Commodity

A commodity is a social relation for any good or service or resource produced for the purpose of exchange. The commodity has two aspects, its use value, its qualitative physical and useful properties, and its exchange value, which is its quantitative properties, the proportion in relation to the exchange of other commodities.

Difference in Marxist and non-Marxist usage

The term commodity is used differently in Marxist and non-Marxist economics. In Marxist economics it means a marketed good or service – one that is bought or sold. Goods or services that are not produced for sale, although they may be physically the same, are not termed `commodities'. Commodities are characteristic of capitalism, whereas goods and services in non-capitalist economic systems such as socialism or feudalism are generally not commodities.

In non-Marxist economics, eg. the language of capitalist businesspeople, `commodity' means a good or service that is not differentiated in the market from other goods or services of the same general type. One unit of the commodity is regarded as being as good as any other, regardless of the details of its origin. The term mainly applies to bulk goods such as iron ore, coal, and wheat.

Marxist theory

In classical political economy and especially Karl Marx's critique of political economy, a commodity (in German: Kaufware, merchandise, ware for sale) is any good or service ("products" of "activities") produced by human labour and offered for sale in a market. Some other priced goods are also treated as commodities, e.g. human labor-power, works of art, and natural resources, even though they may not be produced specifically for the market, or be non-reproducible goods.

Things which are not commodities include those produced for one's own use, for one's family, as gifts, or for distribution according to rules of tradition. The important point is that in none of those cases is the thing bought and sold in a market.

Example: If I knit a sweater to keep myself warm this winter, it is not a commodity, but if I knit it to take downtown and barter for potatoes (or money) it is a commodity.

Marx was particularly concerned with commodities because they are characteristic of the capitalist mode of production. Under capitalism, most items produced are commodities. That was not the case in pre-capitalist societies where, for instance, people grew their own food, or grew it under slavery or feudal conditions where it was taken from them and distributed in traditional alotments or by fiat – the majority of the product was never bought or sold.

Marx used the commodity as an entry point to tackle the problem of what establishes the economic value of goods; and from there the problem of exploitation of labour under capitalism – that is, that the labourer does not receive the full value of the goods she produces.

The problem of what establishes the economic value of goods had earlier been investigated by Adam Smith, David Ricardo and Karl Rodbertus-Jagetzow among others.

Characteristics of commodity

• It has a value, which according to the labour theory of value is proportional to the quantity of human labor needed to produce it.
• It has a use value which is its capacity to satisfy some human need or want, physical or ideal. By nature this is a social use value, i.e. the object is useful not just to the producer but has a use for others generally.
• It has an exchange value, meaning that a commodity can be traded for other commodities, and thus give its owner the benefit of others' labor (the labor done to produce the purchased commodity). Price is the monetary expression of exchange-value.

Goods versus services

"Up until now, one might have had the impression that when the term "commodity" is used, it refers solely to physical objects. But what is relevant here is the act of exchange, not the fact that physical objects are being exchanged. Services can also be exchanged and therefore become commodities. The difference between a material product and an "immaterial" service consists solely of a different temporal relationship between production and consumption: the material product is first produced and subsequently consumed (a bread roll should be consumed on the same day, but an automobile can remain by its manufacturer for a few weeks or even months before I have a chance to use it). In the case of a service (whether we are talking about a taxi ride, a massage, or a theater performance), the act of production is concurrent with the act of consumption (as the taxi driver produces a change of place, I consume it). The difference between services and physical objects consists of a distinction between the material content; the question as to whether they are commodities pertains to their social form, and that depends upon whether the objects and services are exchanged. And with that, we have sorted out the matter of the frequently stated argument that with the "transition from an industrial to a service economy" or in the left-wing variant of Hardt and Negri-- the transition from "material" to immaterial" production--Marx's value theory has become outmoded--"

Consider the humble barber. They sell haircuts whose use-value is the shortening of a person's hair and exchange this haircut for money, or if they are a grandpa, perhaps for candy. The same holds for baristas, live performers (singers, dancers, poets and so on), teachers and many other professions.

Historical origins of commodity trade

Commodity-trade, Karl Marx argues, historically begins at the boundaries of separate economic communities based otherwise on a non-commercial form of production. Thus, producers trade in those goods of which those producers, have episodic or permanent surpluses to their own requirements, and they aim to obtain different goods with an equal value in return.

