The Other Fictitious Commodities

One of Karl Polanyi’s central insights concerns the existence of “fictitious commodities,” which are land, labor and capital.

Land and labor are things that, prior to the Great Transformation, were part-and-parcel of the fabric of society and not merely chattel to be bought and sold in impersonal markets. Industrial capitalism determined these should be distributed by markets rather than by traditional means, and central governments proceeded to create these markets by destroying alternative social structures. Capital was deliberately brought about through deliberate state action by monetizing these items, establishing markets for them, and creating centralized financial systems and regulations to facilitate these markets.

The problem is that, as Polanyi points out, these things are decidedly NOT commodities. They are the very fabric of society itself. They are “fictitious” because they are not objects produced in order to be bought and sold—they have no basis in production or sale other than their ability to be sold on the market. Unlike true commodities, they cannot go unsold; absent some other subsidy, workers must work in order to survive, and everybody needs land to live on. Land, for example, is theoretically bought and sold in “free” markets, yet the supply of this “commodity” is inherently limited–we cannot create more of it.

This also demonstrates the impossibility of having a “pure” market society. Markets are subject to all sort of irrationality such as panics and bubbles, despite the fact that economics textbooks invariably depict markets as idealized systems automatically heading towards equilibrium, even though such things exist nowhere in the actual world we inhabit.

Ironically, even though labor is described as a commodity sold in the “labor market,” conventional (neoclassical) economists insist that supply and demand play no role whatsoever in these markets! So, for example, increasing the supply of workers by, say, massive amounts immigrant labor, is said to have no effect whatsoever on domestic wages. Neither does the addition of millions of additional workers via globalization. Rather, according to economists, in this “market” everyone simply gets what they produce, no more and no less!

Earlier, I cited arguments pointing out that what made social democracies such as Northern Europe much more functional societies was not socialism per se, but the decommodification of land and labor. Government policies decouple both of these things from existing in “pure” markets to some extent, which leads to better social outcomes:

Which political system does happiness economics support? (Aeon)

But the point I want to make is that land, labor and capital are not the only fictitious commodities. These were the major ones in 1944 when Polanyi wrote his book. But, if he were writing today, I’m sure he would include three other fictitious commodities that are having a massive impact on our economy today.

The three other fictitious commodities are: HEALTH CARE, EDUCATION, and NATURAL RESOURCES.

Several things tie these items together. For one, your need for these “commodities” has nothing to do with your ability to pay. Your desire for these commodities has nothing to do with your preferences. Your information about these commodities and options for purchasing them are highly restricted and circumscribed. Also, you cannot choose NOT to purchase these commodities, at least not without severe and deleterious consequences to your health and income prospects. In other words, consumer choice does not enter into the choice whether or not to buy them. As such, it makes no sense to treat these as true commodities distributed in “free and open” price-fixing markets. Yet, for reasons of capitalist ideology, we must consistently pretend that they can be and are so delivered.

1.) Health care. That this is a “fictitious commodity” should be obvious to anyone with half a brain. Health care is not, nor can it be, a “product” produced for sale in a market and distributed by impersonal forces of supply and demand. The idea of using markets to distribute health care is so bizarre as to beggar belief.

In fact, this fact is obvious to the rest of the world outside of the United States, so, it is a strange thing to have to even argue against health care being a market commodity, because only Americans believe it. Recall Polanyi’s description of a price-fixing market:

“a site, physically present or available goods, a supply crowd, a demand crowd, custom or law and equivalencies…Whenever the market elements combine to form a supply-demand-price mechanism, we speak of price-making markets…”

That doesn’t sound much like the health care market does it? No one wakes up in the morning one day and decides to go out and buy some health care. They come down with a fucking disease! They need treatment, sometimes urgently. What they have wrong with them has nothing to do with their capacity to pay. They have no expertise or knowledge with which to evaluate the health care “product” (much less the “perfect knowledge” posited by neoclassical economic theory). They are dependent on outside experts. There may even be traumatic injury involved such as a car accident (and there frequently is). Are victims of a car crash supposed to be “rational consumers of health care services?”

