Definitely. There would be more dollars in circulation for a start. Ultimately the government is the final "sink" for dollars in the system. That and loan repayments (but unlike taxes, loan repayments could be made in any currency).
This is the first time I've encountered anybody else who has figured this out and says it openly.
For those who wonder how: If it wasn't for taxes being collected in the currency of the government, people and businesses would conduct their affairs in other currencies that do not decrease in value from inflation. That's also the reason why there will never be any simple taxation system, such as land value tax or whatnot. In order to keep everybody using the government currency, the taxes demanded in that currency has to be applied to every and any economic activity imaginable, otherwise people will flock to other currencies after having paid their dues, and the government currency value collapses.
This is also the reason why the public sector workforce is of an enormous size, even in supposedly capitalist countries. Public sector workers cannot choose another currency for their paycheck.
This is the reason why most third world countries cannot create a stable government currency: Their tax collection is not effective or comprehensive enough. Unless all the population is put under government issued money by rigorous taxation, they will choose other currency.
I'm not saying the same thing as the Wikipedia page. They say that taxes can counter inflation by reducing spending. But this comes from the erroneous belief that inflation is created by spending (or even worse, by labour wages). Inflation is created by an increase in the money supply, which mainly comes from completely different debt than consumer spending.
I'm not saying like them that increased taxes reduce inflation and props up the currency value in this way. The evidence is against this. What I'm saying is that a comprehensive taxation system that gets into every imaginable nook and cranny of economic activity or life in general, is what is required to give the government currency any value at all. Without having complicated taxes on basically everything, the currency would be worthless or worth much less, as we see in the third world. The US of course has the option to bully other countries to use their currency, by military means. But this is not true for the euro or pound, for example.
This is an interesting theory. Basically, as I understand it, you already want to do these things, but since the government can compel you to pay tax on them in its currency, you stick to that currency out of convenience/necessity. If the taxation system is not comprehensive (or you can evade it), you will use the official currency as little as possible, diminishing the amount of useful things transacted in it and thus its value.
Yes! That's exactly how I meant. And it doesn't matter too much if the taxes are high or low, what's important is that they are collected on every activity. I think the prime example is sales taxes in the different states in the US. They are so low (0%-7%) as to be marginal, and collecting them surely costs the consumer economy much more than the gains the state governments have from them.
The rational policy would be to abolish sales taxes and transfer that tax burden by increasing other taxes – but the purpose of the sales tax is primarily to make sure business is always conducted in the government currency, and thereby giving the US Dollar a value. Try to use a foreign currency, bullion, or whatnot to purchase consumer goods in any big box store and you'll be shown the door. The same in most of Europe. Then try to use your foreign dollars or euros to buy consumer goods in the third world, and your money will be more than welcome.
The monetary side is Quantity of Money times Velocity of money. Both affect inflation. It is therefore Possible to have inflation with fixed money supply.
You may argue it is not likely, or it is not relevant, but to argue it is impossible is like arguing about physics but disbelieving in the laws of motion.
I'm a beginner here - how does this make sense? Why would spending money lots affect inflation?
My simple conceptualisation:
If I sell my heap of junk car to my neighbour for $10000 this week, which he buys for sentimental reasons, and he sells it back to me for $10000 next week, for sentimental reasons, and we continue doing this every week, what would drive inflation?
Conversely, if the government doubled the money supply, suddenly people from outside are earning much more money than they used to for the same work, and to them $10000 is worth half what it was, enough to get them to bid $12000 and get the car. They might only do that once, but the price has inflated.
A cryptocurrency where all the voting nodes are run by the state could fulfill the same objective. The problem is that cryptocurrencies as we know them are based upon a publicly verifiable ledger. Inevitably, the state would want an "off the books" way to move money around, which would lead to a shadow currency, and the resulting disequilibrium would destabilize either the state or the "official" currency.