Karl refers to this as "simple exchange" which implies what Frederick Engels calls "simple commodity production". At first, goods may not even be intentionally produced for the explicit purpose of exchanging them, but as a regular market for goods develops and a cash economy grows, this becomes more and more the case, and production increasingly becomes integrated in commodity trade. The division of labour becomes more complex, a class of merchants emerges which specialises in trading commodities, buying here and selling there, without producing goods themselves, and parallel to this, property owners emerge who extend credit and charge rents. This process goes together with the increased use of money, and the aim of merchants, bankers and renters becomes to gain income from the trade, by acting as intermediaries between producers and consumers. "The product becomes a commodity" and "exchange value of the commodity acquires a separate existence alongside the commodity".

Modern capitalism according to Karl Marx involves a mode of production based on generalized commodity production (Marx's German term is veralgemeinte Warenproduktion), a universal market. (See also capitalist mode of production.) This means that both the inputs and the outputs of most production in society have become priced, tradeable goods (including the means of production and humyn labour power), and that what and how much is produced is largely determined by the response of producers to the "state of the market". Production is now explicitly engaged in for the purpose of market sales only, which implies both that its whole organisation is reshaped for this aim, and that people can meet their own needs by purchases in the market (rather than producing goods directly for their own consumption).

Commodification

See main article: Commodification

The transformation of a labor-product into a commodity (its "marketing") is in reality not a simple process, but has many technical and social preconditions. For example, it often involves a considerable practical accomplishment in trade, and the commodification process may be influenced not just by economic or technical factors, but also political and cultural factors, insofar as it involves property rights, claims to access to resources, and guarantees about quality or safety of use. Some of the preconditions to commodification include:

• the existence of a reliable supply of a product, or at least a surplus or surplus product.
• the existence of a social need for it (a market demand) that must be met through trade, or at any event cannot be met otherwise.
• the legally sanctioned assertion of private ownership rights to the commodity.
• the enforcement of these rights, so that ownership is secure.
• the transferability of these private rights from one owner to another.
• the right to buy and sell the commodity, and/or obtain (privately) and keep income from such trade
• the (physical) transferability of the commodity itself, i.e. the ability to store, package, preserve and transport it from one owner to another.
• the imposition of exclusivity of access to the commodity.
• the possibility of the owner to use or consume the commodity privately.
• guarantees about the quality and safety of the commodity, and possibly a guarantee of replacement or service, should it fail to function as intended.

The reifying effects of universalised trade in commodities, involving a process Karl Marx calls "commodity fetishism," mean that social relations become expressed as relations between things; for example, price relations. Markets mediate a complex network of interdependencies and supply chains emerging among people who may not even know who produced the goods they buy, or where they were produced.

Since no one agency can control or regulate the myriad of transactions that occur (apart from blocking some trade here, and permitting it there), the whole of production falls under the sway of the law of value, and economics becomes a science aiming to understand market behavior, i.e. the aggregate effects of a multitude of people interacting in markets. How quantities of use-values are allocated in a market economy depends mainly on their exchange value, and this allocation is mediated by the "cash nexus".

"Man really attains the state of complete humanity when he produces, without being forced by physical need to sell himself as a commodity."
— Che Guevara

"How can it be 'mutually beneficial' to sell at world market prices the raw materials that cost the underdeveloped countries immeasurable sweat and suffering, and to buy at world market prices the machinery produced in today's big automated factories?"
— Che Guevara

"To trade or not to trade", that may be the question. The modern debate in this regard focuses often on intellectual property rights because ideas are increasingly becoming objects of trade, and the technology now exists to transform ideas into commodities much more easily.

Pseudo-commodities

Marx acknowledged explicitly that not all commodities are products of human labour; all kinds of things can be traded "as if" they are commodities, so long as property rights can be attached to them. These are "fictitious commodities" or "pseudo-commodities" or "fiduciary commodities", i.e. their existence as commodities is only nominal or conventional. They may not even be tangible objects, but exist only ideally. A property right or financial claim, for instance, may be traded as a commodity. Bitcoins and NFTs as well as many financial products, like mortgages and shares act this way.

Forms of commodity trade

The 7 basic forms of commodity trade are summarized below. The letter M stands for money and C for commodity.