Also, everyone has a physical body, so everyone needs health care. On the other hand, most consumer goods are voluntary purchases. You cannot choose not to need health care; whether you need it or not has nothing to do with your actions. Yes, you can take care of yourself, but even Olympic athletes have health care issues that require treatment, from asthma to appendicitis. In traditional price-fixing markets, purchasing the commodity, from a Persian rug to a silk scarf, was a choice, not a requirement to go on living.

Advertising for hospitals and doctors abounds, and yet most people have extremely limited choices for where they can go to get treatment and which doctors they can visit (e.g. in-network and out-of-network). How can anyone honestly claim that “competition” in this system makes it more efficient? Getting any sort of clear pricing for medical services is next to impossible; you only know how much it costs when the (enormous) bill shows up in your mailbox. And the recent highly-publicized hiking of drug prices by predatory capitalists surely proves that supply and demand has little to do with drug pricing. After all, it’s not like you have much of a “choice” whether or not to purchase these products, especially if no generic is available. It’s more like a hostage racket than a “free” market.

Even with the completely “transparent” pricing desired by libertarians, it’s difficult to believe that the “invisible hand” left alone will perfectly align adequate supply with demand, especially with an aging population. Typically you need to purchase most health care at the end of life when your purchasing power is at its low ebb. Even with “Chemo-While-U-Wait” shops on every streetcorner as envisioned by libertarians, there is a price below which health care services will not fall. Should we just deny them to people then? Ron Paul acolytes may applaud this idea, but most non-sociopaths will probably not simply accept sitting by helplessly and watching grandma slowly die from cancer because she cannot afford to pay the corner clinic on her limited income.

Medical costs are currently a significant source of personal bankruptcy. It’s difficult to imagine people voluntarily bankrupting themselves through voluntarily purchases of any given commodity, even automobiles. That should be another indication that health care is no ordinary “product.”

Moreover, what you typically purchase is not even health care, but health insurance, which is redistributive by its very nature. And under the current system in the U.S., you are forced by law to buy this “product.” I wonder how that comports with the ideology of “free” markets. A single pool of people is by nature more efficient than multiple competing ones, which is why all other counties use a single-payer health system as their base.

It seems like we just need to constantly maintain this fiction that there is even a market in healthcare at all. In fact, we already intervene in this market all over the place, from health care for veterans to subsidies for the poor. The supposed “free” market in health care is entirely a creation of government regulations, absent which there would not even be a “market” for health care at all.

I need not belabor this point. Here is an excellent summary of many of the reasons why health care is not a commodity:

Health – A Market Like No Other (Whistling in the Wind)

2.) Education. In the United States, education has become a commodity to be sold by educational institutions and bought by “consumers,” typically by going heavily into debt. Even supposedly “not-for-profit” institutions have become essentially predatory money-making operations. And they are complemented by a vast for-profit education industry expressly designed to prey upon the poor and the desperate who are trying to further their skills to compete in an increasingly winner-take-all global economy.

Now, like labor markets described above, education has another quirk that makes them different from markets determined exclusively by supply and demand. What we’ve seen is this: as demand for the product has increased exponentially, the price of the “commodity” has not fallen, but has risen into the stratosphere at multiple times the rate of inflation! And it shows no signs of slowing down.

In modern industrial economies, an educated workforce is recognized as a social necessity by most people. At one point, even basic literacy and numeracy were rare in the population when farming was still the most common type of labor. To that end, public provisioning of education and universal access were once recognized as the foundation for any prosperous society beginning in the nineteenth century (and earlier in some places). Restricting education only to the children of rich elites was recognized as obviously contrary to American ideals of meritocratic individualism, not to mention economic suicide.

