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The word commodity is a term with distinct meanings in business and in Marxist political economy. For the former, it is a largely homogenous product, whereas for the latter, it is an item produced for exchange.
Business usage
Definition
In the world of business, a commodity is an undifferentiated product whose market value arises from the owner's right to sell rather than the right to use. Example commodities from the financial world include oil (sold by the barrel), electricity, wheat, bulk chemicals such as sulfuric acid and even pork-bellies and orange juice. More modern commodities include bandwidth, RAM chips and (experimentally) computer processor cycles, and negative commodity units like emissions credits.
In the original and simplified sense, commodities were things of value, of uniform quality, that were produced in large quantities by many different producers; the items from each different producer are considered equivalent. It is the contract and this underlying standard that define the commodity, not any quality inherent in the product. One can reasonably say that food commodities, for example, are defined by the fact that they substitute for each other in recipes, and that one can use the food without having to look at it too closely.
Examples
Wheat is an example. Wheat from many different farms is pooled. Generally, it is all traded at the same price; wheat from Isom's farm is not differentiated from wheat from Jane's farm. Some uniform standard of quality must necessarily be assumed. There may be various standards leading to different pools: one say for genetically modified wheat, and one for not. Failures to match the consumer's assessment of risk and usefulness for some purpose, can lead to lower prices or the necessity of dividing the market into different pools - a very major issue in agricultural policy.
Markets for trading commodities can be very efficient, particularly if the division into pools matches demand segments. These markets will quickly respond to changes in supply and demand to find an equilibrium price and quantity.
Branding
Producers often attempt to 'de-commodify' their products by branding them. Branding attempts to make similar products from different producers more distinguishable. This stategy can lead to higher prices for the branded items relative to the price in a commodity market. The term product market is sometimes used to contrast with commodity market and signifies the exchange of differentiated goods.
Marxist usage
General
In classical political economy and especially Karl Marx's critique of political economy, a commodity is a good or service produced for sale on the market. Some items are also seen as being treated as if they were commodities, e.g. labor-power and natural resources, even though they may not be produced specifically for the market, or be non-reproducible goods.
Characteristics of commodity
In Marx's theory, a commodity has value, which represents a quantity of human labor. The fact that it has value implies straightaway that people try to economise its use. A commodity also has a use value, anexchange value and a price. It has a use value because by its intrinsic characteristics it can satisfy some human need or want, physical or ideal. It has 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). According to the labor theory of value, product-values in an open market are regulated by the average socially necessary labour time required to produce them.
Example
To understand the commodity as a category consider a chair. It is a commodity because the chair is a tradeable labor-product with a social use-value. By contrast, a fallen log of deadwood sat upon in the forest is not a commodity, as it was not produced by human work for the purpose of trade. A chair created by a hobbyist as a gift to someone is not a commodity. Nor is a chair a commodity (as a chair) if its only use would be as scrap firewood (unless one purchases a chair specifically to chop it up for fire wood). A chair that nobody could sit on has no use-value and cannot be a commodity (unless it has an ornamental value, e.g. in a doll's house). Marx's analysis of the commodity is intended to help solve the problem of setting the value of goods using the labor theory of value, a problem debated by both Adam Smith and Ricardo. Value and price are not equivalent, and theorising the specific relationship of value to market price has been a challenge for both liberal and Marxist economists.
Origins
Commodity-trade historically begins at the boundaries of separate economic communities based otherwise on a non-commercial form of production. Capitalism however is a mode of production based on generalised commodity production, a universal market (see capitalist mode of production. This means that both the inputs and the outputs of most production in society are priced, tradeable goods, and that what and how much is produced is largely determined by market forces. The reifying effect of universalised trade in commodities, involving a process Marx calls "commodity fetishism," means that social relations are expressed as relations between things; for example, price relations.
In Marx's description of capitalism, commodity sales increase the amount of exchange-value in the possession of the owners of capital, i.e., they yield profit and thus augment capital. Capitalists as businessmen are interested in use-values primarily from the point of view of their money-making potential, i.e. exchange-value; any useful object may be in principle become an object of exchange and profit-making. In simple terms, the primary concern of businesspeople here is commercial: the money they can obtain from owning or selling the commodity.
References
The concept of the commodity is explored at length by Karl Marx in his:
- Contribution to a Critique of Political Economy [1]
- Das Kapital Volume 1 Part 1 Chapter 1 [2]
A useful conceptual discussion of 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
External links
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