For the sake of brevity, I will be using a currency placeholder for all of the equations that relevant to the SMP Compendium instead of any particular real-world currency. This placeholder is identified as a three-letter abbreviation according to the International Standardization Organization (ISO) designations for all Currencies. In the SMP Compendium, the placeholder’s abbreviation is “GDM,” its official name to be elaborated in a follow up post. It will be included in the Compendium under the “Key Terminology” section.
This entry is a demonstration of how Liberal Capitalists calculate the rate of Currency Depreciation/Appreciation within everyday goods and services. The following has been streamlined for the sake of easier comprehension and clarification.
To set the Price of a good or service, simply find the sum of the Cost to create each unit and their Markup. A Markup is additional charge on top of the Cost to ensure there will be a profit for each unit sold. The equation is a simple arithmetic equation involving basic addition:
Price = Cost + Markup
Suppose for a moment that the production of any good or service will yield a Cost of 40 GDM. The Price per unit was listed at 72 GDM. It can be assumed that a Markup was added to the Price. To find the Markup, deduct the Price per unit from their Cost:
Markup = Price – Cost
The aforementioned values should be equal to 32 GDM. This new value can be used to evaluate our handiwork by reverifying the Cost per unit. The equation for finding the Cost with the Price and Markup also involves subtraction:
Cost = Price – Markup
Given the basic retail price of 72 GDM, it is possible to find the Consumer Price Index (CPI), which is the Liberal Capitalist method of determining the Inflation/Deflation Rate. It involves comparing a Price from the previous year and the Price from this year.
Let’s assume that the Price was originally 72 GDM last year and we had bought 3 units; that will be our Base Period Price. In this year, the Price had jumped to 108 GDM and we decided to buy 3 units at the listed Price, the total amount being our Current Period Price. Here, the CPI can be calculated through the following formula below.
Units * (Base Price + Base Cost + Base Markup) = Base Period Price
3 (72.00) = 216.00
Units * (Current Price + Current Cost + Current Markup) = Current Period Price
3 (108.00) = 324.00
(Base Period Price / Current Period Price) * 100% = Consumer Price Index
(324 / 216) * 100% = 150.00
Since we had discovered our Base Period Price to be 216 GDM and the Current Period Price as 324 GDM, the CPI is “150.00.” This implies that Currency Deprecation has taken place and has caused the Price to significantly increase over the course of a single year.
Note that the Consumer Price Index does not account for any real changes in quality as has been the case with the “Quality of Arbeit” from the Work-Standard. Thus, it tends to overstate the Inflation Rate as a result. Liberal Capitalists know this and so they will rely on a GDP Deflator to take into consideration changes on purchasing behaviors and investment patterns.