In the field of

economics Economics () is the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and intera ...

, the

commodity In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them. The price of a comm ...

value of a

good In most contexts, the concept of good denotes the conduct that should be preferred when posed with a choice between possible actions. Good is generally considered to be the opposite of evil and is of interest in the study of ethics, morality, ph ...

is its

free market In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any o ...

intrinsic value under optimal use conditions. In a free market, the commodity value of a good will be reflected by its price. For example, if an acre of land can yield a net of 100 dollars loss by lying

fallow Fallow is a farming technique in which arable land is left without sowing for one or more vegetative cycles. The goal of fallowing is to allow the land to recover and store organic matter while retaining moisture and disrupting pest life cycl ...

, 50 dollars gain by being planted with corn, and 100 dollars gain by being planted with wheat, then that acre's commodity value is 100 dollars; the farmer is assumed to put his land to best use. The price of a commodity fluctuates around its commodity value.

Currency

A commodity value expressed as a

price A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for goods or services. In some situations, the price of production has a different name. If the product is a "good" in the c ...

is determined by historical, social and cultural aspects of production and distribution.

Karl Marx Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, economist, historian, sociologist, political theorist, journalist, critic of political economy, and socialist revolutionary. His best-known titles are the 1848 ...

described price as the money-name for the

labour Labour or labor may refer to: * Childbirth, the delivery of a baby * Labour (human activity), or work ** Manual labour, physical work ** Wage labour, a socioeconomic relationship between a worker and an employer ** Organized labour and the labour ...

realised in a commodity. A commodity value is dependent on its

utility As a topic of economics, utility is used to model worth or value. Its usage has evolved significantly over time. The term was introduced initially as a measure of pleasure or happiness as part of the theory of utilitarianism by moral philosopher ...

. Commodity value is of particular significance in the study of currency. For example, the commodity value of a coin is the value of the metal of which it is made. Gold and silver coins have a high commodity value, whereas

fiat Fiat Automobiles S.p.A. (, , ; originally FIAT, it, Fabbrica Italiana Automobili di Torino, lit=Italian Automobiles Factory of Turin) is an Italian automobile manufacturer, formerly part of Fiat Chrysler Automobiles, and since 2021 a subsidiary ...

coins such as modern day quarters have a low commodity value. This is of particular historical relevance when analyzed in light of

Gresham's Law In economics, Gresham's law is a monetary principle stating that "bad money drives out good". For example, if there are two forms of commodity money in circulation, which are accepted by law as having similar face value, the more valuable com ...

. Because money becomes valuable not due to its substance, that is, its commodity value, but rather because of its performance, currencies tend to become token.

Debt

Asset In financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value ...

backed

debt Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...

has a commodity value equal to the price of the

collateral Collateral may refer to: Business and finance * Collateral (finance), a borrower's pledge of specific property to a lender, to secure repayment of a loan * Marketing collateral, in marketing and sales Arts, entertainment, and media * ''Collate ...

; a loan backed by a house has a commodity value equal to the free market price of the house. Non-collateralized debt, on the other hand, does not have a commodity value; it is valuable only insofar as it is repaid.

Investment

Commodity value is an important consideration in hedging against

inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...

. Whereas fiat currencies can devalue, often catastrophically, currencies with considerable commodity value are known to better maintain their value; a government can print as many fiat bills as it wants with relative ease, the same is not true of mining

precious metals Precious metals are rare, naturally occurring metallic chemical elements of high economic value. Chemically, the precious metals tend to be less reactive than most elements (see noble metal). They are usually ductile and have a high lu ...

. This leads some investors to purchase goods and debts with high commodity value, which are inherently safer than those with low, or no commodity value, minimizing risk by sacrificing potential return.

References

Commodities used as an investment Business terms {{economic-term-stub

Currency

Debt

Investment

See also

References