Sometime in the post-war period, this changed, especially in the United States. Employers started using collage as a lazy weeding program for new hires, and a Bachelor’s degree became simply “the new high school diploma.” At the same time, this was accompanied not by an expansion of support for post-secondary education, but a withdrawal of support and government disinvestment in educational systems across the board. Under neoliberalism, the burden of paying for higher education was placed on the workers themselves, and college was transformed into a (highly risky) “investment” in ones future which was required to produce a positive return (ROI). Colleges began to compete against one another in markets, offering luxurious amenities and spending enormous sums to hire “celebrity” professors, as well as purchasing advertising which did not help educate a single student.

Because you need to go to school for your labor to be worth something anymore, this “commodity” is not really a choice, but a requirement. So, for example, if you want to be an engineer, well then, you have to get an engineering degree. Only certain institutions are even allowed to offer this “product” (the accredited degree). These institutions are widely separated in geographical space—they are only located in certain places, meaning access is highly restrictive.

Furthermore, your desire and aptitude to be an engineer has nothing do with how much money you happen to have in the bank. That is, you cannot choose NOT to purchase this product and still be an engineer. Rather than a single product at the point-of-sale, a degree requires you to labor for at least four years to acquire these skills (making it very different than, say, buying a house), and this is typically BEFORE you have any significant income! In fact, you need to purchase this “product” in order to the HAVE any significant income! Often times, the “price” (i.e. tuition) rises dramatically during those four years, and there is nothing you can do about it. And colleges can create sudden and arbitrary rules to make you pay more for the “product” such as requiring more credits for no valid reason other than the fact that they can (this actually happened at my architecture school–they upped the credit requirements for graduation from 48 to 60 simply because they could). What other kind of “commodity” is that true of? Even land and houses have a one-time negotiated purchase price which is known to all parties at the time of sale!

And what else has the “market-centric” approach to education led to in the United States? One effect is schools building grandiose architectural follies designed by brand-name “starchitects” in order to “compete” with other institutions simply to attract a small slice of high-income tuition whales, many of whom come from overseas (even while Americans have less and less access to their own educational system). Americans happily train the world’s rich kids but abandon their own people to the wolves. And then there are the athletic departments taking over college campuses, leading to everything from millionaire sports coaches to multi-million-dollar stadiums, all paid for by heavily-indebted tuition donkeys. This is even while most classes are being taught by non-unionized adjuncts who are so poorly paid that they often must rely upon public assistance. Finally, there’s the administrative bloat and college presidents/provosts who get free palatial homes to live in, salaries in the high six/low seven-figures, and gilded pensions and benefits. How do any of these things help create and maintain an educated workforce?

Do we want only the children of rich parents to be able to be engineers? Or doctors? Or lawyers? Or architects? Or accountants? How is that consistent with our ideas of meritocracy? Right-wingers and conservatives like to retort that truly intelligent and talented people will always somehow find a way have their education paid for through grants/scholarships. etc.That is, money is not a barrier to educational access. Arbitrary and random “gifts” of money for the lucky few help them to uphold this argument, allowing them to maintain their just-world belief systems.

Two points about that fact: first, it is obviously false. But, even if it were true, it merely reinforces the point that education should not be a market commodity!

The fact is that these institutions are really tollbooths to the few remaining professions that pay a living wage anymore. As such, they are able to charge whatever they want, and there will be people willing to pay it. And that means that the idea of a market mechanism being applicable here is just as ridiculous and outrageous as with health care! Education is not a “product”; it is vocational training, and most societies traditionally have had other effective ways to train the skilled labor they needed which did not rely on predatory markets. Many still do today. In reality, higher education in the U.S. seems less like a marketable product and more like a twenty-first century version of indentured servitude. And educational support is under assault worldwide.

3. Natural Resources. Obviously, forests, rivers, farmland and mineral deposits–to name just a few examples–are not produced expressly for sale. They are simply there. Neoliberal economics wants to recast all of nature as “ecosystem services” to be bought and sold in price-fixing markets for ideological reasons. In fact, there are even efforts to create highly artificial markets in carbon via “cap and trade” schemes. Under the Neoliberal ideology, only markets–and not, for example, common resource ownership or rationing–can adequately deal with these scarce natural resources.

