Economic essence of commodity production. Unit 3

1. Unit 3. The economic essence of commodity production

2.

Topics:
1. Simple commodity production
• 1.1. Origins
• 1.2. Relations of production
• 1.3. From simple commodity production
to 1.4. Capitalist production
• 1.4. Marxian economics

3.

1.1. Origins
• Simple commodity production (also known as
"petty commodity production"; the German original
phrase is einfache Warenproduktion) is a term
coined by Frederick Engels (28 November 1820 – 5
August 1895) to describe productive activities under
the conditions of what Karl Marx (5 May 1818 –14
March 18) 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 to the relatively simple and
straightforward exchange processes involved.

4.

Karl Marx (German: 5 May 1818 – 14 March
1883) was a German philosopher, economist,
historian, sociologist, political theorist,
journalist and socialist revolutionary.
Friedrich Engels in 1877, in Brighton –
28 November 1820 Barmen, Kingdom
of Prussia – 5 August 1895

5.

1.2. Relations of production
• Simple exchange of commodities is as old as the history of trade, insofar as it
has progressed beyond barter, and occurred for thousands of years before
most production became organized in the capitalist way. It begins when
producers in a simple division of labour (e.g. farmers and artisans)
trade surpluses to their own requirements, with the aim of obtaining other
products with an equal value, for their own use. Through the experience of
trade, regular exchange values become established for products, which reflect
an economy of labour-time.
• Engels argued explicitly that the Marxian law of value applied also to simple
exchange, this law being modified in the capitalist mode of production when
all the inputs and outputs of production (including means of
production and labour power) become tradeable commodities. This
interpretation is however not accepted by all Marxists, some of whom[who?] see
capitalist markets as functioning in a completely different way from precapitalist markets. Engels aimed to give a consistent explanation of the
evolution and development of market economy from simple beginnings to the
complexities of modern capitalist markets, but some argue he disregards the
transformation of the relations of production involved.

6. 1.3. From simple commodity production to capitalist production

The large-scale transformation of simple commodity production into capitalist production
based on the wage labour of employees occurred only in the last two centuries of human
history. It is preceded by the strong growth of merchant trade, supported by financiers who
earn rents, profit and interest from the process. The merchants not only act as intermediary
between producers and consumers, but also integrate more and more of production into a
market economy. That is, more and more is produced for the purpose of market trade, rather
than for own use. The initial result is known as "merchant capitalism", which flourished in
Western European cities in the 17th and 18th century.
However,
the
transformation
from
simple
commodity
production
into
capitalist production accompanying industrialisation requires profound changes
in property relations, because it must be possible to trade freely in means of production and
labour power (the factors of production). Only when that trade becomes possible, can the
whole of production be reorganized to conform to commercial principles. Marx describes
capitalist society as "a society where the commodity-form is the universal form of the
product of labour, hence the dominant social relation is the relation between men as
possessors of commodities". He argues that "The capitalist epoch is... characterized by the
fact that labour-power, in the eyes of the worker himself, takes on the form of a commodity
which is his property; his labour consequently takes on the form of wage-labour... it is only
from this moment that the commodity-form of the products of labour becomes universal.“
Thus, "...from the moment there is a free sale, by the worker himself, of labour power as a
commodity... from then onwards... commodity production is generalized and becomes the
typical form of production."

7.

• For that purpose, many legal, political, religious and technical restrictions
imposed on trade must be overcome. The unification of a "home market"
among people in a country who speak the same language typically
stimulated nationalist ideologies. But depending on the existing social
systems, the transformation might occur in many different ways. Typically,
though, it has involved wars, violence and revolutions, since people were
unwilling to just give away assets, rights and income that they previously had.
Communally owned property, inherited plots of land, the property of religious
orders and state property had to be privatized and amalgamated, in order to
become tradeable assets in the process of capital accumulation.
The ideology of the rising bourgeoisie typically emphasized the benefits of
privately owned property for the purpose of wealth creation and
industriousness.
• Marx refers to this process as the primitive accumulation of capital, a process
which continues particularly in developing countries to this day. Typically,
previously independent producers on the land are proletarianized and migrate
to the urban centers, in search of work from an employer.
• Simple commodity production nevertheless continues to occur on a large
scale in the world economy, particularly in peasant production. It also persists
within industrialized capitalist economies in the form of self-employment by
free producers. Capitalist firms sometimes contract out specialized services to
self-employed producers, who can produce them at a lower cost, or provide a
superior product.

