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In economics, a commodity is an economic good, usually a resource, that specifically has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them.[1][2][3]
The price of a commodity good is typically determined as a function of its market as a whole: well-established physical commodities have actively traded spot and derivative markets. The wide availability of commodities typically leads to smaller profit margins and diminishes the importance of factors (such as brand name) other than price.
Other definitions of commodity include something useful or valued[4] and an alternative term for an economic good or service available for purchase in the market.[5] In such standard works as Alfred Marshall's Principles of Economics (1920)[6] and Léon Walras's Elements of Pure Economics ([1926] 1954)[7] 'commodity' serves as general term for an economic good or service.
Etymology
The word commodity came into use in English in the 15th century, from the French commodité, "amenity, convenience". Going further back, the French word derives from the Latin commoditas, meaning "suitability, convenience, advantage". The Latin word commodus (from which English gets other words including commodious and accommodate) meant variously "appropriate", "proper measure, time, or condition", and "advantage, benefit".
Description
Characteristics
In economics, the term commodity is used specifically for economic goods that have full or partial but substantial fungibility; that is, the market treats their instances as equivalent or nearly so with no regard to who produced them.[1] Karl Marx described this property as follows: "From the taste of wheat, it is not possible to tell who produced it, a Russian serf, a French peasant or an English capitalist."[8]Petroleum and copper are examples of commodity goods:[9] their supply and demand are a part of one universal market.
Non-commodity items such as stereo systems have many aspects of product differentiation, such as the brand, the user interface and the perceived quality. The demand for one type of stereo may be much larger than demand for another.
The price of a commodity good is typically determined as a function of its market as a whole. Well-established physical commodities have actively traded spot and derivative markets.
Energy commodities include electricity, gas, coal and oil. Electricity has the particular characteristic that it is usually uneconomical to store, and must therefore be consumed as soon as it is produced.
Commoditization
Commoditization occurs as a goods or services market loses differentiation across its supply base, often by the diffusion of the intellectual capital necessary to acquire or produce it efficiently. As such, goods that formerly carried premium margins for marketparticipants have become commodities, such as generic pharmaceuticals and DRAM chips. An article in The New York Times cites multivitamin supplements as an example of commoditization; a 50mg tablet of calcium is of equal value to a consumer no matter what company produces and markets it, and as such, multivitamins are now sold in bulk and are available at any supermarket with little brand differentiation.[10] Following this trend, nanomaterials are emerging from carrying premium profit margins for market participants to a status of commodification.[11]
There is a spectrum of commoditization, rather than a binary distinction of "commodity versus differentiable product". Few products have complete undifferentiability and hence fungibility; even electricity can be differentiated in the market based on its method of generation (e.g., fossil fuel, wind, solar), in markets where energy choice lets a buyer opt (and pay more) for renewable methods if desired. Many products' degree of commoditization depends on the buyer's mentality and means. For example, milk, eggs, and notebook paper are not differentiated by many customers; for them, the product is fungible and lowest price is the main decisive factor in the purchasing choice. Other customers take into consideration other factors besides price, such as environmental sustainability and animal welfare. To these customers, distinctions such as "organic versus not" or "cage free versus not" count toward differentiating brands of milk or eggs, and percentage of recycled content or Forest Stewardship Councilcertification count toward differentiating brands of notebook paper.
Global commodities trading company
This is a list of companies trading globally in commodities, descending by size as of October 28, 2011.[12]
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 were considered equivalent. On a commodity exchange, it is the underlying standard stated in the contract that defines the commodity, not any quality inherent in a specific producer's product.
