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), wheat, bulk chemicals such as sulfuric acid and even pork-bellies. 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.
Wheat is an example. Wheat from many different farms is pooled. Generally, it is all traded at the same price; wheat from Joe'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.
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.
Globalization has largely obsoleted the older "thing-based" definition in which commodity status was derived from the nature of the good itself. The property right in that "thing", the standard of quality expected, and the right to sue if standards are not met, tends to vary widely across even the most developed nations. Accordingly there is now more emphasis on contract, and on insurance in modern commodity markets. Currency dynamics has also become very important to international commodity markets.
Some economists advise redefining commodity and product markets as a service market, wherein state inspections, market regulation, property rights enforcement, and other services previously assumed under to be the domain of the state, could be charged for. If this advice were followed, the term commodity would still apply in human life analysis, or narrow domains such as relatively safe food goods, or industrial inputs (oil, screws, wireless spectrum) where quality is more or less standard globally, and there is little risk to life of any failure.
Commodities have a special meaning within Marxism. Here a commodity is an exchange value embodied within an object or service that has been the subject of human labour and that has a use value.
For example, a commodity may be a chair, when the creation of the chair is the result of human effor, where the chair has a value within an exchange economy, and where the chair is actually usable as a chair. A log sat upon in the forest is not a commodity, as it has not been subject to human effort. Nor is a chair that was created outside of wage labour (by a hobbyist) and given as a gift. Nor is a chair a commodity (as a chair) if its only use would be as firewood.
These criteria are important, as commodity in Marxism relates human effort, to usable objects or services, to the exchange-value structure of Capitalism. The commodity, through a process Marx calls "commodity fetishism," masks social relations -- what are actually human social relations are perceived as relations among things. A commodity appears to us as being worth a monetary figure, not as a manifestation of social relations ("congealed labor power" for example).
Within the Marxist description of capitalism, commodities only exist to expand the amount of exchange value in the possession of the bourgeoisie. The bourgeoisie are blind to the nature of commodities as objects with specific uses; for the bourgeoisie any useful object may be the subject of exchange.
Exchange values, according to the labour theory of value, are determined by the amount of work an average worker using average tools would require to produce such a good. As such a commodity directly expresses human labour and within capitalism proletarian servitude. Marxists see commodities as a central element of the exploitation of labour within capitalism.
Commodity is one of the central analytical tools for a Marxist evaluation of capitalism, and is explored at length by Karl Marx in:
- Contribution to a Critique of Political Economy
- Das Kapital Volume 1 Part 1 Chapter 1
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