Commentators point to the rise in oil prices driven by the Strait of Hormuz closure and damage to the refineries in the Persian Gulf region as the main force driving up inflation. They say it will cause a return to a 1970s-type stagflation — high inflation, economic stagnation and unemployment — and deep recession. Others predict that if the current ceasefire ends in renewed war this will cause a world Depression (with a capital D) worse than even the 1930s.
How much truth is there in these predictions? Historically, a war did not precede the 1930s Great Depression to drive up the prices of various commodities. True, the high commodity prices in general relative to commodity values and production prices played a crucial role in putting the “Great” in that economic crisis and Depression. Could something similar happen as a result of the current war, even though it has not yet reached the scale of World War I?
Early in this blog, in examining the causes of crises, we explored the theory of disproportionate production that arises out of the anarchy of capitalist production. The main question political economy dealt with was not explaining why it occurred in an unplanned capitalist system, but how the proportions needed to continue production are achieved at all. In reality, disproportionate production occurs and has occurred almost every minute throughout the history of capitalist production. At any given moment, some commodities are overproduced relative to others, while some commodities are underproduced. When one kind of commodity is underproduced, its market prices rise above its value, or more strictly, its production price. When overproduced, a commodity’s market price falls below its value and production price.