In order to diversify their investments and mitigate the risks associated with inflationary debasement of currencies, pension funds and sovereign wealth funds allocate capital to non-listed assets such as a commodities and commodity-related infrastructure.[13]
Inventory data
The inventory of commodities, with low inventories typically leading to more volatile future prices and increasing the risk of a "stockout" (inventory exhaustion). According to economist theorists, companies receive a convenience yield by holding inventories of certain commodities. Data on inventories of commodities are not available from one common source, although data is available from various sources. Inventory data on 31 commodities was used in a 2006 study on the relationship between inventories and commodity futures risk premiums.[14]
In classical political economy and especially in Karl Marx's critique of political economy, a commodity is an object or a good or service ("product" or "activity"[15]) produced by human labour.[16] Objects are external to man.[17] However, some objects attain "use value" to persons in this world, when they are found to be "necessary, useful or pleasant in life".[18] "Use value" makes an object "an object of human wants",[19] or "a means of subsistence in the widest sense".[20]
As society developed, people found that they could trade goods and services for other goods and services. At this stage, these goods and services became "commodities". According to Marx, commodities are defined as objects which are offered for sale or are "exchanged in a market".[21] In the marketplace, where commodities are sold, "use value" is not helpful in facilitating the sale of commodities. Accordingly, in addition to having use value, commodities must have an "exchange value"—a value that could be expressed in the market.[22]
Prior to Marx, many economists debated as to what elements made up exchange value. Adam Smith maintained that exchange value was made up of rent, profit, labour and the costs of wear and tear on the instruments of husbandry.[23]David Ricardo, a follower of Adam Smith, modified Smith's approach on this point by alleging that labour alone is the content of the exchange value of any good or service.[24] While maintaining that all exchange value in commodities was derived directly from the hands of the people that made the commodity, Ricardo noted that only part of the exchange value of the commodity was paid to the worker who made the commodity. The other part of the value of this particular commodity was labour that was not paid to the worker—unpaid labour. This unpaid labour was retained by the owner of the means of production. In capitalist society, the capitalist owns the means of production and therefore the unpaid labour is retained by the capitalist as rent or as profit. The means of production means the site where the commodity is made, the raw products that are used in the production and the instruments or machines that are used for the production of the commodity.
However, not all commodities are reproducible nor were all commodities originally intended to be sold in the market. These priced goods are also treated as commodities, e.g. human labour-power, works of art and natural resources ("earth itself is an instrument of labour"),[25] even though they may not be produced specifically for the market, or be non-reproducible goods.
All three of the above-mentioned economists rejected the theory that labour composed 100% of the exchange value of any commodity. In varying degrees, these economists turned to supply and demand to establish the price of commodities. Marx held that the "price" and the "value" of a commodity were not synonymous. Price of any commodity would vary according to the imbalance of supply to demand at any one period of time. The "value" of the same commodity would be consistent and would reflect the amount of labour value used to produce that commodity.
Prior to Marx, economists noted that the problem with using the "quantity of labour" to establish the value of commodities was that the time spent by an unskilled worker would be longer than the time spent on the same commodity by a skilled worker. Thus, under this analysis, the commodity produced by an unskilled worker would be more valuable than the same commodity produced by the skilled worker. Marx pointed out, however, that in society at large, an average amount of time that was necessary to produce the commodity would arise. This average time necessary to produce the commodity Marx called the "socially necessary labour time".[27] Socially necessary labour time was the proper basis on which to base the "exchange value" of a given commodity.
Commodity Super Cycle
Commodity Super Cycles are periods of time, around a decade, where commodities as a whole trade at a price that is greater than their long term moving average.[28] A Super Cycle will usually occur when there is large industrial and commercial change in a country or world that requires more resources to support the change. As prices rise, goods and services that rely on commodities rise with them.
History of Super Cycles
There have been four super cycles over the last 120 years worldwide.[29] The first commodity super cycle started in late 1890 and was accelerated on the back of widespread U.S. industrialization and World War 1. In 1917 commodity prices peaked and then entered a downtrend to the 1930s. As war erupted in Europe in the late 1930s and eventually including the U.S. the world saw a new cycle begin. Countries were not just preparing for war but also the Aftermath of World War II as lots of Europe and Asia faced heavy rebuilding. This cycle eventually peaked in 1951 and faded away in the early 70s.[30] In the 1970s as world economies grew they needed more materials and energy to support expansion leading to increases in prices across the board. This boom came to an end as foreign investments fled as extractive industries became nationalized.[30] The most recent of commodity super cycles began in 2000 as China joined the World Trade Organization.[30] China was also in the beginning of their boom as industry and expansion took off. Workers moved into cities as emerging industries took off and offered a lots of new jobs and opportunities. In 2008 when the Great Recession hit it put a halt onto the supercycle as GDP's across the world tanked leaving many economies in recessions.
The next or the fifth supercycle could arrive as the world enters the final phases of the COVID-19 pandemic and starts to build massive clean energy infrastructure in view of the commodity price increase.[31]
↑ Gorton, GB; etal. (2007). "The Fundamentals of Commodity Futures Returns". SSRN996930.
