According to Ludwig von Mises, the Standard Textbook Equation of Exchange, MV = PT, Is a Superficial and Unsatisfactory Theory of the Purchasing Power of Money

One of the main contributions of Mises’s TMC [The Theory of Money and Credit] is his trenchant criticism of the classical equation of exchange MV = PT. This equation, however, is still used today in every standard textbook—what is more, it is often the only formulation of the quantitative theory of money that is offered to students. The criticism by Mises is clearly unknown to the current writers belonging to the “orthodox” paradigm. This is unfortunate because Mises has convincingly shown that the equation of exchange is a superficial and ultimately unsatisfactory theory of the purchasing power of money. His main criticism is aimed at the concept of velocity of money: counting how many times a unit of money changes hands on average in a year cannot replace the concept of the subjective demand for money. The velocity of money is only a manifestation of the effects of the demand for money, and it obfuscates the causal processes through which the value of money is determined. The concept of the subjective demand for money is, as we have seen in the previous section, the necessary foundation for an explanation of the PPM. Mankiw (2011) and Milton Friedman (in his entry “Quantity Theory of Money” in the New Palgrave) both recognize this fact. They begin their respective presentations of the quantity theory with the subjectivist theory expounded above, but then they fall back and focus on the holistic and mathematical equation only.

—Renaud Fillieule, “The Monetary Theory in Current Textbooks in Light of The Theory of Money and Credit,” in Theory of Money and Fiduciary Media: Essays in Celebration of the Centennial, ed. Jörg Guido Hülsmann (Auburn, AL: Ludwig von Mises Institute, 2012), 256.