8. 1.4. Marxian economics

• In Marxian political economy, simple commodity
production also refers to a hypothetical economy used to
interpret some of Karl Marx's insights about the economic laws
governing the development of commodity trade: it refers to
a market economy in which all producers own the resources
(including the ability to work) that they use in production. Noone is a proletarian, selling his or her labor power to another.
Instead, each is self-employed.
• In this imaginary model, there is a direct correspondence
between prices and the values of commodities. The model is
imaginary, because no such society has ever existed in history;
simple commodity production has always combined with some
other modes of production, and as soon as a market economy
reaches any size, it begins to utilise wage labor in production,
and falls under the sway of the laws of capital accumulation.

9.

• 2. Market commodity production

10. Topics:

1. Commodity production: causes of origin and the mean
features.
2. Simple commodity production and capitalist production: the
unity and the differences.
3. Commodity and its factors: use-value and value. Exchange
value.
4. The two-fold character of the labour embodied in
commodities
5. The magnitude of commodity value.
6. The form of value and its historical development.
7. The appearance of money. The essence and functions of
money
8. The law of value as the main law of commodity production.
9. The Fetishism of Commodities.

11. References:

1. In search of a new theory. A book to read on economic theory with
problem situations. - M .: KnoRus, 2016 .-- 368 p.
2. Introductory course in economic theory / ed. G.P. Zhuravleva. - M .: INFRAM, 2017 .-- 368 p.
3. Koch Fundamentals of economic theory / Koch, other V.I. - M .: St.
Petersburg: Peter, 2017. - 800 p.
4. The course of economic theory / ed. M.N. Chepurin, E.A. Kiseleva et al. M.: Kirov: ASA; 5th Edition, revised. And ext., 2017 .-- 832 c.
5. The course of economic theory. General principles of economic theory,
microeconomics, macroeconomics, transition economics / ed. A.V.
Sidorovich. - M.: DIS, 2017 .-- 736 p.
6. The best essays on economic theory. - M .: Phoenix, 2017 .-- 256 p.
7. Fundamentals of economic theory / ed. S.I. Ivanov. - M .: Vita-Press, 2017
.-- 650 p.
8. Fundamentals of economic theory. - M.: Unity-Dana, 2017 .-- 232 p.

12. Glossary of Terms

• Natural economy – Натуральное хозяйство
• Division of labor – разделение труда
• Commodity production – товарное
производство
• Simple commodity production – простое
товарное производство
• Capitalist commodity production –
капиталистическое товарное производство

13. Glossary of Terms

Commodity – товар
Use-value – потребительская стоимость
Value – стоимость
Exchange value – меновая стоимость
Concrete labor – конкретный труд
Abstract labor – абстрактный труд
Private labor – частный труд
Social labor – общественный труд

14. Glossary of Terms

• Magnitude of value – величина стоимости
товара
• Individual labor time – индивидуальное
рабочее время
• Socially necessary labor time – общественнонеобходимое рабочее время
• Normal conditions of production – нормальные
условия производства
• Labour intensity – интенсивность труда

15. Glossary of Terms

Labor productivity – производительность труда
Simple labour – простой труд
Compound labour – сложный труд
Form of value – форма стоимости
Relative form of value – относительная форма
стоимости
• Equivalent form of value – эквивалентная
форма стоимости

16. Glossary of Terms

Money – деньги
Law of value – закон стоимости
Measure of prices – масштаб цен
Price – цена
Inflation – инфляция
Fetishism of commodities – товарный
фетишизм
• Fetishism of money – денежный фетишизм

17. Types of social production

Natural economy (NE)
Commodity production (CP)
Type of organization in
which products are
produced not for market
exchange and for
consumption within the
economy
Type of production in
which products are
produced not for internal
consumption and for
market exchange
Was dominant form in precapitalistic modes of
production
Typical for capitalistic mode
of production

18. Characteristic features

NE
Isolated, limited,
traditional
technology,
manual technique,
the slow rate of
development.
CP
The division of
labor, private
property, market
exchange,
competition, use of
machinery, the
rapid development

19. Commodity production

• The system of social production where
products are produced by separate singular
manufacturers, specializing on particular
product, so to meet the needs of society
exchange of products is necessary – as a
result products become commodities on the
market

20. Preconditions of CP

• The main precondition of CP is social division
of labor (SDL)
• SDL – separation of certain activity types
• There are division of labor within society and
within the enterprise

21. SDL in historical process

• History knows 3 largest division of labor:
• 1. Separation of ranching and farming
• 2. Separation of crafts from agriculture and
ranching
• 3. Separation of trade in a particular activity.

