bootstraps, and Zoomers are cheering for the Night of the Pillows (think Night of the Long Knives, but for their elderly parents).
And world governments have a looming productivity crisis to boot. If you think inflation is bad now, imagine what happens when 25% of the population ages out of the workforce without enough young people to replace them.
Luckily, they had a solution: China, India, Pakistan, Indonesia, and Africa! People are interchangeable units after all. As I say, Canada has one solution: to sprinkle Indians on our problems. We created NGOs that want to triple Canada’s population in a century (centuryinitiative.ca) and have imported 10 million diaspora in that aim. It seems impossible to believe that 1 in 4 or 5 Canadians just came here under Trudeau, but come to Toronto during a free city event, I can show them to you.
And they aren’t productive. I’m not making a value judgment on the work ethic of any people; I’m stating numbers. Canada’s productivity is stagnant. We are 12 years into our lost decade. While we have lost productivity because the Boomers are aging out, the 9 million boomers, of which maybe a third have retired, are being replaced 3 to 1 by ethnic diaspora, and we can’t keep up. It’s a failure that for some reason you would be racist to even notice. Well, not some reason, the World War II consensus. What are you, ze Germans?
The massive increases in crime, fraud, pressure on social services, healthcare, etc. Those are just the icing on the cake. It turns out if you take the engine of Canada and start adding pistons to it, you don’t get more horsepower; you just make it heavier and waste more fuel.
And you didn’t pay for any of it. You’re paying for it now, and the only solution left is to increase taxes to cover up the multiple failures of our Laurentian Elite to govern while they continue to sprinkle Indians on the problem and hope it works this time.
In the meantime, everyone who owns a home is finding out that no one can pay 1.6 million for the same home a milkman owned in the 1920s. So that inflation hedge is now an asset bubble. Indians can’t buy it without fraud, which is such a 2008 housing crisis thing to think. Canadians can’t buy it because of inflation. So once a black swan event hits that forces people to sell (since they are just taking homes off the market for now), we will have a crash. I don’t know how it will look, but no one will be happy. Not to mention, it’s very likely that the economic migrants who came to Canada for money will just leave their debts behind and go back home. I don’t know enough to say what effect that will have, but I’m pretty sure it’s worse.
Takeaways
The world is built on a founding myth. Ours is the story of World War II.
The economy of this myth doesn’t need you; it can print as much money as it needs. You pay taxes to manage inflation.
But you don’t like taxes, so they leveraged cheaper manufacturing to hide the effects of inflation.
This kept younger people out of the housing market for longer and enriched older homeowners with the productivity of younger ones.
Things became so cheap that it’s impossible to hide anymore.
The largest demographic is leaving the workforce, which will amplify this problem a lot.
So the solution was to immigrate the third world to cover the difference.
And since people aren’t interchangeable cogs, this created problems and does not cover the production deficit.
Which made everything worse.
And since inflation is so bad, no one can afford a home, so that asset became a bubble.
And when enough people are forced to sell, we have a crash.
Our diaspora will walk away from their debts and amplify the crash.
Of course, I don’t know when, or how bad. I also don’t know what kind of changes people will make, both personal and governmental, to protect themselves from this. And I don’t know where the magic place to put money is to make billions off of it. But I’m not here to save your retirement. I’m here to tell you that you think you are paying for government services with your tax dollars, and that’s just wrong.
Rian Stone is a straight-talking author, speaker, and creator who’s reshaped how men approach relationships, masculinity, and success. With a sharp wit and years of hard-earned experience, he cuts through the noise to deliver no-nonsense advice that works. Rian’s work dives deep into what it takes for men to thrive in a world that’s constantly changing—covering everything from building unshakable confidence to mastering the game of life and love. Known for his unapologetic style and razor-sharp insights, Rian has built a loyal following of men who are tired of excuses and ready to take charge.
When he’s not writing or speaking, you’ll find him breaking down the unwritten rules of modern masculinity and leading by example, writing, or being acerbic on social media.
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First, I'm Canadian. We imported ten million people and build 80k houses.
When you say "The government cannot default on its debts because it can create money. Its only restrictions are full employment and inflation" you're talking about the US, right? It's the global reserve currency so doesn't have the same worries as others but Canada is not in the same boat and there have been several countries that have defaulted on their debts, Argentina being a good example.