Simple commodity production

Simple commodity production (German: einfache Warenproduktion), also translated as petty commodity production, is a term coined by Friedrich Engels in 1894 when he had compiled and edited the third volume of Marx's Capital. It refers to productive activities under the conditions of what Karl Marx had called the "simple exchange" or "simple circulation" of commodities, where independent producers trade their own products to obtain other products (the trading circuit C-M-C'). The use of the adjective simple is not intended to refer to the nature of the producers or of their production, but rather to the relatively simple and straightforward exchange processes involved from an economic perspective.

As discussed below, both Karl Marx and Engels claimed explicitly that the law of value applied also to simple exchange, and that this law is modified by the capitalist mode of production when all the inputs and outputs of production (including means of production and labour power) become tradeable commodities. According to Marx and Engels, simple commodity production and trade existed for millenia before the advent of capitalism. From the beginning of the bourgeois epoch, the reach and scope of commodity production begins to grow incrementally, although sometimes interrupted by wars, epidemic diseases and natural disasters. Only with the growth of free wage labour is commodity production generalized (verallgemeinert) to most of the economy, and integrated into national and international markets. Originally commodity production existed alongside subsistence production. Particularly during the last six centuries, the share of commodity production in total output grew together with population growth, and grew tangentially in the 19th and 20th centuries, until production for the market represented the largest part of total output in the majority of countries.

This interpretation is however not accepted by all Marxists. Some believe that capitalist markets function in a totally different way from pre-capitalist markets, or they believe that the law of value applies only to industrial capitalism and not to market systems which preceded industrial capitalism. Engels aimed to give a consistent explanation of the evolution and development of the market economy, from simple beginnings to the complexities of modern capitalist markets, but his critics argue he disregards the transformation of the relations of production involved.

Marx and Engels's interpretation of the historical role of simple exchange based on simple commodity production has been the subject of considerable controversy among Marxist scholars. It has been claimed that the concept of simple commodity production was never used by Marx. If that is true, then it seems that Engels's concept is really alien to Marx's thought. Moreover, it is claimed that an economy or society fully based on simple commodity production has never existed, contrary to what Engels (allegedly) suggested.

Origins

Simple exchange of reproducible commodities is as old as the history of trade, insofar as it progressed from incidental barter of use-values according to cultural custom, to exchange using a standard of value. It 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, hunters/gatherers and artisans) trade surpluses to their own requirements, with the aim of obtaining other products with an equal value, for their own use. In Marx's own words,

"Definite historical conditions are involved in the existence of the product as a commodity. (…) The appearance of products as commodities requires a level of development of the division of labour within society such that the separation of use-value from exchange-value, a separation which first begins with barter, has already been completed. But such a degree of development is common to many economic formations of society [ökonomischer Gesellschaftsformationen], with the most diverse historical characteristics. If we go on to consider money, its existence implies that a definite stage in the development of commodity exchange has been reached."

Through the experience of regular trade and competition, normal exchange values become established for products, which reflect an economy of labour-time and a cost-structure of production. The simple commodity producers could aim just to trade their products or services to obtain other products with an equivalent value, or they could in favourable circumstances aim to realise a profit. They could sell their products or services to the final consumer, or to an intermediary such as a merchant. Simple commodity production and simple exchange are compatible with many different relations of production and exchange, ranging from self-employment in which the producer owns his own means of production and family (household) labour, to forms of slavery, peonage, indentured labour, and serfdom.

The technologies used by a simple commodity producer might be characteristic for a specific mode of production, but simple commodity production as such is not specific to any particular mode of production, and might be found alongside (or articulated with) many different modes of production, with various degrees of sophistication. It does not necessarily imply that all the inputs or outputs of productive activity in the local economy are commodities traded in markets. For example, simple commodity producers could produce some products for their own subsistence and for their own use on their own land, while trading another part of their products. They might buy or trade some tools and equipment, but also make some tools and equipment themselves. Simple commodity production continues to occur in capitalist societies, especially in developing countries. In the cooperative farming system of the Soviet Union, members of the kolkhozy were permitted to cultivate small plots of private farmland, to raise some livestock, and to sell their produce themselves.

Early colonial settlements

There has never existed a society which literally consisted only of simple commodity producers. However, in the bourgeois epoch of history, many of the initial colonial settlements in foreign lands involved a large majority of self-employed producers, who farmed their own land or worked as self-employed craftsmen and independent technical/service professionals (for example, colonies in North America, Argentina, South Africa, Australia and New Zealand). Marx was well aware of this, and he remarked wrily that in the colonies "the capitalist regime constantly comes up against the obstacle presented by the producer, who, as owner of his own conditions of labour, employs that labour to enrich himself instead of the capitalist".). An American historian comments that:

"By the mid-1600s... [a]bout three-quarters of the colonists [in America] were farmers. (…) Most farmers owned their land. To encourage immigration, colonists often received free or almost free land. Land was readily available at low prices (…) Most immigrants and native-born colonists enjoyed ample opportunity to acquire property. Upon completing terms of indenture, on average four years in duration, servants often received plots of land on which to begin their lives as freemen."

