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A major complaint levied against markets is that unless we have strong regulation of what can and cannot be sold, and under what conditions, that markets end up “commodifying” everything. Here is one such argument. Part of the difficulty with addressing claims of commodification is that the term has different meanings, and it’s not clear which one folks are using in their criticisms. One use of the term “commodity” is simply some “material” that is bought and sold. So criticisms of markets that complain that “markets commodify everything” are akin to asking, “what isn’t for sale?” That claim seems to be a legitimate moral concern of folks. And indeed some bloggers (even those very sympathetic to markets) make a living by pointing out the sometimes sad, ironic and absurd things that people end up buying and selling. The only problem with “worrying” about this is of course is that it is not markets that force these things to be bought and sold – it is our human nature that prompts people to be “buyers” and “sellers.” The point is that it is going to be hard to prevent or dramatically reduce the scope of the things that end up being sold in “markets.” Aside from the political and coercive difficulties of who can and should decide such things, we have the problem that you cannot squash the desires of people. The drug trade is robust despite hundreds of billions of dollars of enforcement costs and “markets” being illegal. And moral suasion does not seem to be working as well.  There’s way more to cover here, but that’s not what I want to write about.

There’s a second use of commodification which, if you read a “standard” economics textbook (which I do not use), you would be more inclined to accuse markets of. The term commodify means to make all units the same. So, for example, you may have heard that oil is a commodity – the idea being that a molecule of oil in Texas is the same as a molecule of oil in Saudi Arabia. And a textbook presentation of how supply and demand works would indicate that an “assumption” of the supply and demand process is that all goods are identical, in other words, we are modeling the buying and selling of commodities.

But this is neither how the real world works, nor necessary for the supply and demand process to work. The only reason you might see that “assumption” used in the building of a supply and demand model is that when we model the demand and supply for a good and look at comparative statics, we assume that “all else is equal” and assuming commodification is a fancy way of doing that. But more important than that, NO good is a commodity. Even bottled water is not bottled water is not bottled water. They come in different sizes, different shapes, some with flavors, some with water from different sources and hence mineral contents. And the point being that market participants do their very best NOT to commodify their products. Indeed, it is product differentiation that sellers spend enormous research budgets on, entrepreneurial efforts on and even advertising efforts on. The point is to be different, not the same as everyone or everything else. This is as true in factor markets (i.e. when I tried to get my current gig, I tried to persuade my employer that I was different than all of the other lowly lecturers out there) as it is in product markets. It is the seller than can distinguish his or her product from the others that is going to do well, not the one who makes theirs just like every other one on the market. Indeed, to suggest that “markets” require commodification is the opposite of what they require. Market processes are about difference and dynamics, not stasis and replication. Ironically, it is the planned economy, the political process, that requires commodification – one look at the political standardization of health insurance plans to be “sold” under the ACA is but a glimpse of this.

Furthermore, there is a particular group of folks who actually end up commodifying everything – and these are the “Aggregate Demand-o-philes.” No need for a huge macro lecture right now, but the folks who are consumed with the impact of monetary and fiscal policy on GDP, spending, employment and the like are in fact explicitly commodifying all that is bought and sold. The obsession with “aggregate demand” not only assumes all water bottles are alike, all computers are alike, and so on, but in fact it makes the silly assumption that we can add up workers, tea cups, burritos, computers and more into some glob of a good called “units of GDP.” Obsession with the GDP-machine is precisely the commodification that anti-market folks accuse of classical economics. Supporters of demand management policies are the ones dehumanizing people. It’s not classical economics that dehumanizes and commodifies, in fact the classical economic process is one the celebrates and requires diversity and difference. The modern aggregate-demand-o-nomics requires precisely the opposite.

2 Responses to “Commodification in Markets, Who, Really?”

  1. Harry says:

    I always thought that a commodity was a raw material. Thus hides versus leather, burlap versus bags, gold versus gold rings. The concept is politically and morally neutral,

    Commodity prices are what commodities will fetch, as in one ounce of gold for $1290. See WC’s Sound Money graph below.

    To “commodity” only makes sense when one is identifying a commodity is such.

    The writer above is saying that economic freedom is immoral because it treats people like dirt, which is not a commodity. He suggests that the capitalist roaders buy and sell children, and that some things he likes should not be bought or sold, but should be free. Is this an argument for free crack cocaine?

  2. Harry says:

    It looks like these topics have not gotten the crickets’ juices running. Maybe we should play more golf.

    I would like to hear from a progressive on his/her ideas about how to set prices more fairly than willing buyers and sellers, and I do not say this facetiously. Do they think it is epistemologically possible, equipped with enough technology? What is your case for putting yourselves, even millions of you, in charge of us? What about all those market failures, where one side sells the sizzle deceptively to the unwitting buyer, or where a retailer buys too much of the wrong size and color?

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