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The term false consciousness generally refers to the claim or hypothesis that the proletariat (and perhaps other classes or social groups as well) unwittingly misperceive their real position in society and systematically misunderstand their genuine interests within the capitalist social relations of production. False consciousness denotes people's inability to recognize inequality, oppression, and exploitation in a capitalist society due to its adoption of the views that naturalize and legitimize the existence of social classes in capitalism.

Historically, the phrase false consciousness was first and only once used by Friedrich Engels in his private letter to Franz Mehring written in 1893. In this letter, the phrase seems to be employed to underline the point that detachment of thinking process from historical, social conditions by assuming an independent realm for the world of thought is a mistake. It should be noted that the phrase seems to have no categorical meaning in the context of the letter. Likewise, Karl Marx had never used false consciousness as a category, or even used the term at all. However, since the publication of Georg Lukács's History and Class Consciousness in 1920, the notion of false consciousness gained popularity among Marxist scholars. This term was further developed later and became a subject of long-lasting dispute. Especially among socialist activists and scholars, it has been argued that Marx's implicit conception of ideology as false consciousness can be inferred from his later works, especially from his theory of commodity fetishism.

In Lukács's work, commodity fetishism, which basically refers to social relations between people as relations between things, has been generally treated as the main mechanism that identifies capitalism. In capitalism, commodity—the product of human creative labor manifested as goods—becomes the source of value by the concealment of its real origin, which is labor. This is also the process of commoditization of labor in which value is detached from human activity and attributed to money. This means that commodity fetishism is at work in a capitalist marketplace through the mystification of commodity as a sacred object and making money the real criterion of value. In other words, commodity is in essence a product of labor that creates value to be determined by socially necessary labor time required for the production of commodities.

However, the market mechanism in capitalism operates in such a way that labor is perceived and therefore exchanged as if it was just an ordinary commodity among other commodities. For Marx, this is a rejection of seeing labor as the genuine origin of value and reducing its status to a mere commodity that can be simply exchanged for money. Thus, commodity fetishism turns reality upside down, inverts the real order of causes, and conceals the essential mechanism of capitalism. For instance, workers perceive themselves as free individuals who are capable of forming their own judgment to hire their labor power on payment in the labor market. What they earn simply seems to be what they receive in exchange for their labor time expended in a workplace. Within capitalism, this exchange relation between labor power hired as a commodity in the labor market and money given by the entrepreneur in return seems to be an equal and a natural relation.

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