https://mises.org/library/understanding-money-mechanics-3/html/c/845

What’s Wrong with MV = PQ?

Economists in the Austrian tradition have criticized the equation of exchange.13 In the first place, it seeks to explain economic phenomena in a mechanistic fashion, the way an engineer might write out an equation describing the flow of water through a pipe.

In contrast, the Austrians typically follow the approach of Mises by using the subjective preferences of an individual to explain his or her demand to hold a cash balance of a certain size. At any moment, there is no such thing as “money in circulation,” as the equation of exchange leads us to believe. Rather, every unit of money is always held in an individual or organization’s cash balance, and the Austrians typically use this perspective when tackling problems of monetary and price inflation. This “micro” method can then be scaled up to arrive at the market demand to hold money, which interacts with the total supply in order to explain the purchasing power of money. In this respect, the Austrian approach to explaining the “price” of money is the same subjective value theory used to explain the price of apples.