A commodity is a social category in the sense that any entity that has a use value can be classified as a commodity if its exchange value is determined against socially established standards rather than by private negotiation.3
The most elementary types of entity that qualify as commodities, and which form the material base on which all other
commodities ultimately rest, are goods and services. Two conditions are required for this particular qualification to be met. The first is that individuals are organised in a division of labour such that they typically produce for each other rather than for self-subsistence. The second concerns the scale of the division of labour system. If the system is limited to a small community of individuals, it follows that goods and services need not become commodities given that it is possible for the community to exchange outputs on terms that can be negotiated on an associative basis. On the contrary, if the scale of interdependent relations between specialised individuals exceeds a minimum threshold such that it becomes impossible for them to know each other’s personal needs and thus to produce to order and negotiate exchange terms accordingly, it then becomes generally necessary for these individuals to produce goods and services to socially established standards of production and provision and to accept the exchange ratios as determined by the prevailing standards. Most of the goods and services traded in the world today are commodities as defined earlier. There is a further point. While a sizeable proportion of these goods and services continue to be produced and traded according to regional or country standards, the majority are commodities in the global sense in that in their case production and pricing standards have become more or less harmonised at the global level.4
A commodity system presupposes the institution of money. In physical space, this institution has emerged to help overcome the various costs of barter exchange: thus the measure of value function helps to overcome the problem of negotiating terms of trade by providing a yardstick against which physically heterogeneous entities can be rendered commensurable; the medium of exchange function makes redundant the need to satisfy the mutual coincidence of wants criterion by splitting sales and purchases into two separate, self-contained acts; the store of value function, finally, helps to support the medium of exchange function by permitting the storage of purchasing power between the acts of sale and purchase. In commodity space, the same three functions of money are crucial to the reconciliation between the social rule of price determination on the one hand and the private mode of price formation on the other.5
In a social division of labour, prices must accord with a determinate set of ratios for both qualitative and quantitative reasons, where the former, as already observed, denotes the need for commodities to conform to socially sanctioned production standards and where the latter denotes the need for the amount of any given type of commodity that is supplied to match an equivalent amount of demand for it. As there is no central price-setting
authority in a commodity exchange system, commodity prices can only converge to a set of rule governed ratios through the decentralised process of price formation based on the three functions of money: through its use as measure of value, agents can assign prices to their commodities (money in this function facilitates price assignment); through the offers or non-offers of money as a medium of exchange, privately assigned prices are either validated or falsified (money in this function facilitates price realisation); while the use of money as a store of value enables agents to bridge the gaps between sales and purchases (money in this function helps to sustain the continuity of a decentralised price formation process). Given that most commodities produced in the world today conform to globally harmonised standards of production, logic dictates that there should exist a world money that fulfils all three of the aforementioned functions. As there is no such money in practice, the alternative solution is for a few national currencies to duplicate their functions at the international level, with the exchange rates of the remaining national currencies being tied to one or other of these internationally used currencies.6
Just as goods and services are mapped into price space as commodities, so also are the human capacities for producing these material outputs. There are three types of capacity, two private and one public. The commodity principle is expanded to include labour power when the majority of individuals are separated from their means of production and thus from their means of subsistence and, as a result, are compelled to sell their capacity for labour for a money wage. The coexistence of a property-owning class alongside the class of propertyless agents implies that the labour power capacity is confronted by an opposing capital capacity, that of deploying privately owned means of production in conjunction with labour power to produce goods and services for a profit. The fact that capacities are commodities means that the decentralised, money-based process of price formation described earlier is also one that involves the validation or falsification of profits and wages. Thus, the validation of prices of particular goods or services that include profit markups informs producers that their capital has been deployed according to both a qualitative standard of production and a quantitative rule of allocation, while the converse is the case with the falsification of these prices consequent on non-offers to buy. Wages are subject to two different types of price formation process, one inside the confines of the firm through the associative relation with the owner of capital and the other inside the wider marketplace through the impersonal exchange relation; either way, the validation of privately assigned wages indicates that the labour powers offered meet required skill levels as well as being offered in the right quantities, while the converse is the case with the falsification of assigned wages consequent on non-offers of money.
