Commodity facts for kids
Commodity is a term with distinct meanings in both business and in Marxian political economy. For the former, it is a product, that is traded solely on the basis of price. For Marxian political economy it means wares offered for exchange.
In the world of business, a commodity is an product, good or service that is traded based solely on its price, rather than quality and features. Examples include: electricity (most users of electric power are only concerned with energy consumption; only a minority of users are concerned with the quality and technical details of voltage and frequency deviations), wheat, bulk chemicals such as sulfuric acid, metals, and even orange juice.
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 as of the same value.
Wheat is an example of a soft commodity. Wheat from many different farms comes together. Generally, it is all traded at the same price; wheat from farm A has not another price than wheat from farm B. Some uniform standard of quality is assumed. (There may be various standards leading to different pools: one say for genetically modified wheat, and one for unmodified wheat.)
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 a price.
Commodities and Marxism
In classical political economy and especially Karl Marx's critique of political economy, a commodity is simply any good or service offered as a product for sale on the market. Some items are also seen as being treated as if they were commodities, e.g. human labour or labor power, works of art and natural resources, even though they may not be produced specifically for the market, or be non-reproducible goods.
Marx's analysis of the commodity is intended to help solve the problem of what establishes the economic value of goods, using the labor theory of value. 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.
To understand the concept of a commodity, consider a chair. It is a commodity if the chair is a tradeable product of human work possessing 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).
Commodity Facts for Kids. Kiddle Encyclopedia.