↑ Karl Marx, "Outlines of the Critique of Political Economy" contained in the Collected Works of Karl Marx and Frederick Engels: Volume 28, 80.
↑ Karl Marx, Capital, Volume I (International Publishers: New York, 1967) p. 38 and "Capital" as contained in the Collected Works of Karl Marx and Frederick Engels: Volume 35 (International Publishers: New York, 1996) p. 48.
↑ Karl Marx, Capital, Volume I, p. 87 and "Capital" as contained in the Collected Works of Karl Marx and Frederick Engels: Volume 35, p. 97.
↑ Karl Marx, "Capital in General: The Commodity" contained in the Collected works of Karl Marx and Frederick Engels: Volume 29 (International Publishers: New York, 1987) p. 269.
↑ Karl Marx, "Capital in General: The Commodity" contained in the Collected Works of Karl Marx and Frederick Engels: Volume 29, p. 269.
↑ Karl Marx, Capital: Volume I p. 36 and "Capital" as contained in the Collected Works of Karl Marx and Frederick Engels: Volume 35, p. 46.
↑ Adam Smith, Wealth of Nations (Pelican Books: London, 1970) p. 131 and David Ricardo, Principles of Political Economy and Taxation (Pelican Books: 1971, London) p. 55.
↑ Adam Smith, Wealth of Nations (Pelican Books: London, 1970) p. 153.
↑ David Ricardo, Principles of Political Economy and Taxation (Pelican Books: London, 1971) pp. 56-58.
↑ Karl Marx, Capital: Volume I, p. 179 and "Capital" as contained in the Collected Works of Karl Marx and Frederick Engels: Volume 35, p. 189.
↑ David Ricardo, Principles of Political Economy and Taxation (Pelican Books, London, 1971) pp. 56-58.
↑ Karl Marx, Capital: Volume I, p. 39 and "Capital" as contained in the Collected Works of Karl Marx and Frederick Engels: Volume 35, p. 49.
The labor theory of value (LTV) is a theory of value that argues that the exchange value of a good or service is determined by the total amount of "socially necessary labor" required to produce it. The contrasting system is typically known as the subjective theory of value.
In Marxist philosophy, the term commodity fetishism describes the economic relationships of production and exchange as being social relationships that exist among things and not as relationships that exist among people. As a form of reification, commodity fetishism presents economic value as inherent to the commodities, and not as arising from the workforce, from the human relations that produced the commodity, the goods and the services.
Use value or value in use is a concept in classical political economy and Marxist economics. It refers to the tangible features of a commodity which can satisfy some human requirement, want or need, or which serves a useful purpose. In Karl Marx's critique of political economy, any product has a labor-value and a use-value, and if it is traded as a commodity in markets, it additionally has an exchange value, defined as the proportion by which a commodity can be exchanged for other entities, most often expressed as a money-price.
In political economy and especially Marxian economics, exchange value 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 being use value, economic value, and price. Thus, a commodity has the following:
Labour power is the capacity to do work, a key concept used by Karl Marx in his critique of capitalist political economy. Marx distinguished between the capacity to do work, i.e. labour power, and the physical act of working, i.e. labour. Labour power exists in any kind of society, but on what terms it is traded or combined with means of production to produce goods and services has historically varied greatly.
Simple commodity production, 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" of commodities, where independent producers trade their own products. The use of the word simple does not refer to the nature of the producers or of their production, but rather to the relatively simple and straightforward exchange processes involved.
Charles Ganilh was a French economist and politician.
The law of the value of commodities, 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 Pierre-Joseph Proudhon with reference to David Ricardo's economics. Most generally, it refers to a regulative principle of the economic exchange of the products of human work, namely that the relative exchange-values of those products in trade, usually expressed by money-prices, are proportional to the average amounts of human labor-time which are currently socially necessary to produce them within the capitalist mode of production.
Prices of production 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 products; it refers to the price levels at which newly produced goods and services would have to be sold by the producers, in order to reach a normal, average profit rate on the capital invested to produce the products.
Abstract labour and concrete labour refer to a distinction made by Karl Marx in his critique of political economy. It refers to the difference between human labour in general as economically valuable worktime versus human labour as a particular activity that has a specific useful effect within the (capitalist) mode of production.
