Two quantity theories for two Worlds...

A common observation of the everyday life is that the value of money is assumed to go down or decrease as the time pass, which means the value of one-rupee or one-dollar falls as we go ahead with time that they buy less and less as we go through time and we use higher denomination of a currency to increase demand and growth, but we suppose inflation also do increase which lowers the purchasing-power or the real-value of money and that depends upon the both, demand and supply. If we take demand into consideration, an increase in money-supply would increase inflation and inflation expectations with supply-side constraints and full-employment, which is the old-quantity theory of money and is true for a less developed or developing economy with protectionary policies, but when seen from the supply-side perspective, an increase in the money-supply is likely to lower the borrowing-cost and prices, and improve supply when population growth-rate and demand is going down through time, in short supply may outpace demand. The supply-side argument, increasing-returns and lower prices may be called the special-quantity-theory of money observed in most of more-open-Western-countries Japan, Europe and the US. This might also be explained with the help of returns to the scale experiencing the economy. The old quantity theory of money has presumed the decreasing returns to scale in the economy which means prices would increase as a result of expansionary monetary-and–fiscal policies; more money-supply would increase the price-level, since demand would exceed supply. On the other hand, the special-quantity-theory of money and increasing returns may lower the general-price-level as a result of more money supply and expansion because supply may increase more than demand. By comparing the above two we find that the old-quantity-theory-of-money may lead to money-illusion and inflation, and may lower demand by lowering the value of money, whereas the special-quantity-theory-of-money and increasing-returns would compensate for the lower population growth-rate and low demand by increasing the value of money.