Benjamin M. Anderson Asserts That the Fundamental Flaw in the Quantity Theory of Money Is That It Conceals the Underlying Microeconomic Phenomena

It is easy to understand why a theory such as the one monetarists hold, which is constructed in strictly macroeconomic terms with no analysis of underlying microeconomic factors, must ignore not only the effects of credit expansion on the productive structure, but also, in general, the ways in which “general price level” fluctuations influence the structure of relative prices. Rather than simply raise or lower the general price level, fluctuations in credit constitute a “revolution” which affects all relative prices and eventually provokes a crisis of malinvestment and an economic recession. The inability to perceive this fact led the American economist Benjamin M. Anderson to assert that the fundamental flaw in the quantity theory of money is merely that it conceals from the researcher the underlying microeconomic phenomena influenced by variations in the general price level. Indeed monetarists content themselves with the quantity theory’s equation of exchange, deeming all important issues to be adequately addressed by it and subsequent microeconomic analyses to be unnecessary.

--Jesús Huerta de Soto, Money, Bank Credit, and Economic Cycles, trans. Melinda A. Stroup (Auburn, AL: Ludwig von Mises Institute, 2006), 526-527.