Red Letter
Daily Left Theory. 15 Minutes or Less. Refreshes at Midnight.
Use, Exchange, and Market Value
by Christoph Hermann
Estimated Reading Time: 13 min sans notes


An alternative definition describes This is part of a larger chapter in Hermann's 2021 book The Critique of Commodification: Contours of a Post-Capitalist Society and serves as a useful introduction to the concept of commodification. As Hermann alludes to later chapters and arguments mentions elsewhere, we've abridged some of those notes and footnotes, but the link to get the entire book is to the left as usual. We started by introducing a reading to use and it quickly became a book to buy: damn, that commodification strikes fast.
Enjoy your reading.
commodification as an “extension of the commodity form to goods and services that were not previously commodified.” In order to understand this process, we have to look at the difference between commodified and un-commodified goods. For Marx, the difference is that all goods have use values, but only commodities have exchange values in addition to their use values. While use value represents the usefulness of the product, i.e., its ability to satisfy human needs, exchange value signals the amount of other goods (or money) a particular object achieves when being exchanged on a market. For a good to become commodified, therefore, it has to acquire exchange value. In Friedrich Engels’s words, exchange-value needs to be “impressed upon use-value.” Goods and services usually acquire exchange value by being exchanged on a market for money. It is through market exchange that two qualitatively different goods or services are rendered equivalent and commensurable. This means that the previously mentioned definitions of commodification are correct in emphasizing the role of markets and money in the process of commodification. However, as will be discussed in the following, there are also alternative techniques for quantifying the value of qualitatively unique goods or services.

Acquiring exchange value is only the first step in the process of commodification. According to Marx, goods can be exchanged without being commodities, or more precisely without being the result of commodity production. In pre-capitalist societies, households or communities traded abundant goods for objects they needed. However, barter in largely self-sufficient economies presented a direct exchange of use values. In Marx’s words, in subsistence economies “[e]xchange value does not acquire an independent form but is still directly tied to use value.” As a result, “[u]se value, not exchange value is the whole purpose of production”. For Marx, things change when products are no longer created for self-use. Marx is mainly thinking of household production or subsistence farming, but production for self-use can also mean communal or even national production if the self is seen as a larger collective.3 3. The United Kingdom’s National Health Service can, for example, be seen as a form of production for collective use. The British government as the representative of the public provides healthcare for its citizens. In commodity production, in contrast, producers not only produce for others; the products themselves must become “non-use value” for the producers.

This is where money comes in: Money is a precondition for a systematic production for the use of others, rather than for self-use. Money not only greatly facilitates market exchange (a producer only has to find a buyer with money rather than another producer who offers something the first producer needs). Especially in paper form, money is also a distinctive—or in Polanyi’s words—“fictitious” commodity, because for most people money itself has no use value—except for being a means for exchange and storage of purchasing power.4 4. For Marx, (commodity) money has use value. But given that only a small group of artisans actually used gold and other precious metals to produce jewelry and other things, I am more inclined to follow Joseph Schumpeter (and François Quesnay), who argued that money has no use value.
5. Unpaid household labor, for example, produces use value but no exchange value, and the fact that is has no price means that it is insignificant in economic terms.
In a money economy, producers not only produce for others rather than for themselves; they are also compensated by exchange values rather than use values. Buyers, on the other hand, need exchange values to acquire use values. Money, as a result, fuels a phenomenon that Marx has described as commodity fetishism. People increasingly value goods, services, and even objects that are not made for exchange in terms of prices. Conversely, things which have no price have no value and become worthless.5

The profit motive is also important because the interest in maximizing profits renders producers indifferent to the use values of their products. Capitalists, as Marx notes, have no interest in particular use values; they produce and sell whatever promises the greatest return on their outlays. As the president of General Motors once famously said, his job was not to make cars, but to make money. However, the interest in profit maximization is not the immoral attitude of greedy capitalists; rather, it is the result of a systemic constraint in capitalism—competition. Competition is crucial because it forces individual producers to increase profitability since the failure to do so makes them a failing investment and a target for takeover. Indifference has been pushed further with the recent financialization of the economy, i.e., the growing investment in financial assets rather than productive facilities. In financial capitalism it is no longer enough to make a decent profit—which is a profit rate equal to or higher than comparable producers. Instead, the new yardstick is the profits that can be made in the financial sector. As a result, companies such as General Motors (until the financial crisis) put their efforts into expanding their financial services rather than producing better and perhaps more environmentally friendly automobiles.66. Rather than improving their cars, GM announced plans to close several US and Canadian plants and cut up to 14,000 jobs in 2018.
7. M = money; C = commodity. (but you already knew that because you've been reading Red Letter)

