Basically all monetary theories claim that
They agree in general that the increases in the quantity of money lead to higher prices. But you may look specifically into the quantity theory of money (so-called the Chicago school of economics also known as monetarism) which uses the Irving Fischer Model. Apart from that, it directly follows from the concept of money, i.e. the input of excessive amount of money into the system will cause the prices to rebalance at a new, higher level. Competing theories (e.g. monetarism vs keynesianism) differ in how the new money propagates through the economy and in what degree it affects the economic activity and unemployment (see the so-called "Treasury view" to get an idea)
Thank you for your response. Some of the sources i already knew off, but i actually can't remember reading about the quantity theory of money
(shame on me). So thanks for that one, and thanks for giving serious responses, i really feel like i am learning something from you.
But do you think after a few discussions that you atleast understand me more in my view of
fiat money as containing elements of speculation? Even if you don't agree it would be fun if i atleast made it possible for you to see my point of view.
Do you think that the quantity theory of money can be used to practically predict changes in the currency market, or do you just see the theory as a general means of explaining what should move currencies?
It largely depends on the specific currencies
We all very well know how George Soros had shorted the British pound in the early 1990's and earned something like 1B dollars on the deal. So to say that currencies are not prone to speculation would be flat-out contradicting reality, obviously. And it is still more so in respect to weak currencies like the Russian ruble, for example, which can in fact be first heavily inflated ("bubbled") by foreign investors (like what seems to be happening to it right now) and then suddenly crashed (what is known as "carry-trade"). But ultimately, the final destiny of a currency is still determined by the financial policies of the government in respect to its currency (see Zimbabwe)
Regarding practical importance of monetary theories, I don't really think that they have any such importance. As I said in my previous post, they all agree that more money means higher prices, and that's pretty much all you need to know about money at this level if you are looking for speculation and trading with currencies. You should be interested in other factors which determine the currency value (e.g. FED interest rates, reserve requirements, monetary aggregates and similar gory details). Monetary theories are for purely academic interest, not for application in trading. In other words, you could be a very successful currency trader and have never heard such names as Milton Friedman or Friedrich Hayek
Yes well that was my orginial point. But i must have misinterperted your earlier post when you wrote
"I think that no, the fiat money value doesn't come about via speculation. But I'm still curious how you can even imagine that."But as you mention, the famous George Soros did manipulate the exchange with speculation, having a practical effect on the value of the currency. Thus showing that fiat money's value is heavily influenced by speculation, i am confused to where you stand on the issue now? I see contradictions in your original posts with what you write now, so please clarify if there's something i missed.
As you said earlier you had trouble even imagine how i could believe speculation being a factor, but now saying its obvious that it is?
You also wrote "
I suspect there cannot be bubbles of that kind with fiat currencies. The examples you give refer to severe currency devaluations. Obviously, the latter have nothing to do with speculative bubbles, though the end result is essentially the same (i.e. dramatic loss of value)"
Well first of all, as i said earlier this was a case of hyperinflation. Hyperinflation is very connected to bubbles witch would dissprove that statement(IMO). You also mentioned earlier that Germany's case with hyperinflation was caused by them devaluing the currency. The sources i can refer to all say that Germanys hyperinflation was caused by Germany printing absurd ammounts of paper money to pay of the debt they had after WW2. Thats not really a devaluing
(devaluing refers to when the government delibratly changes the price of a currency) but rather a deappreciation in my book.
You do mention the printing of money from Germany, but suggest that the money printing was a deliberate act from the government to devalue the mark. I dont't really agree with that.
How would you then define a deapreaction in respect to a devaluation? In my opinion the Germany case was a deappreaction of the mark, the England case i mentioned earlier IMO is a devaluation of the pound.