COMMODITY: It is something that is produced specifically to be exchanged for some other commodity (which can include money). If someone bakes a cake for one’s family, it is not a commodity since it is not being exchanged. But if someone bakes a cake to sell, then it becomes a commodity. For something to become a commodity, it must have a use (or use value) for someone other than the person who creates it.
USE VALUE of a commodity: This refers to the commodity’s specific usefulness. For example, shoes are useful for protecting our feet. Bread is useful because we can eat it to reduce hunger. Not everyone will find the same things useful. Some people find a cane useful. Other people do not need a cane. The use value of a commodity is based on its physical properties. It refers to the qualitative nature of the commodity.
EXCHANGE VALUE of a commodity: This refers to how many other commodities people are willing to give you for it. One cake might be worth one brush or five pencils or two pens, etc. Exchange value only concerns the quantity in which commodities are exchanged for each other. The exchange value is entirely separate from the physical properties of the commodity, which determine its use value. One commodity might weigh a hundred times more than a second commodity, but this tells us nothing about their exchange ratio.
VALUE of a commodity: The value of a commodity refers to the socially necessary labor time required to produce it. The labor time required to produce each commodity determines the ratios in which they exchange with one another. If it takes one hour to produce a cake and two hours to produce a pencil, then (all things being equal), two cakes will exchange for one pencil. [“We see then that that which determines the magnitude of the value of any article is the amount of labour socially necessary, or the labour time socially necessary for its production.” – CAPITAL, Chapter 1]
CONCRETE HUMAN LABOR: This refers to the specific kind of labor being performed: it could be baking or weaving or tailoring, etc. Marx also calls this the use value of labor.
ABSTRACT HUMAN LABOR: This refers only to the amount of TIME that is being expended in the labor process, regardless of the type of labor that is involved. Marx often refers to it as “homogeneous human labor.” It abstracts from the type of labor, such as baking or weaving, etc. Abstract human labor determines the Value of a commodity (its Value could be one hour of labor time or two hours, etc., etc.), and this labor time in turn determines its exchange value.
The TWO-FOLD NATURE OF LABOR: Marx says he “was the first to point out and examine critically this two-fold nature of labor contained in commodities,” and adds: “As this point is the pivot on which a clear comprehension of political economy turns, we must go more into detail.” The two-fold nature refers to labor from the standpoint of creating use values, or concrete labor, and labor purely as the expenditure of human energy for a specific length of time, or abstract labor. [“On the one hand all labour is, speaking physiologically, an expenditure of human labour power, and in its character of identical abstract human labour, it creates and forms the value of commodities. On the other hand, all labour is the expenditure of human labour power in a special form and with a definite aim, and in this, its character of concrete useful labour, it produces use values.” CAPITAL, Chapter 1]
Note: When we say that labor is the source of value (and therefore the determining factor underlying exchange value), it is important to specify that we are referring to labor time, not the useful side of labor.