[Payments for ecological/environmental services] is a form of commodification, of creating new things out of nature which can be sold. The commodities created thus are ‘fictitious commodities’. Real commodities are discrete entities (coffee beans, timber or diamonds), that are produced to be sold. In contrast commodities like land, money and labour are fictitious, they are not produced specifically to be sold, and they do not physically change hands when sold. What are exchanged are title deeds (with respect to land) or agreements to access time (with respect to labour) in return for notes (bank or promissory) which promise to pay the bearer funds, or simply electronic numbers in bank accounts (with respect to money). Markets in such commodities require complicated social and political exercises to subdivide landscapes into titled parcels, create the banking and state apparatus that allows money to be trusted, and create labour pools and skills.

The enthusiasts for PES recognize the social engineering that fictitious commodities require determining how much carbon, or water, is created by particular land covers, who can own them and how they might be exchanged requires the construction of complex apparatuses for measuring, valuing and titling…They require a demand for the new products to be created. With such commodities created, and with markets established for their exchange and circulation, considerable (trillion dollar) opportunities open up. Without the investments required socially and politically to free PES’ fictitious commodities from their social and ecological contexts, huge potential markets are lost.

…The creation of fictitious commodities of land and labour does not alter the fact that the places and people who provide them still have an entirely separate existence, beyond their commodity form.This means that what markets do to land and labour can have profound social and ecological consequences. Markets may demand homes or nature reserves be surrendered for a mine but the result will be painful. Labour may be laid off in a recession, but the psychological consequences to individuals and families are immense. As Polanyi observed, ‘to allow the market mechanism to be sole director of the fate of human beings and their natural environment… would result in the demolition of society’. So it may be with the carbon, water and other services promoted in PES. The commodities thus created and exchanged cannot be separated from their social and ecological contexts. Forests may only be valued for their carbon, but they cannot be reduced only to their carbon. Critics note that markets have a tendency to forget the social and ecological contexts of their commodities. The consequences of such commodity fetishism are potentially considerable for PES. How markets behave with respect to the commodities they peddle depends very much on the social structures in which they are embedded. This is why the performance of actually existing PES schemes matters so much.

Ecosystem services and fictitious commodities (PDF)

What’s more, much like land, we cannot increase the production of these commodities. Renewable resources like forests can theoretically be regenerated, but not in the time frame that is acceptable to the quarterly balance sheets of finance capitalism. The ultimate stock of non-renewable resources such as petroleum and minerals can only go in one direction—down. This is deceptive, since price-fixing markets only rely on the flow of that particular resource at a specific point in time. The price of oil is determined not by how much oil there is (the stock), but how much is available to the market right now (the flow). In fact, for many such commodities, high prices provide an incentive to increase the extraction of the non-renewable resource, ensuring that it is drawn down even faster. The ultimate amount of the resource has no bearing until it is exhausted (e.g. rhino horns and elephant tusks).

The Markets’ Greatest Failure (Whistling in the Wind)

The consequences for the natural world and the ecosystem are devastating. You cannot have a market without a society, and yet market mechanisms are literally destroying the natural resources without which the human life-support system could not exist. Yet, in the past, common-pool resources were often collectively managed and highly regulated. However, free-market capitalist ideology forbids us from even considering these options.

Conclusion

These other three “fictitious commodities”—especially health care and education—are more relevant than ever before in our current economic situation, because it is these things which are currently destroying the American quality of life. By contrast, actual commodities are cheaper than ever before! In fact, actual commodities—not fictitious ones—have become so cheap as to be practically free. Dollar Stores and Wal-marts are filled with cheap, superabundant (albeit shoddy) goods. Even high-tech electronics can be had at astonishingly low prices. Technology that would be considered miraculous even a decade ago can be purchased with the equivalent of a few days’ salary. Food is also remarkably cheap today, although arguably, like durable goods, much of it is of inferior quality. Still, even quality foods can be purchased for what have historically been low prices, if one knows where to look.