22. The role of SDL

Historically, CRP helped to:
increase of labor productivity;
appearance of regular exchange;
emergence of private property;
division of society into classes.

23. Types of commodity production

Simple CP
Capitalistic CP
small production based on
private property of
producer and his personal
labor
production based on
private property of
capitalist and hired labor
Was the main form in precapitalistic modes of
production. There is
nowadays
Typical for capitalism

24. Common features and differences

Differences
Common features
Simple CP
Capitalistic CP
Manufacturers use
personal means of
production
Means of production
belongs to capitalist,
hired workers
deprived of them
Hired labor
Personal labor of
manufacturer
Goal – to satisfy
personal needs of
manufacturer
Goal – to receive
profit by capitalist
Product of labor
belongs to
manufacturer
Product of labor
belongs to capitalist
– means of
production owner
The division of
labor,
separateness of
producers, private
property on
means of
production and
product,
competition,
market exchange

25. Commodity and its properties

Commodity – product of labor produced
for market exchange
Use-value
Possibility of commodity to
satisfy human needs.
Exchange
value
a quantitative proportion in
which use-value of one sort is
exchanged for another sort.

26. Value of commodity

Exchange value - a form of the value
manifestation in the act of exchange
Value of commodity - is social labor embodied
in commodity
Labor – a measure of commodity value

27. Unity and contradiction of value and use value

• Any commodity is result of labor but not any
result of labor is commodity.
• Only useful thing can has a value but not
every use-value has value.
• For example:
• Bread produced by serf for feudal – is product
of labor, but is not a commodity.
• Land is useful thing but has not value

28. Solution of the contradiction

Any commodity is unity of value and use-value
This unity manifests itself only on the market
in the process of commodity exchange
So, value has historical character

29. Abstract and concrete labor

• Properties of commodity are caused by twofold character of labor: on the one hand any
labor is concrete, on the other hand - the
abstract.

30. Concrete labor

• - is heterogeneous and incomparable labor in
special useful form which creates particular
use-values.
• Variety of use-values is determined by
different types of concrete labor, which vary
by technologies of production, means,
subjects and results of labor.
• For example, the labor of a goldsmith, builder,
blacksmith, driver, teacher, etc.

31. Abstract labor

• - is homogeneous and comparable labor as
human energy spending independently from
its concrete form.
• For example, spending of physical, nervous
and mental energy.
• Abstract labor creates value of commodities
because of its homogeneous character.
• So, value is abstract labor embodied in
commodities.

32. Private labor

• In commodity production concrete labor
appears as private affair of manufacturer who
organize the production process at own risk.
• So concrete labor manifests itself as a private
labor of producer.

33. Social labor

• However, each manufacturer produces
commodities not for himself but for others.
Because of CDL separate manufacturers need
commodities of other producers.
• So, labor of separate manufacturer in society
can’t be his own private deal. It is a part of
social labor therefore has social character.

34. The main contradiction of simple commodity production

• As a result a deep contradiction between
private and social labor appears. This is the
main contradiction of SCP.
• The contradiction is resolved in the process of
market exchange. Only market exchange
shows the necessity of private labor. If the
product isn`t useful for society, the society
never accept it as a part of social labor.

