The Dollar as Token: Rethinking Taxes in a Fiat Age
We still talk about “taxpayer money” as if the US government were a giant household, scraping together income from citizens and then carefully deciding how to spend it. That story made more intuitive sense when the dollar was anchored to gold and money felt like a claim on something physically scarce.
In a post–gold standard world, after the Nixon shock severed that link, the dollar looks less like a receipt for metal and more like a state-issued token in a vast economic game. Once you see the dollar as a token that the state issues and destroys, the usual narrative about taxes begins to crack.
Government spending no longer looks like “using up” the public’s money. Taxes no longer look like the primary way the state “raises funds.”
Instead, spending is how new tokens enter circulation, and taxation is one of the main ways tokens are removed again—closer to a token burn in a crypto protocol than a pay check deduction to refill a central pot. The question stops being “Where will we find the money?” and becomes “How do we manage inflation, stability, and the social architecture of demand for this token?”
From Gold Pledges to Floating Tokens
For much of the twentieth century, the US dollar carried an implicit and sometimes explicit promise: this many dollars could be exchanged for this much gold. Even if most people never redeemed dollars for metal, the peg acted as both a constraint and a story. It encouraged the intuition that dollars were claims on a fixed, scarce commodity. If the government spent too many into existence, it would eventually collide with the limits of its gold reserves.
When the US left the gold standard in the late twentieth century—the Nixon shock—the nature of the dollar quietly changed. It ceased to be a convertible claim on a commodity and became, in a more honest sense, a state-issued token. The hard constraint moved away from “How much gold do we have?” toward “What happens to inflation, interest rates, and financial stability if we expand or contract the token supply?”
This does not mean the state became omnipotent. It means the limits are now real-resource and inflation constraints instead of metal constraints. The government can always issue more of its own token, in the same way a game designer can always mint more in-game currency. The hard part is no longer creating tokens but managing how their creation and destruction ripple through prices, incentives, distribution, and trust.
The Myth of “Taxpayer-Funded” Tokens
In the household metaphor, the state must “earn” money through taxes before it can spend. In the actual operation of a fiat system, the sequence is essentially reversed. The state spends by marking up bank accounts—by creating new units of its own token inside the banking system. Most of the money we interact with is created by private banks making loans, but the state’s token sits at the top of that hierarchy; taxes and legal tender laws still anchor the whole structure to the dollar. Taxes then remove some of those units from circulation.
That is why the “taxpayers fund spending” story is backwards. The currency tokens have to exist in private hands before they can be paid back to the state. Logically, issuance through spending and financial operations must precede taxation. You cannot collect what does not yet exist.
Thinking in terms of “funding” also hides what is really being managed. The state is not scraping together scarce tokens from citizens and rationing them out; it is balancing flows: how many new tokens are being issued versus how many are being removed, relative to the economy’s real productive capacity. The meaningful constraints are inflation, output, and political choices about who holds purchasing power—not a literal pile of taxpayer tokens in a vault. Deficits still matter, but less as evidence of “running out of money” and more as signals about how aggressively the state is pushing net financial assets into the private sector.
Taxes as Token Burn and Demand Anchor
In crypto, especially after mechanisms like EIP-1559, people became familiar with the idea of a protocol that both issues and burns its own token. New units are minted as rewards; some portion of fees is burned to regulate supply. The point is not that the protocol is “funded” by those burns. It is that the protocol uses creation and destruction to shape the economic environment around the token.
A modern fiat state behaves in a structurally similar way. It mints units of its own token—the dollar—through spending and financial operations. It destroys, or “burns,” those units through taxation. When you pay your taxes in dollars, those dollars do not go into a pot waiting to be spent again. Operationally, they are removed from the system; the liability the state previously issued is extinguished. Tokens that once circulated are now gone.
Seen through this lens, taxes serve two core functions. First, they help manage the circulating supply of tokens, contributing to the control of inflationary pressure. Second, they create and maintain baseline demand for the token itself. If you must settle your tax obligations in dollars, you suddenly care a great deal about having dollars. You want your salary in dollars. Businesses want to price in dollars. Contracts, wages, and savings gravitate around that unit because the legal system and the tax authority insist on it.
The requirement to pay taxes in a specific token acts like a protocol rule: to remain inside the game, you must hold and use the token. That anchors the token’s relevance. It is one of the reasons a purely digital script with no intrinsic commodity backing can still organize an entire economy. Taxes are not primarily about “raising money” for the issuer. They are about draining excess tokens, shaping behaviour, and ensuring that the issuer’s token remains the central unit of account and settlement.
