In
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 ...
, a commodity is an economic
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 ...
, usually a
resource
Resource refers to all the materials available in our environment which are technologically accessible, economically feasible and culturally sustainable and help us to satisfy our needs and wants. Resources can broadly be classified upon their ...
, that has full or substantial
fungibility
In economics, fungibility is the property of a good or a commodity whose individual units are essentially interchangeable, and each of whose parts is indistinguishable from any other part. Fungible tokens can be exchanged or replaced; for exa ...
: that is, the
market
Market is a term used to describe concepts such as:
*Market (economics), system in which parties engage in transactions according to supply and demand
*Market economy
*Marketplace, a physical marketplace or public market
Geography
*Märket, an ...
treats instances of the good as equivalent or nearly so with no regard to who
produced them.
The price of a commodity good is typically determined as a function of its market as a whole: well-established physical commodities have actively traded
spot
Spot or SPOT may refer to:
Places
* Spot, North Carolina, a community in the United States
* The Spot, New South Wales, a locality in Sydney, Australia
* South Pole Traverse, sometimes called the South Pole Overland Traverse
People
* Spot (prod ...
and
derivative
In mathematics, the derivative of a function of a real variable measures the sensitivity to change of the function value (output value) with respect to a change in its argument (input value). Derivatives are a fundamental tool of calculus. F ...
markets. The wide availability of commodities typically leads to smaller
profit margin
Profit margin is a measure of profitability. It is calculated by finding the profit as a percentage of the revenue.
\text = =
There are 3 types of profit margins: gross profit margin, operating profit margin and net profit margin.
* Gross Pro ...
s and diminishes the importance of factors (such as
brand name
A brand is a name, term, design, symbol or any other feature that distinguishes one seller's good or service from those of other sellers. Brands are used in business, marketing, and advertising for recognition and, importantly, to create an ...
) other than price.
Most commodities are
raw material
A raw material, also known as a feedstock, unprocessed material, or primary commodity, is a basic material that is used to produce goods, finished goods, energy, or intermediate materials that are feedstock for future finished products. As feedst ...
s, basic resources,
agricultural
Agriculture or farming is the practice of cultivating Plant, plants and livestock. Agriculture was the key development in the rise of Sedentism, sedentary human civilization, whereby farming of Domestication, domesticated species created food ...
, or
mining
Mining is the extraction of valuable minerals or other geological materials from the Earth, usually from an ore body, lode, vein, seam, reef, or placer deposit. The exploitation of these deposits for raw material is based on the economic via ...
products, such as
iron ore
Iron ores are rocks and minerals from which metallic iron can be economically extracted. The ores are usually rich in iron oxides and vary in color from dark grey, bright yellow, or deep purple to rusty red. The iron is usually found in the fo ...
,
sugar
Sugar is the generic name for sweet-tasting, soluble carbohydrates, many of which are used in food. Simple sugars, also called monosaccharides, include glucose, fructose, and galactose. Compound sugars, also called disaccharides or double ...
, or
grain
A grain is a small, hard, dry fruit (caryopsis) – with or without an attached hull layer – harvested for human or animal consumption. A grain crop is a grain-producing plant. The two main types of commercial grain crops are cereals and legum ...
s like
rice
Rice is the seed of the grass species ''Oryza sativa'' (Asian rice) or less commonly ''Oryza glaberrima
''Oryza glaberrima'', commonly known as African rice, is one of the two domesticated rice species. It was first domesticated and grown i ...
and
wheat
Wheat is a grass widely cultivated for its seed, a cereal grain that is a worldwide staple food. The many species of wheat together make up the genus ''Triticum'' ; the most widely grown is common wheat (''T. aestivum''). The archaeologi ...
. Commodities can also be
mass-produced
Mass production, also known as flow production or continuous production, is the production of substantial amounts of standardized products in a constant flow, including and especially on assembly lines. Together with job production and ba ...
unspecialized products such as
chemicals
A chemical substance is a form of matter having constant chemical composition and characteristic properties. Some references add that chemical substance cannot be separated into its constituent elements by physical separation methods, i.e., wit ...
and
computer memory
In computing, memory is a device or system that is used to store information for immediate use in a computer or related computer hardware and digital electronic devices. The term ''memory'' is often synonymous with the term ''primary storage ...
. Popular commodities include
crude oil
Petroleum, also known as crude oil, or simply oil, is a naturally occurring yellowish-black liquid mixture of mainly hydrocarbons, and is found in geological formations. The name ''petroleum'' covers both naturally occurring unprocessed crude ...
,
corn
Maize ( ; ''Zea mays'' subsp. ''mays'', from es, maíz after tnq, mahiz), also known as corn (North American and Australian English), is a cereal grain first domesticated by indigenous peoples in southern Mexico about 10,000 years ago. Th ...
