ABSTRACT
This chapter argues that, for the causal-realist, the stock of money assets, and not the flow of money income, is the relevant concept for demand theory. Causal-realist price theory thus treats money as an integral part of the valuation process when deriving the demand curve. Although the language of demand and supply is more abstract and less precise than that of value scales, it is useful in simplifying and abbreviating the analysis and in highlighting the implications of the operation of the law of marginal utility in the pricing process. Causal-realist analysis of the income effect has the happy consequence of shedding new light on the nature of the substitution effect. P. Salin presents an immanent critique of the income effect using the Hicksian analytical apparatus. He concludes that "the income effect does not exist as a general phenomenon; it is a mathematical illusion in a badly specified world".
