Commodity
A commodity is an economic good held for sale rather than for its holder's own use. The definition is Carl Menger's, and it turns on purpose rather than on physical kind: a sack of wheat in a merchant's warehouse is a commodity, and the same sack in the buyer's kitchen is not. Popular usage means something narrower, a bulk raw material such as copper or coffee whose units are interchangeable between producers, and the two senses are worth keeping apart because the wider one is what explains the origin of money.
Menger's definition
Menger devoted an appendix of the Principles of Economics to complaining about the term. Writers used commodity to mean movable goods, or raw materials, or goods not yet in the retail trade, and none of these captures what economics needs. What economics needs is the class of goods that are being offered in exchange, because it is only of those goods that a price and a degree of saleability can be asked at all.[1]
A good therefore becomes a commodity and stops being one without changing physically, according to whose hands it is in and what those hands intend. Nothing in the definition restricts it to raw materials, and Menger's own examples run to finished manufactures.
Marketability
The point of the definition is chapter VII, on the differing degrees to which commodities can be sold. Menger observed that goods are not equally easy to dispose of at short notice near the price one paid. Some have a wide circle of buyers, a durable substance, low storage and transport cost, and a divisible unit; others have to wait for the one buyer who wants that exact thing.
This ranking, and not any legal act, is what produces money. A trader who cannot find someone holding what he wants and wanting what he has will accept a more saleable good than his own as an intermediate step, because it improves his position. Everyone doing this converges on the same few goods, and the most saleable commodity becomes the general medium of exchange by nobody's decision.[2] Ludwig von Mises completed the argument with the regression theorem: a commodity can be adopted as money because it already had a price in its non-monetary use, which is what lets people form an expectation of what it will exchange for tomorrow.[3]
Commodity money
To be adopted as money a commodity must be wanted for its own sake and be widely bought and sold. The prices already being paid for its non-monetary services are the empirical basis on which a prospective holder estimates what he can resell it for. Monetary demand then adds to the non-monetary demand, so the price of the money-commodity has two components.
The medieval scholastics called money a res fungibilis et primo usu consumptibilis, a thing that is fungible and primarily used in consumption. It was taken to be in the nature of money to be a marketable thing whose primary use was consumption.[4]
What distinguishes money from every other commodity is only that it is the general medium of exchange, and it acquired that position by having been the most saleable commodity.[5] Gold and silver won it repeatedly and independently in societies with no contact with each other, which is the evidence for the account being about the properties of the goods rather than about anybody's law.
Commodity prices and monetary policy
Because commodities in the narrow sense are homogeneous, durable and traded continuously, their prices move before the prices of finished goods and long before any inflation index. Austrians read a general commodity boom as monetary in origin when it appears across unrelated commodities at once, since a real shift in demand for copper has no reason to arrive with a shift in demand for wheat.[6] Treating the same movement as a supply shock, and then tightening or loosening in response to it, is how a monetary cause gets recorded as a real one.
See also
References
- ↑ Carl Menger. Principles of Economics, 1871, Appendix, "The Commodity"; and ch. VII.
- ↑ Carl Menger. "On the Origin of Money", Economic Journal 2, 1892, pp. 239-255.
- ↑ Ludwig von Mises. The Theory of Money and Credit, 1912, Part One, ch. 8.
- ↑ Jörg Guido Hülsmann. The Ethics of Money Production, 2008, ch. 2, "The Origin and Nature of Money", pp. 23-24.
- ↑ Frank Shostak. "The Mystery of the Money Supply Definition" (pdf), The Quarterly Journal of Austrian Economics 3:4, Winter 2000.
- ↑ Frank Shostak. "Commodity Prices and Inflation: What's the Connection?", July 2008.
Links
- Principles of Economics by Carl Menger, 1871, whose appendix gives the older and stricter definition of a commodity
- Commodity Prices and Inflation: What's the Connection? by Frank Shostak, July 2008
- The Future of the Commodity Price Boom by Stefan Karlsson, November 2007
- How China's monetary policy drives world commodity prices by Frank Shostak, May 2006
- Commodity on Wikipedia