Commodity

In economics, a commodity is a marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services.

In Marxian economics, the term is used especially to differentiate items that are produced in non-market situations (eg. produced for one's own use, for one's family, as gifts, or for distribution according to rules of tradition) from items that are produced for sale or exchange in a market. Only the latter are called commodities. For 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.

In bourgeois economics the concept of commodity is nowhere near as central and is quite different. In that genre, 'commodity' designates goods, often traded in large amounts, that are undifferentiated across a market; that is, a buyer will consider various lots of the good as equivalent whether they come from one producer or another: examples are iron ore, coal, and wheat.

Marxian theory
In classical political economy and especially Karl Marx's critique of political economy, a commodity (in German: Kaufware, i.e. 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.

Marx's analysis of the commodity is intended to help solve the problem of what establishes the economic value of goods. This problem was extensively debated by Adam Smith, David Ricardo and Karl Rodbertus-Jagetzow among others. Value and price are not equivalent terms in economics, and theorising the specific relationship of value to market price has been a challenge for both liberal and Marxist economists.

Characteristics of commodity

 * It has 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 because, by its intrinsic characteristics, it can 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.

Price is the monetary expression of exchange-value (but exchange value could also be expressed as a direct trading ratio between two commodities without using money, and goods could be priced using different valuations or criteria).
 * 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).

Historical origins of commodity trade
""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

Commodity-trade, 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.

Marx 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 product becomes a commodity" and "exchange value of the commodity acquires a separate existence alongside the commodity"

Even so, in simple commodity production, not all inputs and outputs of the production process are necessarily commodities or priced goods, and it is compatible with a variety of different relations of production ranging from self-employment and family labour to serfdom and slavery. Typically, however, it is the producer himself who trades his surpluses.

However, as the division of labour becomes more complex, a class of merchants emerges which specialises in trading commodities, buying here and selling there, without producing products 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.

Modern Capitalism according to Marx involves a mode of production based on generalised 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 human 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).

""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

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.

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. These often 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.

Thus, the "commodification" of a good or service often involves a considerable practical accomplishment in trade. It is a process that 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.

"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.

The reifying effects of universalised trade in commodities, involving a process 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 behaviour, 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".

In Marx's analysis of the capitalist mode of production, commodity sales increase the amount of exchange-value in the possession of the owners of capital, i.e., they yield profit and thus augment their capital (capital accumulation).

Capitalists as businesspeople are interested in use-values primarily from the point of view of their money-making potential, i.e. their exchange-value; any useful object may in principle become an object of exchange and profit-making, although that may in practice take quite some doing. In simple terms, the primary concern of businesspeople here is commercial: the money they can obtain from owning or selling the commodity.

But if an increase in capital-value is to be realised, it is essential that sales of commodities occur. Consequently, the accumulation of capital must go together with the expansion of market sales of commodities. In that sense, businesspeople cannot be indifferent to the use-values in which they trade.

Forms of commodity trade
The 7 basic forms of commodity trade can be summarised as follows:


 * 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' (countertrade, 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)
 * (a commodity is sold for money, which buys another, different commodity with an equal or higher value)
 * (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 hyphens ("-") here refer to a transaction applying to an exchange involving goods or money; the dots in the last-mentioned circuit ("...") indicate that a value-forming process ("P") occurs in between purchase of commodities and the sales of different commodities. Thus, while at first merchants are intermediaries between producers and consumers, later capitalist production becomes an intermediary between buyers and sellers of commodities. In that case, the valuation of labour is determined by the value of its products.

Cost structure of commodities
In considering the unit cost of a capitalistically produced commodity (in contrast to simple commodity production), Marx claims that the value of any such commodity is reducible to four components equal to:


 * variable capital used up to produce it
 * fixed and circulating constant capital used up per unit
 * incidental expenses which cost labour-time (faux frais of production)
 * surplus value per unit.

These components reflect respectively labour costs, the cost of materials and operating expenses including depreciation, and generic profit.

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.