The Fetishism of Commodities and the Secret Thereof is the fourth section of the first chapter of the first volume of that huge freaking book, Das Kapital. Written by Karl Marx and edited by Friedrich Engels, Fetishism is one of the more accessible bits of Marx, and remains compelling even for many capitalist critics of Marx's work. It is also a favorite section of literary theorists, and helped inspire the social criticism of Theodor Adorno, Walter Benjamin, Pierre Bourdieu, and Louis Althusser.
Before delving into Marx's arguments, it's important to get some terms straight. Semantics might be boring, but without it we might as well be speaking different languages. So, according to Marx:
An object becomes a product when human labor is applied to it. For example, a tree is simply a raw resource, but if a person cuts it down, splits it into planks, and makes a bookshelf, that bookshelf is a product. Marx has no problem with products; in fact, he likes it when people go and make things for their use, or the use of people they know.
A commodity, on the other hand, is a perverted product. An object becomes a commodity when human labor is applied to it, making it a product, and the worker who created the product is severed, divorced, alienated, etc. from the result of their labor. For example, a worker on an automotive assembly line is not making cars for their own use, or for any specific, knowable person. As a result, the worker is alienated from the result of their labor, and the car is a commodity rather than a product.
The utility of any given object, the physical properties that make it fit for serving a human need or want -- all of this is bound up under the term use-value. A watch has use value because we can use it to tell time. Complicating this term is Marx's willingness to fold aesthetic appreciation -- our emotional liking of beauty -- into his concept of utility. So a diamond can have use-value entirely apart from its monetary worth if we simply like the way it sparkles.
If, on the other hand, we're concerned with the amount of money we can get for the diamond, then we are talking about its exchange-value, which is its value on the market. Exchange-value does not necessarily have anything to do whatsoever with the physical properties of an object. That the diamond is hard and sparkly doesn't affect its exchange-value; that it is a diamond and diamonds are valuable does. Further complicating matters, exchange-value and use-value are often completely different for the same object. For most people, a diamond is almost useless, but you'd be mighty angry if someone stole yours from you. When reading Marx, it's helpful to know that when he says "value," he almost always means "exchange-value."
When we desire an object based on its exchange-value and not its use-value, we in fact desire it for something entirely outside itself. This desire is called fetishism, and though it should not be confused with "fetishism" in the sexual sense, it does share certain similarities, most notably that the locus of desire (the location upon which the desire is focused) is not the object but on the exchange-structure surrounding the object (much like the locus of desire in sexual fetishism is not one's sexual partner or even the sexual act but rather the object of the fetish: the whip, high-heel, specific body part, and so on).
The noncontentious part: when we look at an object, we tend to assume that its value is something intrinsic to it, like its size or shape. In reality, the worth we attach is based on exchange-value, and is not at all inherent in the object as such. Pretty much everyone agrees with this line of thought, which isn't surprising since it has a long philosophical lineage. Philosophy geeks might be reminded of Kant's take on beauty in his Critique of Judgment, which states that beauty is not a property of an object as such, but rather of our response to an object. Substitute "worth" or "value" for "beauty," and you have Marx's point, albeit with a completely different justification.
The most contentious part of Fetishism is Marx's claim that capitalism necessarily leads to commodification, since the means of production under capitalism -- mass production in factories -- always leads to a disassociation of the laborer from the product of labor. And just as capitalism necessarily separates the producer from the produced, it also necessarily separates the use-value of a commodity from its exchange-value. Consequently, capitalism causes the fetishization of commodities. In Kapital, this is simply another tick mark on the scoresheet against capitalism, and not even a particularly large one. Capitalists, however, are likely to dismiss commodity fetishism entirely as simply the way the world works, and say that it is only a necessary consequence of capitalism because capitalism embraces natural law.
Why Is Commodity Fetishism a Bad Thing?
Depends on who you ask. According to Marx and the bevy of social critics he influenced, it's bad because it separates us from a real experience of and appreciation for the world. The market becomes the defining factor for our judgments of worth, and when that happens it tends to eradicate more human(e) concerns. According to the maintainers of capitalism, isn't a bad thing at all, since the market is every bit as real and as a tree or gravity. From that point of view, the market doesn't distort reality; it is reality, and to align our perceptions with the market is to bring them into tune with nature.
Social critics and literary theorists don't generally buy this "market as natural" line, preferring instead to see it as one possible social structure among many, and viewing our concept of it being "natural" as a social construction. It's actually critics and theorists, and not economists, who make the most hay out of commodity fetishism, and not for reasons Marx would have expected. Many of these theorists are not so concerned with simply reiterating Marxist critiques against capitalism, but instead focus their energies on the larger questions of how social systems come into being, operate, and perpetuate themselves. Commodity fetishism is a valuable idea here, since it shows how value operates in exchange, the material intercourse between individuals or groups. Theorists like Althusser, Adorno, and Bourdieu also extend this idea to the field of aesthetics, in their attempts to explain how art is valued, by whom, and what the effects of its value are -- in other words, how art operates as a mechanism of social control.
Not a bad bit of play for such a brief idea, no?