Why Governments Can't Just Give Citizens Free Money

It's a question often asked during festive seasons like Christmas, poking at the notion of providing free money to citizens without any strings attached. But the idea of governments simply handing out free money isn't as simple as it seems.

Firstly, governments don’t have their own money. Every dollar, euro, or yen they spend comes directly from the public, whether through taxation or borrowing. Taxation, as an economic mechanism, can inspire public backlash when it's perceived as too high. Borrowing, on the other hand, relies on an external entity trusting the government to eventually pay back the debt. Should these financial mechanisms become unsustainable, the economic system can collapse. Therefore, free money isn’t truly free, as taxes or debts ultimately must pay for it.

Can They Really Print Money?

The short answer is yes, but it's risky. Governments can print money, a process known as counterfeiting, but it’s extremely dangerous. This action can lead to a phenomenon called hyperinflation. Hyperinflation, in its severest form, can cause the value of money to spiral out of control, leading to poverty, widespread starvation, and even violence as people struggle with the impact of rapidly devalued currency.

Money vs. Currency

To further understand the concept, it's essential to distinguish between money and currency. Currency is essentially a promissory note representing labor and the future value of work. The supply of this currency can grow, making each unit of currency worth less in terms of purchasing power. In stark contrast, money is backed by tangible assets like gold, oil, or silver, which gives it a stable and defined value.

The US Government and Free Money

In the case of the United States, the federal government doesn't have any of its own money. The money circulating in the economy is the hard-earned money from taxpayers. Allocating significant sums without a source of funding would essentially mean depleting the retainer balance of the economy, draining resources from those who have already contributed their fair share through taxes.

Efficiency and Trade-offs

There's also another perspective on why governments can't simply hand over large sums of money to citizens without expecting any work in return. Even if the government could provide a large sum like 40 billion dollars tomorrow, people wouldn't need to work for that money. The real value lies in the goods and services that you can buy with your money, including the products produced by workers.

When you give people an incentive to not work—namely, money they can get for free—they often choose not to work. This affects the productivity of the economy. Those who make, grow, and ship the products that we buy depend on our willingness to buy and pay for these goods. If you were to suddenly have 100 dollars an hour without having to work for it, you might not feel the same need to support these producers, and neither would they.

This dynamic creates a situation where people might have money, but they lack the means to buy food or other necessities. Essentially, it could lead to a bizarre scenario where anyone with enough money could be considered “a billionaire,” but without the practical ability to buy basic necessities. A government that continually hands out free money without a corresponding economic framework can disrupt the natural balance of supply and demand, leading to a situation where those who have money can starve while those who have products or services lack the funds to buy them.