A contrast-modulated (CM) pattern is formed when a modulating or envelope function imposes local contrast variations on a higher-frequency carrier. Motion may be seen when the envelope drifts across a stationary carrier and this has been attributed to a second-order pathway for motion. However, an early compressive response to luminance (e.g. in the photoreceptors) would introduce a distortion product at the modulating frequency. We used a nulling method to measure the distortion product, and then asked whether this early distortion could account for perception of second-order motion. The first stimulus sequence consisted of alternate frames of CM (100% modulation) and luminance-modulated (LM) patterns. Carriers were either 2-D binary noise (4 x 4 min arc dots) or a 4 c/deg grating, both modulated at 0.6 c/deg. The carrier was stationary while the phase of the modulating signal (LM alternating with CM) stepped successively through 90 degrees to the left or right. Motion was seen in a direction opposite to the phase stepping, consistent with early compressive distortion that induces an out-of-phase LM component into the CM stimulus. We measured distortion amplitude by adding LM to the CM frames to null the perceived motion. Distortion increased as the square of carrier contrast, as predicted by the compressive transducer. It also increased with modulation drift rate, implying that the transducer is time-dependent, not static. Thus early compressive non-linearity does induce first-order artefacts into second-order stimuli. Nevertheless this does not account for second-order motion, since perceived motion of second-order sequences (CM in every frame) could in general not be nulled by adding LM components. We conclude that two pathways for motion do exist.