With the production for others, rather than for oneself or the collective, the whole purpose of economic activities changes. The creation of use value stops being the main goal of production; instead, production is now geared toward the maximization of exchange value—or the accumulation of money. In Marx’s formula, the goal is not C-M-C, but M-C-M'. Use value still plays a role since commodities need use value to acquire exchange value (without being useful, products rarely find a purchaser). But use value is demoted from the main focus of production to the means for increasing exchange values. For a capitalist society, “what matters is exchange-value, not use-value”. Following Marx, Andrew Sayer describes commodification as “a change from producing what previously or otherwise might have been simply use values to producing things for their exchange value.”

According to Marx, exchange value depends on the amount of abstract labor embodied in commodities or, put differently, the average work time expended for the production of a particular set of goods and services to be exchanged on a market. The labor theory of value is crucial for Marx because it allows him to demonstrate that capitalist accumulation is based on the exploitation of the working class (and, related to this, the transformation of work processes in capitalist factories). Yet there are substantial doubts that average socially necessary labor time can explain the prices of commodities.8 8. Ian Steedman’s critique of Marxist value theory provoked a series of defenses and counter-criticisms from Marxist scholars, resulting in what is commonly referred to as value controversy.
9. Labor costs are low because assembly is carried out in China, where workers are paid extremely low wages by Western standards. But even if Apple would pay US wages, labor costs still would not explain the price of an iPhone and the fact that it is significantly more expensive than comparable smart phones.
10. As Marx notes, for exchange value to equal market value there can be “no natural or artificial monopoly to enable one of the contracting parties to sell above value or force to sell cheap, below value.” And as he further explains, “the pressures the various sellers exert on one another must be strong enough to put on the market the quantity of commodities that is required to fulfill the social need, i.e. the quantity for which society is able to pay the market value.” Companies such as Apple succeed in branding their products as being different from and superior to those of their competitors. The ability to charge a premium over its competitors, which underlines the exclusivity of Apple products, means that Apple can make more profit by selling fewer phones for a higher price.
11. This is a point that Marxists are frequently criticized for by institutionalists . However, treating each market as a unique institution prevents institutionalists from seeing common dynamics unleashed by markets and fundamental contradictions in market societies.
12. This does not refute the labor theory of value. Apple (via its contractors) still exploits the mostly Chinese workers who assemble the iPhone and other Apple products. It only means that in addition to surplus created in the production process, Apple and others also pocket what Marx has described as commercial profits gained in sphere of circulation through market manipulations.
13. Marx here describes a general trend that became even more pronounced with the spread of Taylorism and Fordist mass production. However, in modern capitalism and especially in the knowledge economy, there are also a number of jobs which still offer the possibility for workers to apply skills and knowledge and, subsequently, to achieve something remarkable. For these workers the idea that they are alienated seems rather strange. Yet many knowledge workers experience a form of alienation in their daily work when they are pressured to “give their best” while at the same time being denied the necessary resources to achieve the best possible result.
14. Contrary to what some critics think, Marx’s critique of commodification is precisely not moral but material.
15. The so-called Phoebus cartel included Osram from Germany, Philips from the Netherlands, Compagnie des Lampes from France, and General Electric from the United States.
16. I recently noted that the newest model of the type of notebook that I have used for almost twenty years no longer has an external battery that can be replaced and space to add memory to allow the computer to cope with memory-consuming software updates. Of course, these changes are intended to encourage consumers to buy a new computer when the battery loses power and/or the computer slows down.
17. After mounting criticism from users, Apple has admitted that it has intentionally slowed down iPhones with older batteries, allegedly in order to keep them from shutting down suddenly. In order to appease angry customers, the company subsequently reduced the cost for battery replacements from 79 to 29 US dollars.
18. Convenience alone may have not been such a convincing argument, especially not in urban areas with developed public transportation systems. Hence American car manufacturers, together with oil companies and tire producers, created shell companies to buy up electrified streetcar lines in the 1930s, only to terminate their services. Left without an alternative, people turned to cars to move around in cities like Los Angeles.
19. According to Cameron Kerry and Jack Karsten , by 2016, approximately 80 billion US dollars were invested in the development of self-driving technology.
20. New York’s Metropolitan Transport Authority amasses a several hundred million US dollar deficit each year and has accumulated more than 30 billion US dollars in debt (Braun 2018). In contrast, Tesla Motors Inc.’s stock market valuation reached 89 billion US dollars in early 2020. Ford and General Motors together were worth another 87 billion US dollars.
21. A particular infamous case is Thames Water serving about eight million customers in the southeast of England. The privatized company was losing 900 million liters of water per day in 2006, while making record profits and announcing further price increases. In spite of some improvements, the company was still losing 683 million liters a day in 2018.
In numerous cases the price of a product has little to do with the labor costs. In the case of Apple’s iPhone, for example, total production costs make up less than half of the retail price, and labor costs account for even less.9 An alternative explanation (which can be found in most economic textbooks) insists that prices are the result of supply and demand.