The public capacity of government can be defined in terms of a determinate relationship between public expenditure, the financial means of executing government objectives, and taxes as the principal form of income commanded by governments. This dual aspect of government finance explains why the growth in the scale of its capacity to govern is necessarily interdependent with the growth of the domestic economy as a whole. Since goods, labour and capital form the three major sources of tax revenue, it follows that the expansion in the role of government is itself contingent on that of production and exchange activities in general. Conversely, government spending contributes to the growth of a domestic economy, both in an indirect sense insofar as some of this spending is used to maintain a regulatory framework without which the continuity of production and exchange is impossible, and in a direct sense insofar as a proportion of this spending is for the provision of certain goods and services that are required by an economic system but which would not be furnished at all, or not furnished in the quantity and with the efficiency required, by the private sector. As with the private capacities of capital and labour, the government capacity becomes commoditised at the point where its deployment is monitored and constrained against socially sanctioned standards of behaviour. The difference is that where such standards covering private capacities can exist at both a local and a global level, the same is not true of the public capacity. Given that a national government is sovereign in a domestic economy, there is no comparable domestic entity against which its economic and social policies can be judged. Only in a global context, where there are many national governments but also where none are sovereign, can the very idea of a uniform standard for comparing the behaviour and activities of governments assume operational significance.
One of the principal reasons why behavioural standards for governments coexist alongside those for private corporations is so that the risk on government bonds can be quantified and factored into their prices in the same way that is done for corporate bonds and equities. This point brings us to the final major category of commodities, namely, financial securities. In its complete form, a global commodity system constitutes a three-tiered system: the human capacities for activity, the material goods and services that are the realised outcomes of this activity, and the debt and equity securities that are the tradable claims on the future expected outcomes of corporate and government
activity. The corporations and governments issuing securities never see them as commodities in their own right but only as a means of financing the production of commodities. It is different with large institutional investors, such as pension funds, mutual funds and insurance companies, which are today the predominant types of security holders. For these investors, securities constitute ‘investables’, assets whose use values are to serve as stores of value into which clients’ money can be poured and from which money can be withdrawn to repay clients.7
In principle, other assets such as real estate, gold and other natural commodities can also be used as value containers. However, the physical constraints on the supplies of these assets, combined with certain disadvantageous attributes and most notably a lack of liquidity, defined here as ease of trading with minimal impact on price, mean that institutional investors have to depend on financial securities as the major type of investable asset. It is this dependence that compels institutional investors to view corporations and governments as ‘dual commodity providers’, organisations whose function is to supply the debt and equity securities that are required for asset management needs just as it is to supply the material goods and services that are required for consumption or production needs.8
There are two preconditions for the commoditisation of securities to be possible. The first is that the activity of governments and private corporations must be tied to prevailing production and service provision standards for the obvious reason that without some demonstrable commitment to these standards on the part of security-issuing organisations, there can be no reasonable guarantee of the size and stability of the income flows against which claims are made. While necessary to the commoditisation of securities, this first precondition is not sufficient. Corporations can excel in production but still decide not to distribute cash to investors for one reason or another. Similarly, governments can excel in service provision and generate tax revenues accordingly but still give a low priority to the payment of interest on bonds. This brings us to the second precondition for the commoditisation of securities, which is the need to tie the various organisations issuing them to governance standards. Broadly defined, the governance of an organisation concerns the way in which it conducts its affairs so as to meet the different priorities of its various stakeholders. From the standpoint of investors, the question of corporate or public sector governance essentially boils down to the level of priority given to their interests as shareholders or bondholders: high priority means that there is a reasonably good guarantee that cash will be returned to them in the required amounts and at the required intervals, whereas a low priority means that there is no guarantee that cash will be returned. Given that equities pay dividends at the discretion of corporate managers, a high ranking of shareholders’ interests in the ordering of a corporation’s priorities is absolutely essential to the commoditisation of equity securities. At the same time, although the payment of interests on bonds is fixed by law, good governance as defined here is also a crucial condition for the commoditisation of debt securities inasmuch as any organisation issuing them can still rank its priorities in a way that can disrupt, or even negate, any contractually agreed stream of interest payments.