"Wage Labour and Capital" was an 1847 lecture by the critic of political economy and philosopher Karl Marx, first published as articles in the Neue Rheinische Zeitung in April 1849. It is widely considered the precursor to Marx’s influential treatise Das Kapital. It is commonly paired with Marx's 1865 lecture Value, Price and Profit. Previously, Marx had been studying political economy; evidence of this being his unpublished Economic and Philosophic Manuscripts of 1844 and The Poverty of Philosophy in France in 1847.
Capital. A Critique of Political Economy. Volume I: The Process of Production of Capital is the first of three treatises that make up Das Kapital, a critique of political economy by the German philosopher and economist Karl Marx. First published on 14 September 1867, Volume I was the product of a decade of research and redrafting and is the only part of Das Kapital to be completed during Marx's life. It focuses on the aspect of capitalism that Marx refers to as the capitalist mode of production or how capitalism organises society to produce goods and services.
Differential ground rent and absolute ground rent are concepts used by Karl Marx in the third volume of Das Kapital to explain how the capitalist mode of production would operate in agricultural production, under the condition where most agricultural land was owned by a social class of land-owners who obtained rent income from those who farmed the land. The farm work could be done by the landowner himself, the tenant of the landowner, or by hired farm workers. Rent as an economic category is regarded by Marx as one form of surplus value just like net interest income, net production taxes and industrial profits. Marx's main texts on rent theory can be found in the second (edited) volume of Theories of Surplus Value and in Part 6 of Capital, Volume III.
In classical political economy and especially Karl Marx's critique of political economy, a commodity is any good or service 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, 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, 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.
The value-form or form of value is a concept in Karl Marx's critique of political economy. Marx's account of the value-form is differently adopted in later forms of Marxism, in the Frankfurt School and in post-Marxism. When social labor is split up into independent enterprises and organized capitalistically, its products take the form of an ensemble of commodities of diverse types, which face one another on the market.
Socially necessary labour time in Marx's critique of political economy is what regulates the exchange value of commodities in trade. In short, socially necessary labour time refers to the average quantity of labour time that must be performed under currently prevailing conditions to produce a commodity.
In Marxian economics, surplus value is the difference between the amount raised through a sale of a product and the amount it cost to manufacture it: i.e. the amount raised through sale of the product minus the cost of the materials, plant and labour power. The concept originated in Ricardian socialism, with the term "surplus value" itself being coined by William Thompson in 1824; however, it was not consistently distinguished from the related concepts of surplus labor and surplus product. The concept was subsequently developed and popularized by Karl Marx. Marx's formulation is the standard sense and the primary basis for further developments, though how much of Marx's concept is original and distinct from the Ricardian concept is disputed. Marx's term is the German word "Mehrwert", which simply means value added, and is cognate to English "more worth".
Capital: A Critique of Political Economy, also known as Capital and Das Kapital, is a foundational theoretical text in materialist philosophy and critique of political economy written by Karl Marx, published as three volumes in 1867, 1885, and 1894. The culmination of his life's work, the text contains Marx's analysis of capitalism, to which he sought to apply his theory of historical materialism "to lay bare the economic law of motion of modern society", following from classical political economists such as Adam Smith and David Ricardo. The text's second and third volumes were completed from Marx's notes after his death and published by his colleague Friedrich Engels. Das Kapital is the most cited book in the social sciences published before 1950.
Marxian economics, or the Marxian school of economics, is a heterodox school of political economic thought. Its foundations can be traced back to Karl Marx's critique of political economy. However, unlike critics of political economy, Marxian economists tend to accept the concept of the economy prima facie. Marxian economics comprises several different theories and includes multiple schools of thought, which are sometimes opposed to each other; in many cases Marxian analysis is used to complement, or to supplement, other economic approaches. Because one does not necessarily have to be politically Marxist to be economically Marxian, the two adjectives coexist in usage, rather than being synonymous: They share a semantic field, while also allowing both connotative and denotative differences. An example of this can be found in the works of Soviet economists like Lev Gatovsky, who sought to apply Marxist economic theory to the objectives, needs, and political conditions of the socialist construction in the Soviet Union, contributing to the development of Soviet Political Economy.
There are five main lines of scholarly criticism of Marx's idea of the form of value.
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