Commodity production

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Commodity production is the production of wares for sale. It is a type of production in which products are produced not for direct consumption by the producers, as in subsistence production, but are surplus to their own requirements and are produced instead specifically with the intention of sale in the market, usually to obtain income. In this case, production for use contrasts with production for exchange. In principle, the products traded as commodities could be goods or services sold as "products", but often the use of the term commodity production is restricted to the production of goods.

The word "commodity" came into use in English in the 15th century, from the French "commodité", meaning to benefit or profit. Going further back, the French word derived from the Latin commoditatem (nominative commoditas) meaning "fitness, adaptation". The Latin root commod- meant variously "appropriateness", "proper measure, time or condition" and "advantage, benefit".

Normally commodity production assumes the presence of a cash economy, i.e. goods and services are traded for money and their value is expressed in money prices. Because commodity production is aimed at trading the products to obtain income, typically the organization of production itself and the technologies chosen to produce products are increasingly based on commercial principles. In the first instance, that means that those products are produced for which there is a market demand, and which will sell, and that products for which there is no market are unlikely to be produced. Commodity producers aim to organize their production so that the sale of their products to others will occur, and try to reduce their costs, in order to increase their income from the sale of products. Thus, they aim to produce products in a way that meets the requirements of the consumers of those products. In turn, that often means that products are designed in the way that appeals to potential buyers, rather than designed according to the fancy of the producers.

Classical and social scientific usage[edit]

The term is used particularly in the classical writings of political economy by e.g. Adam Smith, James Mill, David Ricardo and Karl Marx. But it is also used nowadays in various social sciences, such as sociology, archaeology, economic history and anthropology. The relevance of the concept concerns particularly the transition of economic activities from non-commercial production to commercial production, i.e. the development and growth of a market economy or business economy. In sociology, the term is used with a focus on the social relationships involved in producing things commercially, and how this affects the consciousness and values of members of society.

Usage in economics[edit]

The term is also used in economic theory, but often considered archaic in modern economics. Part of the reason is that in the modern economy, far more people are employed in the production of services than in the production of physical goods.

However, services can also be produced as "products", and may include the production of goods. Inversely, services may contribute to the production of a good in a complex division of labour, where different "service" and "goods-producing" industries are all linked together to contribute to one final good.

If the individual service is considered in isolation, it is just a service. But if the service is considered as a component of a bigger production process, the service is often part of the production of a good. Commercially, it often makes sense to separate out different tasks required for production, and organize them separately. Statistical surveys will then identify the tasks as separate enterprises, and classify these enterprises according to their main output (a type of good, or a service). But the statistics often do not tell us exactly what the role of the enterprises is in a larger production process, or how each enterprise is linked to other enterprises.

So it might look statistically like more and more goods are produced by fewer and fewer people, but, in reality, the goods-producing process could not occur at all without many supporting services which have been separated out as distinct enterprises. If those supporting services were included, it would be evident that the goods-producing industry requires far more employees than are directly employed in goods-producing factories and plants. It might look like the services provided are not commodities, but in reality they might provide a vital input into a commodity-producing activity.

Modern national accounts refer simply to Market production which contrasts with non-market production, defined according to the purpose and destination of outputs produced. If products are produced only for own use, they are not regarded as part of market production, except if they are an aid to producing products for market sale. Market production is production for the main purpose of market sale of the products. Non-market production is the production of goods and services which are not distributed via market trade.

Investor usage[edit]

In modern investor usage, the term "commodities" also refers specifically to mass-produced primary products, such as agricultural products, forestry products, fishing products and mineral products (metals, oil, gas, ores). The commodity markets are national and international markets in which such commodities are traded, often with the aid of futures contracts. In this case, the production of commodities refers specifically and exclusively to the production of primary products, and not just to any vendible commodity.

Statistical usage[edit]

In statistical reports, the broad definition of commodity production is the mass-production of industrial goods, and a more narrow definition is the production of primary products such as animal and vegetative products and minerals. The United Nations Statistics Division offers an Industrial Production Statistics Database [1] from which a list of types of commodity production can be obtained in this sense.

Marxian usage[edit]

The use of the term "commodity" in the sense of wares for sale or merchandise was made famous especially by Karl Marx's analysis of the commodity form in the opening chapter of Das Kapital. Marx follows but also modifies the classical distinction drawn between "value in exchange" (exchange-value) and "value in use" or utility (use-value), arguing that in commodity production this distinction maps onto the distinction between abstract labour and concrete labour.

Marx considered capitalist production as "generalized commodity production" in which most production is organized for the purpose of trading the products. In Marxist theory and Marxian economics the term commodity production continues to be widely used, and has a specific scientific meaning (see commodity (Marxism), commodification, commodity fetishism, and simple commodity production). The production of goods "as commodities" or "in the form of commodities" then denotes that the products, their production and their valuation takes a specific social and economic form - people are related according to the trading value of their products.

A distinction is drawn by Marxists between commodity production "in general", and specifically capitalist commodity production. Production for market sale could occur in all sorts of ways, in all kinds of societies for all sorts of reasons, but capitalist commodity production involves specific relations of production, specific private property rights as well as the motive of capital accumulation or private profit. In particular, it involves the employment of wage labour by workers who do not own sufficient assets, skills or means of life that would enable them to run a business themselves, or make a living in some other way. These specifically capitalist characteristics arise out of the fact that in the capitalist mode of production commodities are produced "by means of commodities", i.e. that both the inputs and outputs of the production process are traded commercially in markets, with the effect that the whole production process itself is reshaped according to commercial principles.

Thus, capitalist commodity production aims to utilize specific kinds of social organization, management and technology for the explicit purpose of reducing costs, increasing sales and increasing profit income, under conditions of generalized market competition. Another way of saying this is that production becomes a phase in the circuit of capital accumulation, the process of "making money". As a corollary, capitalist commodity production tends to displace or destroy all forms of production which are not compatible with commercial motives - if production doesn't "make money" then, according to capitalist logic, it has no right to exist other than as a private household activity of consumers. Market expansion also requires privatization and individualization, more and more consumers must purchase things to meet their own requirements. If people as individuals shared resources, they would usually need to buy less, and therefore, the only forms of sharing which business favours, usually, is sharing which increases or stimulates purchases, reduces the costs to business, or increases business profits.