Commodities, Production & Poverty- Part 1

Commodities. How essential and omnipresent this phenomenon is. It embodies a sort of magical character, phantom-like as Marx would say. A key difference between human species and other animals is that of possession of commodities. Before we embark upon a brief journey about this phenomenon, lets look at the its meaning:

Commodity: 

A Good or Service that has a use-value(utility) for users and an exchange-value(price) on market. Food, House, Cars, Pens, Fan, Tubelight, Petrol, Diesel, Bed, Spoon, Mobiles, Laptops, Facebook, Google, you name it! How fascinating this is. We humans are surrounded by a plethora of commodities. It is the prime objective phenomenon that differentiates us from other animal species.

Human Kingdom vs. Animal Kingdom:

Homo sapiens produce, distribute, exchange and consume commodities(both Goods and Services) on a large scale, not matched by any other organic species. Our lives are 'defined' by the commodities we use. A basic difference between a poor and a rich is the differences in the 'possession and utilization of commodities', isn't it? A rich family would be characterized by qualitatively and quantitatively better consumption as compared to a poor household. Suppose if all had the same houses, cars, &c, i.e. exactly same amenities. there wouldn't be any differentiation in rich and poor.

Of course, some of the readers might argue that its the amount of 'money' owned that makes this difference. I shall have two arguments against this proposition:

1. Money, in itself is not the end- though its a debatable issue in today's commodity fetish society. Its the amount of 'purchasing power' that money commands is what makes it an end; thus in the end the amount of commodities it can purchase.

2. Even if money were an end in itself- again, today this might be so in many cases, still money too is a commodity.  Thus money as an end, is after all a commodity as an end.

Why commodities are essential to human existence?

Commodities give shape to human life. They define our method of survival(even in Darwinian sense). They also smoothen  our organic processes. We wouldn't go in detail of this role of commodities, but briefly putting it, these add to the enrichment and easing of our day-to-day processes; Eg. Sleeping, Eating, Working, Travelling, Communicating, Thinking and so many more. Thus, commodities are very essential for leading a better life- both materially and immaterially. 

Economics and Commodities:

Marx begins in his magnum opus Capital-Volume 1:

"The wealth of those societies in which the capitalist mode of production prevails, presents itself as ―an immense accumulation of commodities, its unit being a single commodity. Our investigation must therefore begin with the analysis of a commodity."(1)

An a priori assertion, though a valuable one. He's one of the few Economists who give a completely fresh way of looking at the society and economy around us. Here, we can understand that accumulation of commodities is an essential feature of a capitalist society. Indeed it is. The prime aim of majority of population is gathering(or in market terms- earning) money, it being a commodity or commodity-buying power. The constant consumption of commodities is what keeps the flow of Economy going. 

A simple model of Economy: The PEDEC model

Production > Exchange > Distribution > Exchange > Consumption   

{PEDEC model}

Two stages are of prime importance. One- Consumption and Two- Production. Production is the source of Consumption and Consumption is the reason for Production.

Thus, we find an interconnected, contradictory but unitary relation between these two processes of Economy. It becomes crucial then, to point out that modern economics is mainly 'Consumption-focused' economic theory. Not just that. We as consumers are hardly concerned about the Production side of the commodity under our scrutiny. What matters is its objective appearance, its use-value and its exchange value.

Production and Economics:

Having said that, Production is still a very important process that needs to be emphasized for a better understanding about the Economy around us. One may call it capitalistic, socialistic, mixed, based on whatever one's ideological standpoint. But, production side of the coin remains equally crucial to focus. Modern Economics is the culmination of years of combustion and application of many competing ideas. Still, the excess focus on Consumption process of the Economy is debatable. 

Production: Two major components:  

We may thus define Production as the expenditure of human labour on natural resources and other raw materials to transform them into consumable commodities. Note that Capital Goods such as Machinary, Equipments, etc. are all the product of human labour. We consider them here as non-natural resources of production. Natural Resources are the Primary source of all the production that occurs. 

