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According to Marx, people value objects that they can use (i.e. they have "use-value"), and most things people can use are produced through human labor. In market societies, however, people can use an object to acquire another through exchange; goods thus take on "exchange-value." In capitalist societies, moreover, there is a labor market; rather than being seen as the source of use-values, labor itself becomes another commodity and takes on an exchange-value. Thus, labor is devalued, and commodities are seen as having power over the people who produce them.
A simple example will illustrate this process: the person who owns a Cadillac (or Lexus or Bentley) has more prestige than the people working on the assembly-line that produced it. But commodity fetishism refers to more — the belief that the car (or any manufactured object) is more important than people, and confers special powers (i.e., beyond the power to travel sixty miles in an hour, or flatten hedgehogs) to those who possess it.