Debt Loop Fallacy

There is a theory that there is no actual money in modern state systems of currency. Instead what is commonly referred to as "fiat" money is actually a money substitute (e.g. a legally-enforceable claim for money). Money substitutes are obligations to redeem the substitute for the borrowed money that it represents, so even definitionally this presents a problem - the basis of the term "loop". The theory relies on the observation that the state both issues the currency and accepts it, implying an obligation to do so, such as in the cancellation of debt to the state (e.g. taxes). As such at issuance the claim is a credit against future tax settlement, etc. (i.e. the actual money).

Yet money substitutes are claims to a definite amount of money, as otherwise they are not fungible. The amount of tax liability that a $100 note for payment of $100 of taxes is not only not definite, it is defined in terms of itself (i.e. the logical fallacy of circular reasoning). The amount it offsets is whatever the state is willing to trade for it. This would be the case for any money, including 100 ounces of gold or 100 units of fiat. Money doesn't represent any amount of another good, it represents whatever it can be traded for. As such the theory is invalid.

The state has incurs no debt in declaring that it will accept the money, whether it be gold or fiat. Similarly a business that declares that it will take a particular money incurs no debt by doing so. The debt of representative money (a form of money substitute) such as a gold certificate, is expressed in the trade of the gold for the certificate-holder's claim against it.