A Short Historical Detour: Spending Before Taxes
If this still feels abstract, it helps to look at how the architecture behaves under stress.
In the Second World War, the United States did not wait for tax receipts to “save up” for the war effort. Congress authorised spending, the state issued vast quantities of new dollar claims, and the economy was reorganised around that flow. Taxes rose, but they were part of managing inflation and distribution in a mobilised economy, not a prerequisite savings pot the government had to fill before it could act.
You see the same pattern in modern crises. In 2008, and again in 2020, trillions of new dollar claims appeared on public and central-bank balance sheets in what felt like a single news cycle. No one stopped to ask whether last year’s tax take was large enough to “fund” those interventions. The operative questions were: Will this stabilise the system? Will it break inflation? Who is being rescued, and on what terms?
These episodes don’t prove that everything done with that power was wise or just. They simply reveal the underlying order of operations. When the state decides to move at scale, spending leads and taxes follow. The constraint is not a pile of taxpayer money. It is real resources, inflation risk, and the political will to use the token it issues in one direction rather than another.
This perspective overlaps with some of the claims of Modern Monetary Theory (MMT), but you don’t need to accept any particular policy program to see that, operationally, issuance precedes taxation in a fiat regime.
A Powerful System, Human Fault Lines
Taken on its own terms, this token-based fiat architecture is not inherently a bad system. In many ways, it is more honest and more flexible than a gold peg. It allows governments to respond to crises, act counter-cyclically, and keep key services functioning when private balance sheets are collapsing. The ability to issue and extinguish tokens gives the state a powerful stabilisation toolkit. Used with discipline, that toolkit can support full employment, smooth recessions, and fund long-term investments that markets chronically under-provide.
The vulnerability is not in the mechanics; it is in the people who operate and orbit the system. The same flexibility that lets a government backstop an economy can be turned toward patronage, corruption, or perpetual war. The same demand anchor that makes the currency robust can become the channel through which ordinary people are squeezed to preserve margins and asset prices. The danger is not that the protocol exists, but that fear and greed can be layered on top of it, distorting every decision about when to issue and when to burn.
In earlier reflections on laundering and war, I argued that fear itself becomes a kind of liquidity—an emotional fuel that policymakers and corporations can harvest. Under the cover of crisis, extraordinary spending and extraordinary profits are smuggled through as necessities, while scrutiny is suspended because “lives are at stake” and “there is no alternative.” Ledgers swell in the shadows of disaster. In a fiat regime, where the state can always issue more tokens and later tax or inflate them away, this temptation grows sharper. The system itself is neutral. What makes it dangerous is the way human actors learn to launder not only money but legitimacy through it, using stories of scarcity and survival to justify decisions that primarily serve concentrated interests.
Recognising this distinction matters. A gold standard can be abused. A fiat standard can be abused. A token system with tax-based burns and demand anchors can be abused. The constant in every story is human character: what we do when we have tools powerful enough to reshape an entire economy, and narratives strong enough to keep most people from seeing how those tools are being used.
Responsibility in a Token-Based Fiat Regime
Once we recognise that the state, as token issuer, is not financially constrained in the way a household or firm is, responsibility shifts more squarely onto questions of priorities and effects. “Can we afford it?” is the wrong first question. We should be asking: What are the inflationary risks? What are the opportunity costs? Who gains and who loses purchasing power as tokens are issued and burned? Whose fear, and whose hope, are being traded on to justify those choices?
This reframing also changes how we see taxation. Taxes are not just the “price of civilization” or a pot that must be filled so the state can act. They are a lever for managing inflation, redistributing purchasing power, discouraging harmful activities, and underwriting the legitimacy of the token itself. Debates about tax policy become debates about how to tune the protocol of the economy: how to adjust token supply and demand, how to steer real resources toward public purposes, and how to do so without destabilising prices or undermining trust. Underneath the technical questions sits a moral one: do we design and use this system to launder fear into profit, or to translate collective capacity into shared resilience?
In a world where the dollar is no longer a warehouse receipt for gold but a state-backed token, clinging to the “taxpayer funds everything” story keeps us conceptually stuck. It casts the state as a dependent actor with its hand out, rather than the issuer of the unit we all must use. Seeing taxes as token burn and demand anchor does not magically resolve our conflicts. But it does give us a clearer map of the terrain we inhabit now: a fiat world where the real limits are inflation, resources, and justice, and where the deepest risks arise not from the existence of the system itself, but from the very human ways we are tempted to wield it.