The proportion of early American colonists who were craftsmen, artisans and tradesmen is estimated to have been about 10% - 18%. So the vast majority of the workforce at that time (up to about 93%) consisted not of waged employees, but of independent farmers, craftsmen and tradesmen engaging in simple commodity production. Imported African slaves "worked mainly on the tobacco, rice and indigo plantations of the southern coast, from the Chesapeake Bay colonies of Maryland and Virginia south to Georgia." From the time of the earliest English colonial settlements of the 1600s until America began to issue its own currency in 1783, three different types of money were used in commodity trade: (1) coins (Spanish dollars, shillings), (2) paper notes (fiat money denominated in British pounds, shillings and pence; land notes; bank notes; tobacco notes) and (3) commodity money (portable goods and services offered in exchange, including tobacco, wampum, buttons, etc.).

Textual sources of the concept

In The Wealth of Nations (1776), Adam Smith introduces the concept of simple commodity production as follows:

"In that early and rude state of society which precedes both the accumulation of stock and the appropriation of land, the proportion between the quantities of labour necessary for acquiring different objects seems to be the only circumstance which can afford any rule for exchanging them for one another. (...) In this state of things, the whole produce of labour belongs to the labourer; and the quantity of labour commonly employed in acquiring or producing any commodity is the only circumstance which can regulate the quantity exchange for which it ought commonly to purchase, command, or exchange for."

Smith then contrasts simple commodity production with capitalist production involving wage labour:

"As soon as stock has accumulated in the hands of particular persons, some of them will naturally employ it in setting to work industrious people, whom they will supply with materials and subsistence, in order to make a profit by the sale of their work, or by what their labour adds to the value of the materials. (..) [The employer] could have no interest to employ [workers], unless he expected from the sale of their work something more than what was sufficient to replace his stock to him…"

In a conspectus and critique of Adam Smith's theory of value, Marx similarly gives a brief description of simple commodity production:

"Let us assume that all workers are producers of commodities, and not only produce their commodities but also sell them. The value of these commodities is determined by the necessary labour-time contained in them. If therefore the commodities are sold at their value, the labourer buys with one commodity, which is the product of twelve hours’ labour-time, another twelve hours’ labour-time in the form of another commodity, that is to say, twelve hours’ labour-time which is embodied in another use-value. The value of his labour is therefore equal to the value of his commodity; that is, it is equal to the product of twelve hours’ labour-time. The selling and buying again, in a word, the whole process of exchange, the metamorphosis of the commodity, alters nothing in this. It alters only the form of the use-value in which this twelve hours’ labour-time appears. The value of labour is therefore equal to the value of the product of labour."

In his 1894 preface to Capital, Volume 3, Friedrich Engels argued that:

"...at the beginning of Volume 1... Marx takes simple commodity production as his historical presupposition, only later, proceeding from this basis, to come on to capital... he proceeds... from the simple commodity and not from a conceptually and historically secondary form, the commodity as already modified by capitalism".

This interpretation by Engels closely followed what Marx himself stated in his 1864 manuscript titled Results of the immediate process of production:

"The commodity that emerges from capitalist production is different from the commodity we began with as the element, the precondition of capitalist production. We began with the individual commodity viewed as an autonomous article in which a specific amount of labour-time is objectified and which therefore has an exchange-value of a definite amount. (...) The individual commodity viewed as the product, the actual elementary component of capital that has been generated and reproduced, differs then from the individual commodity with which we began, and which we regarded as an autonomous article, as the presupposition [Voraussetzung] of capital formation."

However, the interpretation by Engels arguably did not completely match what Marx said about his own approach. In his critical notes on Adolph Wagner's Textbook on political economy (1879), Marx said about his analysis of the commodity form in Capital, Volume 1 that:

"What I proceed from is the simplest social form in which the product of labour presents itself in contemporary society, and this is the "commodity." This I analyse, initially in the form in which it appears."

Here Marx states clearly, that in the first chapter he was talking about the commodity as the simplest traded object "in contemporary society", and not about a simple commodity in pre-capitalist society. Point is, when Marx first analyzes a commodity as such (as a very simple category of trade), he disregards how exactly the commodity is produced and how specifically it is traded. He just examines the commodity (in his own words) "as an autonomous article", as a separate thing just as it observably appears in an everyday trading relation - without introducing all sorts of assumptions about how and where it originated, or what it will be used for. Put another way, Marx is talking about simple commodity circulation, not simple commodity production, although the former could assume the latter.