For Marx, supply and demand play a role in the determination of what he calls market value. Yet in highly competitive markets and markets in which supply is sufficiently great to satisfy social need (i.e., there is no scarcity), exchange value should more or less equal market value and subsequently market prices.10 The problem is that markets rarely comply with this assumption.11 Many markets or market segments have oligopolistic structures, and supply and demand are frequently manipulated—how else can we explain Apple’s 50 percent profit margin on iPhones? I therefore understand commodification as the process by which market value comes to dominate use value. The important difference is that market value is open to manipulation and speculation—strategies that play a pivotal role in commodification processes.12 However, for understanding commodification processes, even more important is the fact that both exchange and market value are measured quantitatively, usually in units of money, whereas use value can only be assessed qualitatively.

The next question, then, is how production for market/exchange values, i.e., the production for profit, differs from production for use values, i.e., production for satisfaction of needs. Commodities, after all, continue to have use values. Marx noted that with the focus on exchange (and we may add market) value rather than use value, use does not come to a halt, but “it obtains its direction thereby.” On another occasion he points to the potentially negative consequences of this process when he notes that a commodity acquires market/exchange value through “the alienation of its use value”. Marx uses the term “alienation” mainly in connection with the alienation of labor in the capitalist production process. There he describes alienation as a process whereby workers lose the control of the content and purpose of their labor. Work, subsequently, is no longer an expression of human faculty, i.e., a medium to practice skills and to develop new abilities.13 Instead, workers are dehumanized, as they lose the possibility of shaping their environment according to their own imagination. Because labor power is not only a commodity but also a use value, the degradation of work in capitalist factories is also an example of the alienation of use value. The capacity of workers to turn resources into useful products are reduced to carrying out simple tasks in a repetitive manner. As a result, not only do workers become frustrated, but the use value of their labor power is also severely restricted due to deskilling and disempowerment. Accordingly, the alienation of use value implies some limitation or perversion of the usefulness of a good or service.14

An example of the limitation of the usefulness of commodities is planned obsolescence. This is when products are deliberately designed and manufactured to wear out sooner than needed given the state of design, technology, and the available materials. The reason for this is that a shorter life span allows producers to replace existing consumer goods more quickly and thereby maintain sales numbers in spite of increasingly saturated markets. One of the best-documented cases is an agreement between leading light bulb manufacturers who decided in the mid-1920s to reduce the life span of incandescent light bulbs from between 2,000 and 1,500 hours to 1,000 hours.15 Less well-documented cases are printers and washing machines. According to Christian Kreiss, the average lifetime of washing machines has almost been halved in the last 20 years (from 12 to 6.5 years). Producers argue that shorter life span is the result of the use of cheaper materials, which makes products more affordable. But higher prices do not necessarily guarantee longer durability. Other methods of limiting the life span of products are frequent model changes, updates in software that need more memory capacity, as well as the creation of obstacles to replace frequently worn-out parts such as batteries, and the excessive pricing of parts and repair services.16 Because such practices can ruin the reputation of a company, they are usually not disclosed to the public, and therefore there are no statistics on planned obsolescence.17 But Kreiss estimates that 11 percent of consumer goods bought by an average German household are subject to severe forms of planned obsolescence.

