Linguistically, the word commodity came into use in English in the 15th century, being derived from the French word "commodité" meaning "benefit, profit", similar in meaning to biens (goods). The Latin root meaning is commoditas, referring variously to the appropriate measure of something; a fitting state, time or condition; a good quality; efficaciousness or propriety; and advantage, or benefit. The German equivalent is die Ware, i.e. wares or goods offered for sale.
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 equivalent. It is the Contract and this underlying Standard that define the commodity, not any quality inherent in the product. One can reasonably say that food commodities, for example, are defined by the fact that they substitute for each other in recipes, and that one can use the food without having to look at it too closely.
Commodities exchanges include:
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 an Equilibrium Price and quantity.
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.
According to the Labor theory of value, product-values in an open market are regulated by the average Socially necessary labour time required to produce them, and price relativities are ultimately governed by the Law of value.
Marx refers to this as "simple exchange" which implies what Frederick Engels calls "simple commodity production". At first, goods may not even be intentionally produced for the explicit purpose of exchanging them, but as a regular market for goods develops and a cash economy grows, this becomes more and more the case, and more and more production becomes integrated in commodity trade.
Even so, in simple commodity production, not all inputs and outputs of the production process are necessarily commodities or priced goods, and it is compatible with a variety of different Relations of production ranging from self-employment and family labour to serfdom and slavery. Typically, however, it is the producer himself who trades his surpluses.
However, as the Division of labour becomes more complex, a class of merchants emerges which specialises in trading commodities, buying here and selling there, without producing products themselves, and parallel to this, property owners emerge who extend credit and charge rents. This process goes together with the increased use of Money, and the aim of merchants, bankers and rentiers becomes to gain income from the trade, by acting as intermediaries between producers and consumers.
Modern Capitalism however is a Mode of production based on generalised commodity production (Marx's German term is verallgemeinerte Warenproduktion), a universal market (see also Capitalist mode of production). This means that both the inputs and the outputs of most production in society have become priced, tradeable goods (including the Means of production and human labour power), and that what and how much is produced is largely determined by the response of producers to the "state of the market". Production is now explicitly engaged in for the purpose of market sales only, which implies both that its whole organisation is reshaped for this aim, and that people can meet their own needs by purchases in the market (rather than producing goods for their own consumption).
The hyphens ("-") here refer to a transaction applying to an exchange involving goods or money; the dots in the last-mentioned circuit ("...") indicate that a value-forming process ("P") occurs in between purchase of commodities and the sales of different commodities. Thus, while at first merchants are intermediaries between producers and consumers, later capitalist production becomes the intermediary between buyers and sellers of commodities. In that case, the valuation of labour is determined by the value of its products.
The reifying effects of universalised trade in commodities, involving a process Marx calls "Commodity fetishism," mean that social relations become expressed as relations between things; for example, price relations. Markets mediate a complex network of interdependencies and supply chains emerging among people who may not even know who produced the goods they buy, or where they were produced.
Since no one agency can control or regulate the myriad of transactions that occur (apart from blocking some trade here, and permitting it there), the whole of production falls under the sway of the Law of value, and economics becomes a science aiming to understand market behaviour, i.e. the aggregate effects of a multitude of people interacting in markets. How quantities of use-values are allocated in a market economy depends mainly on their Exchange value, and this allocation is mediated by the "cash nexus".
In Marx's analysis of the Capitalist mode of production, commodity sales increase the amount of exchange-value in the possession of the owners of Capital, i.e., they yield Profit and thus augment their capital (Capital accumulation).
Capitalists as businessmen are interested in use-values primarily from the point of view of their money-making potential, i.e. their exchange-value; any useful object may be in principle become an object of exchange and profit-making, although that may in practice take quite some doing. In simple terms, the primary concern of businesspeople here is commercial: the money they can obtain from owning or selling the commodity.
But if an increase in capital-value is to be realised, it is essential that sales of commodities occur. Consequently, the accumulation of capital must go together with the expansion of market sales of commodities.
These components reflect respectively labour costs, the cost of materials and operating expenses including depreciation, and generic profit.
In capitalism, Marx argues, commodity values are commercially expressed as the Prices of production of commodities (cost-price + average profit). Prices of production are established jointly by average input costs and by the ruling profit margins applying to outputs sold. They reflect the fact that production has become totally integrated into the circuits of commodity trade, in which Capital accumulation becomes the dominant motive. But what prices of production simultaneously hide is the social nature of the Valorisation process, i.e. how an increase in capital-value occurs through production.
Likewise, in considering the gross output of capitalist production in an economy as a whole, Marx divides its value into these three components. He argues that the total new value added in production, which he calls the Value product, consists of the equivalent of variable capital, plus surplus value. Thus, the workers produce by their labor both a new value equal to their own wages, plus an additional new value which is claimed by capitalists by virtue of their ownership and supply of productive capital.
By producing new capital in the form of new commodities, Marx argues the working class continuously reproduces the capitalist Relations of production; by their work, workers create a new value distributed as both labour-income and property-income. If, as free workers, they choose to stop working, the system begins to break down; hence, capitalist civilisation strongly emphasizes the Work ethic, regardless of religious belief. People must work, because work is the source of new value.
A useful commentary on the Marxian concept is provided in: Costas Lapavitsas, "Commodities and Gifts: Why Commodities Represent More than Market Relations". Science & Society, Vol 68, # 1, Spring 2004