In classical

political economy Political economy is the study of how Macroeconomics, economic systems (e.g. Marketplace, markets and Economy, national economies) and Politics, political systems (e.g. law, Institution, institutions, government) are linked. Widely studied ph ...

and especially

Karl Marx Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, economist, historian, sociologist, political theorist, journalist, critic of political economy, and socialist revolutionary. His best-known titles are the 1848 ...

critique of political economy Critique of political economy or critique of economy is a form of Social criticism, social critique that rejects the various social categories and structures that constitute the mainstream discourse concerning the forms and modalities of resourc ...

, a commodity is any good or service ("products" or "activities") produced by human labour and offered as a product for general sale on the market. Some other priced goods are also treated as commodities, e.g. human

labor-power Labour power (in german: Arbeitskraft; in french: force de travail) is a key concept used by Karl Marx in his critique of capitalist political economy. Marx distinguished between the capacity to do work, labour power, from the physical act of w ...

, works of art and natural resources, even though they may not be produced specifically for the market, or be non-reproducible goods. This problem was extensively debated by

Adam Smith Adam Smith (baptized 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the thinking of political economy and key figure during the Scottish Enlightenment. Seen by some as "The Father of Economics"——— ...

David Ricardo David Ricardo (18 April 1772 – 11 September 1823) was a British Political economy, political economist. He was one of the most influential of the Classical economics, classical economists along with Thomas Robert Malthus, Thomas Malthus, Ad ...

, and

Karl Rodbertus-Jagetzow Johann Karl Rodbertus (August 12, 1805, Greifswald, Swedish Pomerania – December 6, 1875, Völschow, Jagetzow), also known as Karl Rodbertus-Jagetzow, was a German economist and socialist and a leading member of the ''Linkes Zentrum'' (centre ...

, among others. Value and

price A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for goods or services. In some situations, the price of production has a different name. If the product is a "good" in the c ...

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

In Marx's theory, a commodity is something that is bought and sold, or exchanged in a relationship of trade. * It has

value Value or values may refer to: Ethics and social * Value (ethics) wherein said concept may be construed as treating actions themselves as abstract objects, associating value to them ** Values (Western philosophy) expands the notion of value beyo ...

, which represents a quantity of human labor. Because it has value, implies that people try to economise its use. A commodity also has a

use value Use value (german: Gebrauchswert) or value in use is a concept in classical political economy and Marxist economics. It refers to the tangible features of a commodity (a tradeable object) which can satisfy some human requirement, want or need, or ...

and an

exchange value In political economy and especially Marxian economics, exchange value (German: ''Tauschwert'') refers to one of the four major attributes of a commodity, i.e., an item or service produced for, and sold on the market, the other three attributes be ...

. * 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. * 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 then 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. According to the

labor theory of value The labor theory of value (LTV) is a theory of value that argues that the economic value of a good or service is determined by the total amount of " socially necessary labor" required to produce it. The LTV is usually associated with Marxian e ...

, product-values in an open market are regulated by the average

socially necessary labour time Socially necessary labour time in Marx's critique of political economy is what regulates the exchange value of commodities in trade and consequently constrains producers in their attempt to economise on labour. It does not 'guide' them, as it ca ...

required to produce them, and price relativities of products are ultimately governed by the

law of value The law of the value of commodities (German: ''Wertgesetz der Waren''), known simply as the law of value, is a central concept in Karl Marx's critique of political economy first expounded in his polemic ''The Poverty of Philosophy'' (1847) against ...

Historical origins of commodity trade

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 Friedrich Engels ( ,"Engels"
''

simple commodity production Simple commodity production (german: einfache Warenproduktion), also known as petty commodity production, is a term coined by Friedrich Engels to describe productive activities under the conditions of what Karl Marx had called the "simple exchange" ...

". 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 Relations of production (german: Produktionsverhältnisse, links=no) is a concept frequently used by Karl Marx and Friedrich Engels in their theory of historical materialism and in ''Das Kapital''. It is first explicitly used in Marx's publish ...

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 The division of labour is the separation of the tasks in any economic system or organisation so that participants may specialise (specialisation). Individuals, organizations, and nations are endowed with, or acquire specialised capabilities, and ...

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 Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are as ...

, and the aim of merchants, bankers and renters becomes to gain ''income'' from the trade, by acting as intermediaries between producers and consumers. 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 following ten (10) main ones: #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. In absolute terms, exchange values can also be measured as quantities of average labour-hours. Commodities which contain the same amount of socially necessary labor have the same exchange value. By contrast, prices are normally measured in money-units. For practical purposes, prices are, however, usually preferable to labour-hours, as units of account, although in capitalist work processes the two are related to each other (see labor power).

