Simple commodity production

Simple commodity production (German: einfache Warenproduktion), also known as petty commodity production, is a term coined by Friedrich Engels in 1894 to describe 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 use of the adjective simple does not refer to the nature of the producers or of their production, but rather to the relatively simple and straightforward exchange processes involved.

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 according to 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 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 regular trade and competition, normal exchange values become established for products, which reflect an economy of labour-time and a cost-structure of production.

As discussed in this article, both Karl Marx and Engels claimed explicitly that the Marxian law of value applied also to simple exchange, and that this law is 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 Marxist believe that capitalist markets function in a completely different way from pre-capitalist markets, or they believe that the law of value applies only to industrial capitalism and not to economic systems which preceded industrial capitalism. 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 his critics argue he disregards the transformation of the relations of production involved.

Simple commodity production is compatible with many different relations of production, ranging from self-employment where the producer owns his means of production, and family labour, to forms of slavery, peonage, indentured labour, and serfdom. The simple commodity producer could aim just to trade his products for others with an equivalent value, or he could aim to realise a profit. That is to say, simple commodity production is not specific to any particular mode of production, and might be found in many different modes of production, with various degrees of sophistication. It does not necessarily imply that all inputs or outputs of productive activity in the 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 Marxian economics, simple commodity production also refers to a model of a hypothetical economy used by economists to interpret some of Karl Marx's insights about the economic laws governing the development of commodity trade. In this model, a market economy exists in which all producers own their own resources (including the ability to work) which they use for their own production. There are no proletarians who sell their labor power to an employer. Instead, each producer is self-employed. In this model, there is a direct and close correspondence between the labour-values and the prices of commodities. The model is, of course, only a thought experiment to identify some quantitative implications of commercial production and trade. There has never existed a society consisting exclusively of simple commodity producers (except that many of the initial colonial settlements in various places in the world involved a large majority of self-employed producers, who were farmers of their own land or craftsmen and independent technical/service professionals.). Historically, simple commodity production is usually combined with (or co-exists with) some other modes of production. As soon as a market economy reaches any size, it begins to utilize more and more wage labor in production, and falls under the sway of the laws of capitalist accumulation.

Textual source of the concept

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 precondition [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 stated 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 as (in his own words) 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… 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.”

Nevertheless, this interpretation by Marx and Engels about 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 and therefore is alien to his thought, and that an economy or society fully based on simple commodity production has never existed, contrary to what Engels allegedly suggested.

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 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 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.

Theoretical debates

The theoretical debates about simple commodity production have attracted contributions from numerous socialist economists, philosophers and social 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 to socialism. Contributors to the theoretical discussion have included Oskar Lange, Paul Sweezy, Piero Sraffa, Ronald L. Meek, Helmut Reichelt, Joan Robinson, Ernest Mandel, Michio Morishima & George Catephores, Jairus Banaji, Rolf Hecker, John Weeks, Hans-Georg Backhaus, Ben Fine, Nadja Rakowitz, Christopher J. Arthur, Octavio Colombo, Paresh Chattopadhyay, Andrew B. Trigg, Ian P. Wright and Bill Jefferies.