35. Interrelation

Commodity
Value
Use-value
Abstract labor
Concrete labor
Contradiction
Social labor
Private labor
Market exchange

36. Magnitude of commodity value

• If commodity value is abstract labor embodied
in it, how can we determine the magnitude of
this labor?
• Labor time is a measure of labor and value
accordingly.
• There are individual and socially necessary
labor time

37. Individual labor time

• - labor, which separate singular producer
spent for unit of commodity production
• But different producers spend different time
for the same commodity’s production.
• So, social value of commodity can’t be
determined by individual labor time. It should
be determined by socially necessary labor
time (SNLT)

38. Socially necessary labor time

• - time necessary for commodity’s production
in socially necessary conditions of
production, average level of technology and
means of production, qualification, skills,
intensity and productivity of labor.
• Socially necessary conditions of production –
conditions in which the majority of certain
commodities is produced

39. Example of SNLT formation

Groups of
commodity
producers
Volume of
production,
units
Socially
necessary
labor time
100
Individual
labor time per
commodity
unit
3
The best
Average
600
4
4
The worst
200
5
4
4

40. Factors, which determine magnitude of commodity value

Productivity of
labor
Intensity of labor
magnitude
of
commodity
value

41. Intensity of labor (IL) Productivity of labor (PL)

• PL - number of units produced in particular
period of time. Is an indicator of labor efficiency.
• Factors affecting the PL
• 1. Means of production quality.
• 2. Labor organization.
• 3. Qualification of workers.
• 4. natural conditions of production
• ІL – expenditures of labor power in particular
period of time. Is an indicator of labor tension .

42. Influence of PL and IL on magnitude of commodity value

Q per 1 hour = 10 units => t per 1 unit = 6 minutes
Q per working day 8 hours = 10*8 = 80 units => 6*80 = 480 minutes
PL increased twice
IL increased twice
Q per 1 hour = 20 units => t per 1 unit = 3 Q per 1 hour = 20 units => t per 1 unit = 6
minutes
minutes
Q per working day 8 hours = 20*8 = 160
units => 3*160 = 480 minutes
Q per working day 8 hours = 20*8 = 160
units => 6*160 = 960 minutes
Change in PL change the value of one
unit, but doesn’t change the total output
value
Change in IL does not change the value of
one unit, but changes the total output
value

43. Simple and compound labor

• Simple labor – labor that does not require
special training and education.
• For example, the labor of cleaner, longshoreman,
watchman, etc.)
• Compound labor – labor that require special
training and education.
• For example, labor economist, engineer, doctor,
etc.)
• Compound labor – is multiplied simple labor

44. Evolution of value form

• Value – is a social property of the product
which manifests itself only in exchange
process.
• Relations of exchange have passed a long
historical evolution from simple forms to
more complex ones.

45. Value form – form of value manifestation in the process of exchange

1. Elementary or accidental form
2. Total or expanded form
3. General form
4. Money form

46. Elementary or accidental form

• Is typical for early stages of society
development, when the exchange of products
was rare and random phenomenon.
Х com.А = У com.В
Х – quantity of commodity А;
У – quantity of commodity В.

47. Elementary or accidental form

Х com.А = У com.В
• Commodity А – is in relative value form, it
tries to express its value through use-value of
commodity B.
• Commodity В – is in equivalent form, It
expresses through its use-value a value of
commodity A.

48. Total or expanded form

• With the first SDL a big number of products is
involved in the exchange process, as a result
exchange becomes a regular phenomenon.
Total value form appears.
А – com. in relative form
У com.В
Х com.А = Z com.С
В, С, D – commodities in
М com.D equivalent form

49. Total or expanded form

• Disadvantages of total form:
• 1. It was a big number of commodity in
equivalent form so value of each product had
not received the completed expression;
• 2. Value of each commodity hadn’t universal
expression;
• 3. The direct exchange of one commodity for
another occurred in close borders.

50. General form

• Exchange became particularly difficult as a
result of the second SDL, when a huge
amount of commodities appeared on the
market. General value form appeared.
Х, У, Z – com. in relative form
Х com. А
У com. В
= М com. D,
Z com. С
М – com. in equivalent form

51. Disadvantages of general form

1 The role of universal equivalent in different
markets and at different times was
performed by various products - furs, cattle,
shells.
2 Products usually were hard divisible and
hard transportable, uncomfortable in
exchange, heterogeneous.

52. Money form

• With exchange development metals start to play
the role of universal equivalent or money.
Money value form appears.
Х com. А
У com. В = Metal money,
Z com. С
А, В, С – com. in relative form
Metal money– universal equivalent

53. Money form

• Historically copper start to play the role of money
first. Later precious metals – silver and gold –
start to serve as money.
• There are several reasons that explain why the
role of money was fixed for gold:
• 1 High cost of extraction;
• 2 Homogeneity;
• 3 Divisibility;
• 4 Ease of exchange;
• 5 Transportability.