Forms of commodity trade

The seven 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 The means of production is a term which describes land, labor and capital that can be used to produce products (such as goods or services); however, the term can also refer to anything that is used to produce products. It can also be used as an ...

and

labour power Labour power (in german: Arbeitskraft; in french: force de travail) is a key concept used by Karl Marx in his critique of capitalist political economy. Marx distinguished between the capacity to do work, labour power, from the physical act of w ...

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

commodity fetishism In Marxist philosophy, the term commodity fetishism describes the economic relationships of production and exchange as being social relationships that exist among things (money and merchandise) and not as relationships that exist among people ...

", mean that

social relations A social relation or also described as a social interaction or social experience is the fundamental unit of analysis within the social sciences, and describes any voluntary or involuntary interpersonal relationship between two or more individuals ...

become expressed as relations between things;Karl Marx, ''Capital'', pp. 71–72 and "Capital" as contained in the ''Collected Works of Karl Marx and Frederick Engels: Volume 35'', pp. 81–82. for example, price relations. Markets mediate a complex network of interdependencies and

supply chain In commerce, a supply chain is a network of facilities that procure raw materials, transform them into intermediate goods and then final products to customers through a distribution system. It refers to the network of organizations, people, acti ...

s 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

, 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-value Use value (german: Gebrauchswert) or value in use is a concept in classical political economy and Marxist economics. It refers to the tangible features of a commodity (a tradeable object) which can satisfy some human requirement, want or need, or ...

s are allocated in a market economy depends mainly on their

, 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 Capital may refer to: Common uses * Capital city, a municipality of primary status ** List of national capital cities * Capital letter, an upper-case letter Economics and social sciences * Capital (economics), the durable produced goods used f ...

, i.e., they yield

profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit (real property), a nonpossessory intere ...

and thus augment their capital (

capital accumulation Capital accumulation is the dynamic that motivates the pursuit of profit, involving the investment of money or any financial asset with the goal of increasing the initial monetary value of said asset as a financial return whether in the form o ...

Cost structure of commodities

In considering the ''unit cost'' of a capitalistically produced commodity (in contrast to

), Marx claims that the ''value'' of any such commodity is reducible to four components equal to: *

Variable capital Constant capital (c), is a concept created by Karl Marx and used in Marxian political economy. It refers to one of the forms of capital invested in production, which contrasts with variable capital (v). The distinction between constant and vari ...

used up to produce it. * Fixed and circulating

constant capital Constant capital (c), is a concept created by Karl Marx and used in Marxian political economy. It refers to one of the forms of capital invested in production, which contrasts with variable capital (v). The distinction between constant and var ...

used up per unit. * Incidental expenses which cost labour-time (

faux frais of production Faux frais of production is a concept used by classical political economists and by Karl Marx in his critique of political economy. It refers to "incidental operating expenses" incurred in the productive investment of capital, which do not themselv ...

). *

Surplus value In Marxian economics, surplus value is the difference between the amount raised through a sale of a product and the amount it cost to the owner of that product to manufacture it: i.e. the amount raised through sale of the product minus the cost ...

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 Prices of production (or "production prices"; in German ''Produktionspreise'') is a concept in Karl Marx's critique of political economy, defined as "cost-price + average profit". A production price can be thought of as a type of supply price for p ...

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

becomes the dominant motive. But what prices of production simultaneously hide is the social nature of the

valorisation In Marxism, the valorisation or valorization of capital is the increase in the value of capital assets through the application of value-forming labour in production. The German original term is "''Verwertung''" (specifically ''Kapitalverwertung'') ...

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 The ''value product'' (VP) is an economic concept formulated by Karl Marx in his critique of political economy during the 1860s, and used in Marxian social accounting theory for capitalist economies. Its annual monetary value is approximately equa ...

, 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

; 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 Work ethic is a belief that work and diligence have a moral benefit and an inherent ability, virtue or value to strengthen character and individual abilities. It is a set of values centered on importance of work and manifested by determination o ...

, regardless of religious belief. People must work, because work is the source of new value, profits and capital.

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.

Notes

References

The concept of the commodity is explored at length by Marx in the following works:
''Contribution to a Critique of Political Economy''

A useful commentary on the Marxian concept is provided in:

Costas Lapavitsas Costas Lapavitsas ( el, Kώστας Λαπαβίτσας) is a professor of economics at the School of Oriental and African Studies, University of London and was elected as a member of the Hellenic Parliament for the left-wing Syriza party in the ...

, "Commodities and Gifts: Why Commodities Represent More than Market Relations". ''Science & Society'', Vol 68, # 1, Spring 2004. Both commodity and commodification play an important role in the critical approaches to the

political economy of communication The Political Economy of Communications is a particular branch in Communication studies or media studies which studies the power relations that shape the communication of information from the mass media to its public. PEC (Political Economy of Com ...

, e.g.: