So here's something I've been wondering about for a while. Say you tax everyone exactly equally and like bitcoin, provide easy ways to divide denominations of money. How is the tax actually hurting anyone? Wouldn't the value of currency simply normalize to the post tax level?
To me, the major difference between renormalizing currency and taxing (in this simple case) seems to be that the government can inject money into specific industries and projects without causing inflation (as the money supply is held level). Is this correct? If so, how does this apply to the real world? Is it just a special case?
If the government has some automatic way of making half the money in people's bank accounts disappear into thin air, then yes, prices can be redenominated. Except for all those long term debts and contracts with future prices agreed; it's not so simple to accept a 50% pay cut when your mortgage stays the same. And in practice, if the government does take half the value of the money in circulation out of people's accounts, most of it will be find its way directly or indirectly into other people's bank accounts, so prices won't go down anywhere near 50%
The major difference between taxing and renormalizing (or printing) money is stabilising the currency's value, but distributional effects are also important and mostly intended
To me, the major difference between renormalizing currency and taxing (in this simple case) seems to be that the government can inject money into specific industries and projects without causing inflation (as the money supply is held level). Is this correct? If so, how does this apply to the real world? Is it just a special case?