It is at the point where financial securities become commodities in the sense described earlier that the commodity system must occupy its own distinct space. As long as commodity systems simply comprised capacities and their material outputs, the interactions between the different parts of those systems could still place within physical space. However, for the commodity principle to be deepened to the point where it can also encompass financial securities, at that point, the interactions between the different component parts of a commodity system have to take place within their own space, a space that is distinct from physical space in that it is an entirely social construction that owes nothing to nature. The crux of the matter is the indispensability of the commodity principle to the store of value function of financial securities. Strip goods and services of their commodity attributes, and their materiality, or use value properties, continue to exist independently of whether they are priced and exchanged against socially established production standards. Similarly, strip human capacities for activity of their commodity attributes, and these capacities still have a material existence independently of whether the outcomes of these activities are subject to social standards. By contrast, the consequences of any relaxation of the commodity principle for financial securities are very different. Relax the pressures forcing the deployment of capacities and the pricing of material outputs against social standards, and the ability of financial securities to serve as value containers is severely diminished, if not lost altogether. This may not be a problem for corporations and governments because for them it is only the flow dimension of securities that really matters: they raise funds through the issuance of securities on the promise to repay the funds at some future date, and in the meantime, they use the funds for investment purposes. It is a problem, however, for institutional investors who need to be concerned as much with the stock or quantity dimension of securities as with their flow dimension: they give sums of money when purchasing securities in the expectation of being repaid at some future date, but in the meantime, they need to use these securities as value containers. As securities have no intrinsic value, their value storage property is determined entirely by the degree to which their prices are held firm and thus made tangible, a condition that depends in turn on the degree to which the security issuing organisations are made to conform with production standards such that ensure their ability to return cash and with governance standards such that ensure their readiness to return cash.
In sum, it is because the actions of institutional investors are key to the completion of the commodity system that they at the same time help us understand why that system exists in a socially constructed space that is distinct from physical space. All groups of agents play some role or other in the commoditisation of goods and services through helping to establish the production standards against which these are priced and traded. However, it is institutional investors, by virtue of the exigencies of their asset management function, who are the principal agents through which governance standards become established alongside production standards, thereby making it possible for financial securities to acquire a solidity that they cannot have in physical space. This is not all. In pushing for the creation of conditions such as can allow financial securities to circulate as commodities in their own right, the actions of institutional investors help us to understand not only how the commodity system comes to occupy a socially constructed space that parallels physical space but also how these two spaces then continue to coexist in relations both of mutual dependence and of mutual antithesis. In expanding on this argument, it is first explained why the two spaces are mutually antithetical.
Physical space is complex because its major distinguishing feature is one of heterogeneity. Commodity space by contrast is much simpler because the major distinguishing feature here is one of homogeneity. This distinction is immediately apparent in respect of individual agents. In physical space individuals can be grouped together according to any number of classifications, including gender, social status, specialisation and position in the division of labour and so on, but it is the feature of difference and heterogeneity that prevails in that even individuals who share a similar social status or perform similar tasks can still differ appreciably in terms of character, temperament and ability. Conversely, although there is an element of heterogeneity in commodity space, in that individual agents can be grouped together according to the type of capacity for activity that they each have, it is the homogeneity feature that prevails here. This is because in commodity space abstraction is made from the personalities of the individuals who possess particular capacities and because there are in any case only three types of human capacity, the private capacities of capital and labour power and the public capacity of government.
Aggregating upwards, we find that the difference in the heterogeneity-homogeneity ordering across the two spaces applies as much to organisations as to the individuals comprising them. Take physical space. There is a degree of homogeneity here in that all private business corporations operate to a profit motive while government institutions typically operate to a non-profit principle. Heterogeneity prevails in this space, however, in that it is the functional differences separating business corporations and their corresponding forms of fee income that are paramount. Thus, industrial corporations produce material goods for industrial profit; banks hire out the services of money as a medium of exchange in return for an interest charge; rental firms hire out property, machinery or consumer durables such as cars and charge rent. By contrast, it is the homogeneity property that prevails in commodity space, in that here all private firms, whatever their specific business activity and whatever their specific form of income generation, exist merely as commodity clusters, combinations of the human capacities of capital and labour power on the one hand with non-human inputs on the other. This homogeneity property extends also to government organisations in that while these substantively differ from business organisations in physical space because of their difference in function, in commodity space they too appear merely as commodity clusters, albeit that it is the government capacity that here substitutes for the capital capacity in combining with labour power and non-human inputs to produce a stream of public services.
What has been said here also applies to securities, financi...