Bourgeois economics sees value as purely subjective and so no different than market price. It views prices as solely a function of the interaction of supply and demand, as the manifestation of the subjective valuations of commodities made by buyers and sellers in aggregate. But, as Marx says, that can only explain movements in price, resulting from changes in the balance of supply and demand, it cannot explain why price revolves around some given point, or equilibrium as bourgeois economics describes it. Marxist economic theory sees price as being a function of value, which is determined objectively by costs of production, which resolves into the quantity of abstract labour required for production (both past and current labour).
The direct measurement of that value is in terms of abstract labour-time, but as soon as a money-commodity develops it is expressed indirectly as a quantity of the money commodity, and subsequently, as a money price, based upon a standard of price. That standard of price itself falls in terms of its own value, as a consequence of it either containing less of the money commodity, or else the value of the money commodity itself falling in value. In reality, what this amounts to is that it represents a smaller quantum of social labour-time. With money tokens, their value is not determined by their material content, but solely by the quantity of them thrown into circulation. On this basis, inflation resulting from a devaluation of these money tokens, itself ends, when they cease being thrown into circulation in excess – though, in practice, this requires around two years to take effect – but that does not result in the general price level returning to its former level. That would require that the value of money tokens returned to their former level, causing a deflation of prices.
The rise of the value of money tokens to their former level would require that either the quantity of such tokens in circulation be reduced to their former level, assuming no change in either the value of commodities, or of the quantity of commodities being exchanged (transactions), or else would require that the quantity of tokens in circulation be expanded no further, whilst, either, the value of commodities (labour-time required for production), or else the quantity of transactions (total value of supply) increase so as to equal the nominal value of money tokens (adjusted for the velocity of circulation). However, as described earlier, capitalism – indeed the whole history of human production – is marked by a continuous upward curve of social productivity, driven by The Law of Value, that results in the values of commodities falling not rising.
So, bourgeois economic theory determines rises in the general price level as a consequence of imbalances between aggregate demand and supply. Those imbalances may result from a reduction in supply, or an increase in demand, or both. Bourgeois explanations of current high levels of inflation fall into these two camps. Either, it is a result of supply bottlenecks, and so is only transitory, as those bottlenecks are removed, or else it is the consequence of sharply rising demand, resulting from the ending of lockdowns, and a rash of consumer spending, some of which is fuelled by liquidity provided by central banks. But, in that case, when the supply bottlenecks are removed, and/or the increased level of demand subsides, prices should revert to their previous levels. In other words, not only should the inflation of prices end, but there ought to be a period of deflation to take the general price level back to its original position! That never happens, other than for short periods of deflation whose cause is not that described above.
It requires either a sharp upward revaluation of the currency, or else requires a significant general overproduction of commodities. In an economy that utilises a money commodity, it would result, for example, where silver was replaced by gold, the upward revaluation stemming from the fact that the value of an ounce of gold is much higher than that of an ounce of silver. In the case of money tokens, it requires a sharp reduction in their supply, which, as in the early 1980's, may itself provoke a credit crisis, and overproduction of commodities. In effect, it increases the precautionary and speculative demand for money, increasing the propensity to save, and reducing the propensity to consume, thereby, taking liquidity out of circulation, and so causing the value of money tokens to rise. As Marx puts it, in Theories of Surplus Value, Chapter 17, refuting Say's Law,
“At a given moment, the supply of all commodities can be greater than the demand for all commodities, since the demand for the general commodity, money, exchange-value, is greater than the demand for all particular commodities, in other words the motive to turn the commodity into money, to realise its exchange-value, prevails over the motive to transform the commodity again into use-value.”
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