Many electronics-based products have declined in price. According to Yahoo finance the following reductions have occurred: televisions (down 77.9 percent); computers (down 88.3 percent); audio equipment (down 39.3 percent); and videocassettes, video discs and other media, including rentals (down 20.4 percent). Over the last decade they also document a 6.6 percent drop in the price of new cars and trucks, 44.4 percent drop in the price of toys, 11 percent drop in clothes, and the cost of a timepiece fell 6.2 percent. Reducing prices result in individuals having greater income to spend on other items, which from a purely consumption standpoint increases their welfare. In these cases the “magic of the market” actually works to create greater consumption and prosperity. Polanyi conceded that even though commodification of labor imposed severe cultural and social costs to workers and their families, it also contributed to economic “improvement” and growth.

Escaping the Polanyi matrix: the impact of fictitious commodities: money, land, and labor on consumer welfare (PDF)

In fact, many goods need to be made artificially scarce in order to be turned into marketable commodities. I’m referring to what economists like to call “non-rival, non-excludable” goods—easily reproducible technologies that can be duplicated and distributed at no marginal cost, such as software, books, movies and music. And it is these “commodities” which are forming an ever-larger and more important share of our economy! They can only be turned into commodities at the cost of massive central-state enforcement; for example, spying on peoples’ home computers and draconian copyright legislation. Many such goods are already provided “free-of-charge” (e.g. Google and Facebook) but paid for by highly intrusive and wasteful advertising that people are constantly trying to avoid (adblockers, etc.), or by massive data gathering which violates peoples’ privacy with the end-goal of even more intrusive marketing tactics to manipulate us (and potentially political repression to boot).

In fact, it is the inexpensiveness of such items that leads defenders of the status quo to insist that everything is better than ever. Everybody has cell phones! You can look up anything you want on Google! Even the poor are fat!!! I’m sure you’ve heard these arguments before.

But this ignores the crux of the problem—pretending that the fictitious commodities should be distributed by markets in the first place. More and more of our economy consists of these fictitious commodities. In fact, it’s so common we even have a term for it–the “Eds and Meds” economy. Health care and education employ and ever-greater share of our workforce. Add in digital goods which are made artificially scarce, and it appears that much of our twenty-first century economy is not centered around the production of actual goods and servies at all (which are practically free), but instead forcing these fictitious commodities to somehow behave like actual commodities. To this end, we are creating artificial “pretend” markets which are highly inefficient and easily gamed just to maintain this fiction!

The real problems Americans face today are with these fictitious commodities. High housing costs are destroying Americans’ budgets. The costs of living in virtually any urban areas are simply unaffordable given what salaries are. Education costs have turned us into debt serfs. Millions of Americans have inadequate health care, and many people are literally dying because of it. Drug costs are eating into Americans’ paychecks. And overall jobs are going away thanks to automation and outsourcing, preventing many Americans from even earning any salary by selling their labor—workforce participation continues to decline with every passing year.

Low-income Americans can no longer afford rent, food, and transportation (VOX)

In order to solve the fundamental problems with our economy, we need to come to terms with these fictitious commodities. The first step might be to acknowledge that they are fictitious commodities in the first place. One aspect of the problem, I would argue, is that we are wedded to market mechanisms when we should ideally be moving beyond the market. Too bad the “science” of economics won’t let us even consider this. This means that we need to look elsewhere for answers.

One thought on “The Other Fictitious Commodities

  1. Great article, not much to add. Certainly we have to steer universities away from being places where money is exchanged for certificates, to being places where, given talent, effort can be transformed into a degree of understanding. Unfortunately our current masters cannot conceive of an exchange where money is somehow secondary and the output has intangible aspects.

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