Yet production for market value rather than use value not only affects the product; even more importantly, it also affects the way that social needs are met. A telling example is transportation: People’s need for transportation can be met on an individual basis through private cars, taxis, or car services. Alternatively, they can be met by collective forms of transport such as public buses, subways, trains, airplanes, etc. It is widely assumed that it is the convenience of individual forms of transport, especially the private car, that has caused the demise of public transportation in the postwar period.18 However, growing traffic congestion in urban centers, which means that commuters spend several hours in their cars going to and from work, has severely restricted the convenience of cars. Yet the response to this problem has not been the expansion of public transportation—at least not in the United States. Instead of investing in overcrowded and crumbling public transport systems, such as BART in San Francisco or the New York City subway, investors throw money at companies that are developing self-driving cars, some of them electronically powered.19

Hence the superiority of the private car does not derive from its greater convenience—at least not in urban centers. Its superiority derives from its greater market value or the potential for making a profit. It is much more profitable to sell millions of cars each year—including, in the future, millions of self-driving cars—than to run a public transportation system. One reason is that most cars are more than simply a means of transport; they also have symbolic values and as such are examples of what Thorsten Veblen has called “conspicuous consumption.” Hence it is not by accident that automobile manufactures, despite periodic slumps and occasional bankruptcies, have continued to produce solid profits over decades, whereas public transport providers in many countries struggle to break even.20

Understanding commodification as subjugation of use value to market value also means that commodification is a process rather than a specific state of affairs. As Karl Polanyi shows, it took more than a hundred years to commodify labor in Britain’s emerging capitalist economy. The initial commodification of labor is an extreme case, but more recent commodification processes, such as the liberalization of public services in Europe, also took time and were introduced in several stages. Yet understanding commodification as a process also means that there is no general formula—such as the existence of a price—according to which a good or service can be qualified as (non)commodified. Instead, each case needs to be analyzed separately. In my view, a critical point in the process is reached when market value comes to dominate use value. Some markets allow use value to be the dominant or at least equally important motive of production. Usually it is competition and the profit motive that makes sure that market value comes to dominate use value. In addition, use value can also be marginalized by the maximization of non-monetary metric standards such as performance indicators.

To come back to a previously mentioned example: The fact that residents pay for water provided by a municipal water company which has no intention of making a profit does not mean that water is fully commodified. In this case we can assume that the main purpose of production is still the provision of use value, even though the water has to be paid for. If the same water network is taken over by an international corporation whose main purpose is to maximize profit, there is a good chance that market value will come to dominate use value—if the new owners are not hindered from doing so by strong government regulation. As a result, private water companies in the United Kingdom have no problem watching millions of liters of water disappear through pipe leaks while demanding higher prices in light of a growing water shortage.21 Another example is the difference between a local doctor’s office and the local branch of an international healthcare corporation. Even though the local doctor charges fees for services and makes a decent living, she or he is usually not accumulating money; rather, the main motive of his/her work is still to care for patients (many public healthcare systems therefore allow for private outpatient care). In contrast, the purpose of a medical office run by a healthcare multinational is to produce growing returns for its investors, who are, indeed, quite indifferent to the health of the patients (to the contrary: patients who are too healthy may even pose a threat to their profits). The doctors who work in these offices may still care about the patients, but if they care too much and that eats into profits (e.g., when they frequently discourage patients from pursuing treatment), they will sooner or later have a problem. In a similar way, small-scale (family) farming differs from industrial agriculture, even though in both cases agricultural products are sold for money and the growers intend to make a profit. In the first case, farmers still have a close relationship to their plants and livestock and treat them accordingly. In the case of industrial farming, growers become increasingly indifferent to what they produce and how they produce it as long as it guarantees them sufficiently high profits. As a result, they switch to monocultures and use pesticides and fertilizers, and they breed animals in overcrowded indoor spaces where they never see natural light or have a chance to stretch their feet.

 
Use, Exchange, and Market Value
Communism Is How We Forcibly Break Apart the Organized Power of the Capitalist Class
   To tell us what needs to be guarded in the van, write to reds@redlette.red   ?s    YTD Communism Is How We Forcibly Break Apart the Organized Power of the Capitalist Class