Then comes Human labour, that transforms the natural resources into the commodities we use as consumers. Here, we may include the Entrepreneurs who perform specific important functions in the economy(2){more on 'Entrepreneur' in future posts}. Hence, every commodity is a product of many different sorts of labour(3){more on types of labour in future posts}. The pencil that comes in our hand, is but a product of numerous labourers and the expenditure of their labour. The breakfast on our tables is a product of so many labourers. Its fascinating how wonderful the Production process can be if we can just rewind the many economic activities behind any given commodity. Human labour hence is the Secondary source of all production that occurs.

GDP- A mass of numerous commodities:

GDP- Gross Domestic Product, is today the most essential indicator of Economic growth of an Economy. Globally, policy-making is extremely sensitive to GDP growth rate and its trend. Recent RBI's monetary tightening vs. economic growth(4) phenomenon was an important indicator of the importance of GDP and its effects on the growth of a nation.

Let us try to understand GDP's importance from the above discussion we had. GDP, as said above is a mammoth mass of numerous commodities(both Goods and Services) which indicate the available wealth of a nation. This wealth, then has to percolate through the entire economic spectrum of a nation. This shall result  in, argue Macroeconomists, upliftment of the poor section of the society.

If we look at this statement, a crucial fact emerges. A poor is one who has very less or no access to commodities, as simple as this! Lack of commodities and access to them is poverty. The scale of this 'lack of access' may change as per the nation, need, economy, &c. But the fact remains that Poverty removal means enhanced availability of Commodities. Once enough commodities are available to a poor household, they are uplifted from the poverty trap. This availability may be in the form of increased money availability, but as argued above in the beginning, money is but a commodity. 

Hence, the key reason on GDP growth lies in the fact that more the commodities, more its availability, subsequently more access to them for the deprived. Again, access to commodities is an issue that cannot be solved by merely having increased GDP growth. This requires sufficient measures to facilitate percolation of increased wealth to the "Bottom of the pyramid" to quote C.K. Prahald(5). Also, an active and a major involvement of the Private sector is needed. This is possible if rural India is seen as a huge and potential market opportunity, both by the Private and Public sector.

Conclusion

Commodities. How essential and omnipresent this phenomenon is indeed. It provides a fresh new way of looking at Capitalism. They surround us everywhere, that is what differentiates human species from other animal species. Excessive focus on Consumption process in modern economics must give some more space to Production process too. Commodities are not merely the products of the magic of markets, but a product of numerous diversified labourer and representative of expended human labour- including that of the Entrepreneurs.

GDP is a huge mass of commodities of numerous kinds that satisfy human needs. High importance of this measure of economic growth lies in the fact that it can enable enhanced access to commodities for the poor and deprived. Poverty is merely the absence of sufficient commodities to consume. This sufficiency is based on many variables and differ as per the country in question. Both public and private sector must look at Rural India, as brought out by the late C.K. Prahlad in his book "Bottom of the Pyramid", as a huge, untapped market opportunity.

References and Notes:

1. Capital, Volume 1, Karl Marx, 1890, Chapter 1, Section 1, Paragraph 1.

2. Entrepreneurs are Labourers after all. Labour here is used in terms of expenditure of human labour power. In Economics, Labour and Entrepreneurs are two different Factors of Production.

3. Here we refer to concrete labour in Marx's language. This means different types of labour such as weaving, tailoring, singing, &c.

4. Recently, headline inflation came down form +9% levels to below 7% figures. This succeeded a crucial debate nationally about the constraints RBI had over its tightening monetary stance. After more than 13 consecutive hikes in lending rate, RBI had to stop for two major reasons: A). GDP growth constraint and B). Waiting for the lag-effect of tightened policy to show results. Indeed, it has shown positive results, at least for now.

5. Bottom of the Pyramid is an excellent work by a Management Professor- Late Shri C.K. Prahlad. It brings out the hidden, untapped market opportunity in the Rural regions of India which represent a dynamic and a brand-conscious consumer segment. It busts many of the myths about Poor, their consumption habits and much more. Interested readers may purchase it here.

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