A commodity looks simple enough says the bourgeois economist. Most bourgeois economists say it is any object with a use value that somebody wants and is willing to pay for and its value is determined by supply and demand. Nothing drives such a common sense economist more to distraction than reading Karl Marx who says a commodity is "a very queer thing, abounding in metaphysical subtleties and theological niceties." What can Marx mean? Economics is a science, even a mathematical science, what has it got to do with metaphysics and theology?
Take a wooden table, says Marx. It is just wood that human labor has turned into a table and taken to market. Wood + Labor = Table. Where is the mystery? When it gets to the market the table finds itself in the company of the stool and the chair. All three have use values, are made of the same wood, and may be in equal supply and equal demand--yet each has its own different price.
Why these different prices? Same wood, same demand, same supply. They are all the products of human labor. What is the difference between them that justifies different prices? The prices are reflections of the underlying values of the products. Could the values be different? What does Marx say determines value? It is the different quantities of socially necessary labor time embodied in the commodities.
The table, the stool, and the chair three "things" that are related to each other as the embodiment of the social relations and necessary labor of human beings that created them. Human social relations have been objectified as the relations between non human things. The chair is more valuable than the table but the reason is now hidden away from the perception of people.
"A commodity is therefore a mysterious thing," Marx writes, "simply because in it the social character of men's labour appears to them as an objective character stamped upon the product of that labour; because the relations of the producers to the sum total of their own labour is presented to them as a social relation, existing not between themselves, but between the products of their labour."
To find an analogy Marx tells us we have to turn to the "mist-enveloped regions of the religious world." In that world the inventions of the human mind take on an independent existence and humans begin to interact with their own fantastical creations as if they were really independently existing objective things. This is similar to the Fetishism of Commodities. All the commodities we see about us are part of the sum total of all the socially produced objects and services created by human labor in our society. People all over the world are making things which are traded, shipped, sold, resold, etc. But their use values cannot be realized until they are sold--i.e., exchanged, especially exchanged for money. But why are some more expensive than others? Why do some have more value than others? Supply and demand has a role to play in setting PRICE but it merely causes price to fluctuate around VALUE.
The fact that we know that value results from the socially necessary labor time spent in making commodities "by no means," Marx says, "dissipates the mist through which the social character of labour appears to us to be an objective character of the products themselves."
This is because we are so used to how the market operates under capitalism, how prices fluctuate, commodities rise and fall in prices, the working people naturally just think the values (which they don't differentiate from prices) are products of the natural world, that is, are functions of the things for sale or barter themselves. This is why "supply and demand" seems to be the basis of the value of things. They don't see it's all really the result of the socially necessary labor time expended in the labor process that is the determining factor in value
This leads Marx to say , "The determination of the magnitude of value by labor time therefore is a secret, hidden under the apparent fluctuations in the relative values of commodities."
We are reminded, that to understand the real nature of a social formation we have to reverse our knowledge of its historical development. We begin with the full fledged capitalist system and we try to figure why the prices of things are the way they are. Looking at the mature system we don't really see its primitive origins. In the same way a religious person looking at a human being fails to see an ape in the background.
This leads Marx to say of his own theory, "When I state that coats and boots stand in a relation to linen, because it is the universal incarnation of abstract human labor, the absurdity of the statement is self evident." This has been remarked upon both by the most astute of thinkers (Bertrand Russell) and the most pedestrian (Ayn Rand).
The problem is that the bourgeoisie looks upon an HISTORICALLY TRANSIENT economic formation, its own, as an eternally existing social order. Of course prices are set by supply and demand. What is that crazy Marx talking about? As the economist Brad Delong said, he had NEVER known anyone who thought that way.
Well, lets look at something other than the full blown capitalist system at work. Marx says, "The whole mystery of commodities, all the magic and necromancy that surrounds the products of labor as long as they take the form of commodities, vanishes therefore, so soon as we come to other forms of production."
Marx gives the example of Robinson Crusoe. He chooses Robinson because he was a popular example used in the texts of the day. Robinson has to make everything for himself, obtain his own food, and provide his own shelter. It is pretty obvious that the things that are most important for his survival are those he expends most of his labor time upon and are consequently the most valuable to him.
Marx then says we should consider a community of free people working together cooperatively to make all things necessary for their society. Whereas Robinson was just making use values for himself, in this community a social product is being created. The people have to set aside part of the product for future production, but the rest they can consume. How would they divide it in a fair manner? They would divide the product in proportion to the labor time each individual had contributed to the joint production of the social product.