Capitalism is an inherently unstable
system. It is cyclical in nature. Precariously balanced between
inflation and deflation, boom and bust, growth and depression.
Inflation
Inflation is commonly portrayed as a
“rise in the cost of living”. It is measured by the government in
two ways: the Consumer Price Index (CPI) and Retail Price Index
(RPI). These measures track the prices of commodities.
On one level, inflation is the result
of supply and demand. Recent fires in Russia have led the Russian
government to stop exporting grain. This shortage of grain will
increase the value of grain in world markets, causing the price, and
that of other products such as bread, to be inflated. Conversely,
were there to be an increase in the supply of grain, its value would
fall, and the price would be deflated.
But this supply and demand can only
partially account for inflation and deflation. Were grain to be as
common as grains of sand, it would not become worthless. There is
still labour invested in the sowing and harvesting of grain, still
labour invested in the grinding of grain into flour, and the baking
of flour into bread. The absolute value of an item is determined by
the labour power invested in its production.
However, with industrialisation, the
amount of labour needed to make bread has fallen. Whereas in the
past, bakers would spend ten minutes kneading dough to make a single
loaf of bread, now vast machines can knead hundreds of loaves of
bread at once. Bread can be made without being touched by a human
hand. This increase in the supply of bread will at first make the
capitalist more money – he has more bread to sell. But as the
market becomes flooded with mechanical bread its value will fall, its
price is deflated. We then have very cheap bread, but less people
employed to make it, and less people employed means a reduction in
the ability of our workers to buy the commodities!
So what else can determine the changing
price of a commodity?