• M-C (an act of purchase: a sum of money purchases a commodity,or "money is changed into a commodity")
• C-M (an act of sale: a commodity is sold for money)
• M-M' (a sum of money is lent out at interest to obtain more money, or, one currency or financial claim is traded for another. "Money begets money.")
• C-C' (counter-trade, in which a commodity trades directly for a different commodity, with money possibly being used as an accounting referent, for example, food for oil, or weapons for diamonds)
• C-M-C' (a commodity is sold for money, which buys another, different commodity with an equal or higher value)
• M-C-M' (money is used to buy a commodity which is resold to obtain a larger sum of money)
• M-C...P...-C'-M' (money buys means of production and labour power used in production to create a new commodity, which is sold for more money than the original outlay. "The circular course of capital")

The dots in the last-mentioned circuit ("...") indicate that a value-forming process (production, "P") occurs in between purchase of commodities and the sales of different commodities. C-M-C' and M-C-M' are the circuits in merchant capitalism. The final circuit (M-C...P...-C'-M'), which involves capitalist production, is characteristic of fully developed capitalism.

Cost structure of commodities

Karl Marx claims that the value of a commodity is reducible to four components:

• variable capital (labour costs)
• constant capital (costs of materials and equipment)
• faux frais of production (incidental expenses which cost labour-time)
• surplus value (revenue going to the capitalists – profit, interest, rent).

In capitalism, Marx argues, commodity values are commercially expressed as the prices of production of commodities (cost-price + average profit). Prices of production are established jointly by average input costs and by the ruling profit margins applying to outputs sold. They reflect the fact that production has become totally integrated into the circuits of commodity trade, in which capital accumulation becomes the dominant motive. But what prices of production simultaneously hide is the social nature of the valorisation process, i.e. how an increase in capital-value occurs through production.

Likewise, in considering the gross output of capitalist production in an economy as a whole, Marx divides its value into these four components. He argues that the total new value added in production, which he calls the value product, consists of the equivalent of variable capital, plus surplus value. Thus, the workers produce by their labor both a new value equal to their own wages, plus an additional new value which is claimed by capitalists by virtue of their ownership and supply of productive capital.

By producing new capital in the form of new commodities, Marx argues the working class continuously reproduces the capitalist relations of production; by their work, workers create a new value distributed as both labour-income and property-income. If, as free workers, they choose to stop working, the system begins to break down; hence, capitalist civilisation strongly emphasizes the work ethic, regardless of religious belief. People must work, because work is the source of new value, profits and capital.

Commodity production under socialism

Commodity production continues under socialism as collective farms sell their produce to cities. It does not exist in the final stage of communism.

Further reading

• Most of Marx's works can be viewed for free at Marxists.org . Of particular relevance are:
  • Contribution to a Critique of Political Economy
  • Commodities - from the first chapter of Das Kapital
• A useful commentary on the Marxian concept is provided in: Costas Lapavitsas, "Commodities and Gifts: Why Commodities Represent More than Market Relations". Science & Society, Vol 68, # 1, Spring 2004
• See also Jack P. Manno, Privileged Goods: Commoditization and Its Impact on Environment and Society. CRC Press, 1999.
• Marxists.org, Encyclopedia of Marxism, "Commodity"

Difference in Marxian and non-Marxian usage

The term commodity is used differently in Marxist and non-Marxist economics. In Marxist economics it means a marketed good or service – one that is bought or sold. Goods or services that are not produced for sale, although they may be physically the same, are not termed `commodities'. Commodities are characteristic of capitalism, whereas goods and services in non-capitalist economic systems such as socialism or feudalism are generally not commodities.

In non-Marxist economics, eg. the language of capitalist businesspeople, `commodity' means a good or service that is not differentiated in the market from other goods or services of the same general type. One unit of the commodity is regarded as being as good as any other, regardless of the details of its origin. The term mainly applies to bulk goods such as iron ore, coal, and wheat.

Business or procapitalist usage

See Commodity (procapitalist economics)

Further reading

• Most of Marx's works can be viewed for free at Marxists.org . Of particular relevance are:
  • Contribution to a Critique of Political Economy
  • `Commodities' - from the first chapter of Das Kapital
• A useful commentary on the Marxian concept is provided in: Costas Lapavitsas, "Commodities and Gifts: Why Commodities Represent More than Market Relations". Science & Society, Vol 68, # 1, Spring 2004
• See also Jack P. Manno, Privileged Goods: Commoditization and Its Impact on Environment and Society. CRC Press, 1999.
• Marxists.org, Encyclopedia of Marxism, "Commodity"