THE OIL INDUSTRY isn't the only thing hit by deflation these days. The price of oil has gone way down. And so has the price of life; it just isn't what it was in the "good-ole' days." In fact, today the price of one human being has plummeted to seven years.

That's right, convicted murderers in this country are now serving only seven years on the average. One out of every seven inmates sentenced to life imprisonment actually serves less than four years.

Throughout the United States, criminals are serving shorter sentences--not because the good in human nature is on the rise or because justice is getting lax in its standards, but simply because overcrowding has reached epidemic proportions in prisons.

Not so long ago, an outraged and brutalized public insisted that criminals serve longer sentences for the crimes they commit. But soon, as one might expect, prisons simply ran out of space. In Concord Prison, one of Massachusett's medium security correctional facilities, six-by-ten-foot cells that were designed to hold one inmate now have two sleeping in bunk beds. Rooms that were meant to be recreational areas or infirmaries now house 20 to 30 prisoners. Each week, the number grows.

And in this era of fiscal frugality, state and federal governments have become more and more reluctant to fork over the $100,000 needed to build just one cell. Judges are beginning to order the decrowding of prisons, claiming that the current conditions represent cruel and unusual punishment.

THE SOLUTION TO over-crowding in Massachusetts and elsewhere has been to cut short prison sentences. Those convicted of non-violent crimes in this state now serve only one-third of their term; two-thirds for violent cases. And Massachusetts is one of the tougher states.

Prisons used to have two purposes. One was reform; but we know prisons don't reform prisoners, as the enormously high rate of repeat offenders attests to. If anything, inmates become better criminals in prison, learning the tricks of the trade from the pros.

The other purpose was punishment, but this too has been eroded. Short terms in jail are a message to the convicted murderer that if he gets caught, society will only slap him on the wrist and let him back on the streets.

Our prison system isn't even failing inexpensively. The cost of maintaining just one prisoner is now about $20,000 each year. Because the two traditional functions of sending criminals to prison have been undermined, our tax dollars just provide murderers with a short-lived rest from their violent activities. What the public's money is not doing is teaching criminals a worthwhile lesson.

SOME EXPERTS ON America's correctional institutions have suggested that we establish a house arrest system for non-violent, first-time offenders. People sentenced to house arrest would be prohibited from leaving their homes except for work, medical appointments, and shopping for necessities. Parole officers and special electronic devices would ensure that these people obeyed the rules of their sentence.

Such a system would alleviate some prison overcrowding. Drunk drivers--who now make up 20 percent of serious offense cases presented in courts--would be placed under house arrest instead of taking up space in the nation's prisons, leaving more room for violent, career criminals.

But the house arrest system is rife with problems, including the potential for criminals to manipulate the system. It also seems unethical--or at least Orwellian--to use electronic surveillance to keep people penned up.

The house arrest system would also leave untouched the fact that prisons are not effecting serious criminals in any positive way. We could make prison officials reinflate prison sentences, but we would probably find that this does nothing to reduce crime.

It's a gloomy prospect, but we must supply the room necessary to keep dangerous people away from society for a long time. We must at least make criminals think twice before committing their crimes.

You might not be able to decide whether a life is worth 15 or 50 years in prison. But one thing you can say is that a life should be worth more than just seven years.