In his 1895 afterword Supplement and addendum to Volume 3 of Capital, Friedrich Engels elaborates the concept of simple commodity production as follows:

”... Marx's law of value applies universally, as much as any economic laws do apply, for the entire period of simple commodity production, i.e. up to the time at which this undergoes a modification by the onset of the capitalist form of production. Up till then, prices gravitate to the values determined by Marx's law and oscillate around these values, so that the more completely simple commodity production develops, the more do average prices coincide with values for longer periods when not interrupted by external violent disturbances, and with the insignificant variations we mentioned earlier. Thus the Marxian law of value has a universal economic validity for an era lasting from the beginning of the exchange that transforms products into commodities down to the fifteenth century of our epoch. But commodity exchange dates from a time before any written history, going back to at least 3500 B.C. in Egypt, and 4000 B.C. or maybe even 6000 B.C. in Babylon; thus the law of value prevailed for a period of some five to seven millennia.”

Again, Engels based himself on (and cites) what Marx himself had said – in chapter 10 of Capital, Volume 3 (on the equalization of rates of profit by competition):

”The exchange of commodities at their values, or at approximately these values… [Marx writes] corresponds to a much lower stage of development than the exchange at prices of production, for which a definite degree of capitalist development is needed. Whatever may be the ways in which the prices of different commodities are first established or fixed in relation to one another, the law of value governs their movement. When the labour-time required for their production falls, prices fall; and where it rises, prices rise, as long as other circumstances remain equal. Apart from the way in which the law of value governs prices and their movement, it is also quite apposite to view the values of commodities not only as theoretically prior to the prices of production, but also as historically prior to them. This applies to those conditions in which the means of production belong to the worker, and this condition is to be found, in both the ancient and the modern world among peasant proprietors and handicraftsmen who work for themselves. This agrees, moreover, with the opinion we expressed previously, viz. that the development of products into commodities arises from exchange between different communities, and not between the members of one and the same community. This is true not only for the original condition, but also for later social conditions based on slavery and serfdom, and for the guild organization of handicraft production, as long as the means of production involved in each branch of production can be transferred from one sphere to another only with difficulty, and the different spheres of production therefore relate to one another, within certain limits, like foreign countries or communistic communities.”

From simple commodity production to capitalist production

The large-scale global 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 credit from 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 especially in the 17th and 18th centuries but already existed on a smaller scale in the 15th century and even earlier.

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 reorganised 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 people 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."

For that purpose, many legal, political, religious and technical restrictions imposed on commercial 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 privatised 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 (but also serfs) are proletarianised and migrate to the urban centres, 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 industrialised capitalist economies in the form of self-employment by free producers. Capitalist firms sometimes contract out specialised services to self-employed producers, who can produce them at a lower cost, or provide a superior product.

Modelling simple commodity production

In some schools of Marxian economics, simple commodity production refers to a model of a hypothetical economy (or an "imaginary society") used by economists to interpret some of Karl Marx's insights about the economic laws governing the development of commodity trade. The model is only a thought experiment to identify some quantitative implications of commercial production and trade. In this society a market economy is supposed in which all producers are independent individuals who own and operate their own means of production, and trade their own products. According to Michio Morishima,

"In such a society, there are no capitalists and hence no exploitation of workers by them; prices or exchange ratios between commodities must in the state of equilibrium be equal to the relative [labour-]values, provided the primary factors of production other than labour are all free. It is true that the actual exchange ratios in the market may differ from the relative [labour-]values (...) [but] the market price will ultimately be settled at the equilibrium exchange ratio, which is equal to the relative [labour-]value."

Theoretical discussion

The theoretical debates about simple commodity production have attracted contributions from numerous economists, philosophers and historians across the last century. This seemingly obscure topic has important implications for quite a few different areas of research: (i) the interpretation of Marx’s method of analysis and his theory of value; (ii) the interpretation of the historical transition from pre-capitalist society to capitalism (and more generally, the social history of trade and marketization); (iii) the so-called transformation problem; (iv) understanding the colonial and post-colonial economy; (v) development economics; and (vi) the economics of the transition from capitalism to socialism and communism (the gradual replacement of market allocation by direct allocation).

Contributors to the theoretical discussion have included Michael von Tugan-Baranowsky, Nikolai Bukharin, Karl Kautsky, Oskar Lange, Paul Sweezy, Piero Sraffa, Ronald L. Meek, Helmut Reichelt, Joan Robinson, Isaak Illich Rubin, Roman Rosdolsky, Maurice Dobb, Ernest Mandel, Robert Brenner, Rodney Hilton, Michio Morishima & George Catephores, Jairus Banaji, Dimitris Milonakis, John Roemer, Rolf Hecker, John Weeks, Hans-Georg Backhaus, Ben Fine, Nadja Rakowitz, Christopher J. Arthur, Arthur Diquattro, Kolja Lindner, Octavio Colombo, Prabhat Patnaik, Anwar M. Shaikh, Ellen Meiksins Wood, Paresh Chattopadhyay, Andrew B. Trigg, Ian P. Wright Michael Heinrich, and Bill Jefferies.