If you’ve been to the grocery store recently, you have probably seen an incredible sight. Eggs are now selling for less than they did in 2022. Walmart says they’ll sell me eggs for 1.19$ a dozen, and Target will sell them for 0.99$ with a special discount. Considering that at the beginning of 2023, eggs were selling for as much as 5$ a dozen, this comedown is remarkable.

It gets to the heart of a discussion about the origins of inflation though. The classical definition of inflation is too much money chasing too few goods. That means that when either the money supply is increased or their is a shortage of goods, we should expect to see inflation. This thesis does seem to have played out in 2021-2023. The money supply was increased enormously in 2020 and 2021, while COVID restrictions meant the supply of goods was constrained and could not rise quickly to meet it.

But that isn’t the definition that has been gaining traction. Recently folks have pointed to corporate greed as the primary driver of inflation. Under this thesis, inflation is not driven by the money supply or the goods supply, but by corporate greed in and of itself. If corporations weren’t greedy, they wouldn’t raise prices. But if prices go up because corporations are greedy, doesn’t that mean they go down because corporations are generous?

I’d like to see someone like Bernie Sanders explain the fall in egg prices. Why aren’t Walmart and Target just being greedy like all the other companies? If it’s so easy to raise egg prices by being greedy, then what mechanism could possibly make prices fall? What possible reason could their be for a fundamentally greedy company to willingly lower prices and receive less money?

For that matter, why is Exxon-Mobile being so damn generous? Over the past year, crude oil prices have gone from 100$ to just 70$. Exxon-Mobile was public enemy number 1 when gas prices were high, and was blamed for being too greedy. Have they now become generous instead? Have all the oil companies become generous? Why are the oil companies so much more generous than all the other companies?

It gets to the heart of the problem, inflation isn’t driven by corporate greed. Corporate greed is a constant, I’d go so far as to say human greed is a constant. Corporations (on average) demand the highest possible price for their goods that the market will bear. Laborers (again on average) also demand the highest possible price for their labor that the market will bear. No one ever willingly takes a pay cut without good reason, good reason usually being they have no other choice.

If corporations want to raise their prices above what the market will accept, then they’d be like me walking up to my boss and demanding a million dollar salary. They won’t get what they want no matter how hard they try. If Walmart raises the price of eggs, then Target can steal all of their business by keeping its egg prices low. People stop buying eggs at Walmart, they instead buy eggs from Target or from one of the hundreds of small and independent retailers that still dot America. Grocery stores are not a monopoly in our country, they do not have the power to set prices on their own. They are always in competition with each other and prices reflect that competition.

By the same token, if I demand a million dollar salary, my boss just won’t pay it. If I say I’ll quit if I don’t get it, he’ll show me the door. I am competing with hundreds of other workers in my field and so I cannot raise the price of my labor over and above what others are charging or else I’ll get replaced. It is a fact that many people ignore, but there is a market for labor just as their is a market for any other good. And the labor market has sellers (workers) and buyers (employers) just like any other. So when trying to answer questions about (say) the egg market, it’s useful to first think about how it works in the labor market. We are probably all more familiar the labor market with since if you’re reading this blog you’ve likely worked in your life.

So, in the labor market, can the sellers of labor (the workers) raise their prices just by being greedy? No, of course not. Without some decrease in supply or increase in demand, the price (salary) of laborers doesn’t go up, and workers who refuse to work for the market raise simply won’t receive job offers. It’s the same with corporations and it’s the same with goods inflation. Prices of goods aren’t driven by greed. They’re driven by supply shortages and a glut of money, both of which are in part exacerbated by government policies.

The current administration has continued Trump’s protectionist trade policies, which prevent American companies from being forced to compete with overseas companies. And both congressional spending and the Federal Reserve’s balance sheet have expanded considerably, bringing more and more money into the money supply. Too much money chasing too few goods, that is what causes inflation.