Since there were some misunderstandings in the history about this subject, I deem it
proper to look at this point once more and from a slightly different angle. Some incorrect
interpretations of the income theory of money read that it is the theory according to
which the level of prices is determined by the level of nominal incomes. In fact, it could
be thus understood only under very contrived circumstances, such as if all nominal
incomes were exogenously decided and paid out by the government or with something
along these lines. Usually though, prices are not determined by incomes any more than
incomes are determined by prices, and it is a sort of chicken-egg problem to think what
came first. The income theorist of money, of course, does understand this mutual relation.
Yet, if diversity of factors of productions is smaller than that of consumptions
goods, incomes may still keep particular significance in the process. Should we think of
labour, for instance, as having a single labour market, then it would be the biggest market
of all those considered (leaving the credit and other financial or asset markets aside
for the moment that is), any change at this market having substantial influence all over
the rest of the economy. This may in a sense justify the sometimes used label of income
theory of prices. These remarks on the importance of incomes within the process not withstanding, the income theory of money generally speaking is a theory of monetary
process involving the formation of both consumption prices and incomes in the manner
of monetary streams and real streams meeting each other, with individual markets and
prices playing its role according to the actual setup of the economy in question.