Criticisms (Limitations) of the classical Quantity theory of money demand

The quantity theory of money is criticized on the following grounds;

1. The theory only  emphasizes  the  transaction  motive  of  holding   money  and  it  ignores   the precautionary   and speculative  motives  of money  demand.
2. It is just a truism and not a theory. It merely shows that the four variables M, V, P and T are related.
3. The theory   ignores   commodities    that   are transacted through barter trade as a system   of exchange.
4. The theory only explains the changes in the value of money but not how the value of money is determined.
5. The assumption that the velocity of money (V) and the level of transactions (T) are constant is unrealistic. This is because they are affected by the expenditure   behavior   and hoarding   habits of individuals.
6. It assumes a general price level which is unrealistic. This is because there may be a series of price levels of commodities in the economy.
7. The four variables M, V, P and T are not independent of one another as the theory   assumes. This is because a change in one induces a change in other variables.
8. If the country  has  many  unemployed  resources,  the  increase   in  money   supply   leads   to  an increase  in output  of goods and services  which  makes  the price  to fall or not to change  at all.
9. An increase in money supply may result into higher savings if the marginal propensity to save is high. This reduces the velocity of circulation   and prices may fall.
10. The theory ignores haggling as a method of price discrimination in the market. That is haggling between buyers and a seller to reach an agreeable price is not taken into account.
11. It does not take into account other causes of price increases (inflation) like cost push, break down of infrastructure etc.
12. It ignores influence of interest rate. The theory cannot be complete without mentioning interest as the major determinant   of money demand in the economy.
13. The theory ignores government   control  of prices  in  the  market   as  a  way  of  ensuring   price stability.
14. The theory does not take into account the demand for money. It only looks at money supply.