54. Money and its functions

• Money – is particular commodity, which
serves as universal equivalent.
• Necessity of money is a result of internal
commodity’s contradiction solution.
• To understand the essence of money better
we should study it’s functions.

55. Functions of money

1. The measure of values
2. The medium of circulation
3. The mean of saving
4. The mean of payment
5. Universal money

56. The measure of values

• Money is a measure of commodity value.
• Commodity value expressed in money is price
of commodity.
• This function of money is performed perfectly.
Setting the price of the product the
manufacturer may not have cash. It is enough
to know that money exists and he can get it in
exchange for commodities.

57. Measure of prices

• This function is associated with measure of
prices.
• Measure of prices – the mechanism by which
the weight content of metal in money is
determined.

58. The medium of circulation

• - the ability of money to be intermediary in
the commodity exchange.
• Performance of this function is done formula
M-C-M. The act of purchase and sale is
indissoluble in time and space.
• Money perform this function transiently, so
metal money in circulation can be replaced
with credit and paper money (bills,
banknotes, etc.).

59. The mean of saving

• Carrying out this function money temporary
withdraw from the process of circulation and
accumulated in the form of treasure.
• Accumulation can occur in two forms: in cash
in the form of metal or paper money and
cashless form - in the form of deposits in the
bank.
• With the help this function money transfer
their purchasing power for the future.

60. The mean of payment

• is
modification of medium of circulation
function.
• The function appears with the development of
credit relations and serves the sale of
commodities with payment delay.
• The act of purchase and sale is broken in time
and space.
• Money perform this function also in the payment
of wages, dividends, interest, utilities, etc.

61. Universal money

• Money perform this function going beyond
the borders of national economy and serving
the international trade.
• Earlier this role was performed directly by
gold and silver. Now this function performed
by free convertible currencies - dollar, euro,
yen.

62. The law of money circulation

• establishes the number of money necessary
for commodity exchange during particular
period of time, mostly one year.
• The number of money directly depends on
sum of commodities prices, because money is
used for commodity prices estimation. And is
in inverse relationship with velocity of money
circulation - a number of circles, which money
makes in 1 year.

63. The law of money circulation

М = P*Q / V
М – quantity of money
V - velocity of money circulation
Р – prices of commodities
Q - quantity of commodities

64. The law of money circulation

• With credit relations development formula of
money circulation takes expanded look:
М = ∑Cp - ∑CC + ∑MPN - ∑CL / V,
• ∑Cp – sum of commodities prices;
• ∑CC – sum of commodity prices sold in credit;
• ∑MPN – sum of payments under mature
promissory notes;
• ∑CL – sum of clearing payments.

65. The Law of value (LV)

- is the main law of commodity production,
which sets that proportions of commodity
exchange are established according equality
of commodity values or socially necessary
labor time.

66. Functions of LV

• 1. Means of production and labor power
allocation between industries and regions;
• 2. Regulation of social productions and
exchange proportions;
• 3. Differentiation of producers

67. LV mechanism

• LV regulates commodity production through price
mechanism. In short period commodity prices can
differ from commodity values according to changes in
supply and demand.
• Market price is equal to commodity value when
market supply is equal to market demand.
• If demand is higher than supply market price is higher
than commodity value, so there is a possibility to
production increase.
• If demand is lower than supply market price is lower
than commodity value, so volume of commodity
production decreases.

68. LV mechanism

• So, the LV is spontaneous regulator of the
whole social production
• In advanced capitalism LV operates through
prices of production. On the monopoly stage through monopoly prices.

69. Commodity fetishism

• - a domination of things over people.
• Every manufacturer every day convinces that
his fate depends on the behavior of
commodities produced by himself. So, people
do not prevail over the products of their labor,
but products of labor in commodity form
dominate over its creators.

70. Features of commodity fetishism

• Personification of things - things from
inanimate objects are transformed into
independent actors with a special public
power.
• Reification of people - people became
appendages of things acting their will. From
the subjects of social relations they have
transformed into passive acting will things.

71.

• THANK FOR ATTENTION!!!