The alternatives are to either have a full supply chain of all things your people need to live
Unless we are dealing with a city-state, a part of that supply chain can be situated in other cities/areas of the country. Apparently, though, we are dealing with a city-state (with no prior city), according to the responses that I am getting.
and pay them with goods
Except no (as in, not generally)? The workers get paid regardless of whether or not they are assigned on projects, and they use the money to buy goods and services from the state. What is the significance of paying them specifically with goods in this context?