Jim Devine wrote: >> The Austrians derive a downward-sloping demand curve using only the >> principle of substitution (no utility maximizing). > > no income/wealth effects?
Correct. The Misesian "logic of choice" cannot derive the income effect from a price change. But, not to worry: the income effect doesn't exist. "The existence of the income effect assumes that the concept of income can be defined in a non-ambiguous way. It can be measured and quantified. In fact, this is not true. Income can only be understood using a precise concept of utility which does not allow room for measurement. In the present paper we show that the income effect is not consistent with a purely logical theory of utility. In reality the income effect can exist only if one adds a specific assumption. Contrary to the belief that the income effect is a general principle, it is in fact only a possible consequence of a specific assumption. The substitution effect--consistent with the general theory of utility--is the only general principle." Pascal Salin, The Myth of the Income Effect, The Review of Austrian Economics, Vol. 9, No. 1, pp. 95-106 http://mises.org/journals/rae/pdf/RAE9_1_4.pdf _______________________________________________ pen-l mailing list pen-l@lists.csuchico.edu https://lists.csuchico.edu/mailman/listinfo/pen-l