, and
gold
Gold is a chemical element with the symbol Au (from la, aurum) and atomic number 79. This makes it one of the higher atomic number elements that occur naturally. It is a bright, slightly orange-yellow, dense, soft, malleable, and ductile met ...
.
Other definitions of commodity include something useful or valued and an alternative term for an economic good or service available for purchase in the market. In such standard works as
Alfred Marshall
Alfred Marshall (26 July 1842 – 13 July 1924) was an English economist, and was one of the most influential economists of his time. His book '' Principles of Economics'' (1890) was the dominant economic textbook in England for many years. I ...
's
''Principles of Economics'' (1920) and
Léon Walras
Marie-Esprit-Léon Walras (; 16 December 1834 – 5 January 1910) was a French mathematical economist and Georgist. He formulated the marginal theory of value (independently of William Stanley Jevons and Carl Menger) and pioneered the developmen ...
's
''Elements of Pure Economics'' (
926
Year 926 ( CMXXVI) was a common year starting on Sunday (link will display the full calendar) of the Julian calendar.
Events
By place
Europe
* Spring – The Italian nobles turn against King Rudolph II of Burgundy and request that ...
1954) 'commodity' serves as general term for an economic good or service.
Etymology
The word ''commodity'' came into use in English in the 15th century, from the French ''
commodité'', "amenity, convenience". Going further back, the French word derives from the Latin ''
commoditas'', meaning "suitability, convenience, advantage". The Latin word ''
commodus
Commodus (; 31 August 161 – 31 December 192) was a Roman emperor who ruled from 177 to 192. He served jointly with his father Marcus Aurelius from 176 until the latter's death in 180, and thereafter he reigned alone until his assassination. ...
'' (from which English gets other words including ''commodious'' and ''accommodate'') meant variously "appropriate", "proper measure, time, or condition", and "advantage, benefit".
Description
Characteristics
In economics, the term ''commodity'' is used specifically for
economic goods
In economics, goods are items that satisfy human wants
and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not tra ...
that have full or partial but substantial
fungibility
In economics, fungibility is the property of a good or a commodity whose individual units are essentially interchangeable, and each of whose parts is indistinguishable from any other part. Fungible tokens can be exchanged or replaced; for exa ...
; that is, the market treats their instances as equivalent or nearly so with no regard to who produced them.
Karl Marx described this property as follows: "From the taste of
wheat
Wheat is a grass widely cultivated for its seed, a cereal grain that is a worldwide staple food. The many species of wheat together make up the genus ''Triticum'' ; the most widely grown is common wheat (''T. aestivum''). The archaeologi ...
, it is not possible to tell who produced it, a
Russian serf
The term ''serf'', in the sense of an unfree peasant of tsarist Russia, is the usual English-language translation of () which meant an unfree person who, unlike a slave, historically could be sold only with the land to which they were "attach ...
, a French peasant or an English
capitalist
Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, priva ...
."
Petroleum
Petroleum, also known as crude oil, or simply oil, is a naturally occurring yellowish-black liquid mixture of mainly hydrocarbons, and is found in geological formations. The name ''petroleum'' covers both naturally occurring unprocessed crud ...
and
copper
Copper is a chemical element with the symbol Cu (from la, cuprum) and atomic number 29. It is a soft, malleable, and ductile metal with very high thermal and electrical conductivity. A freshly exposed surface of pure copper has a pinkis ...
are examples of commodity goods: their supply and demand are a part of one universal market.
Non-commodity items such as
stereo
Stereophonic sound, or more commonly stereo, is a method of sound reproduction that recreates a multi-directional, 3-dimensional audible perspective. This is usually achieved by using two independent audio channels through a configuration ...
systems have many aspects of product differentiation, such as the
brand
A brand is a name, term, design, symbol or any other feature that distinguishes one seller's good or service from those of other sellers. Brands are used in business, marketing, and advertising for recognition and, importantly, to create an ...
, the user interface and the perceived quality. The demand for one type of stereo may be much larger than demand for another.
The price of a commodity good is typically determined as a function of its market as a whole. Well-established physical commodities have actively traded
spot
Spot or SPOT may refer to:
Places
* Spot, North Carolina, a community in the United States
* The Spot, New South Wales, a locality in Sydney, Australia
* South Pole Traverse, sometimes called the South Pole Overland Traverse
People
* Spot (prod ...
and
derivative
In mathematics, the derivative of a function of a real variable measures the sensitivity to change of the function value (output value) with respect to a change in its argument (input value). Derivatives are a fundamental tool of calculus. F ...
markets.
Hard and soft commodities
Soft commodities Soft commodities, or softs, are commodities such as coffee, cocoa, sugar, corn, wheat, soybean, fruit and livestock.Patrick Maul, ''Investing in Commodities'', diplom.de, 2011, p8 table c. The term generally refers to commodities that are grown, r ...
are goods that are grown, such as
wheat
Wheat is a grass widely cultivated for its seed, a cereal grain that is a worldwide staple food. The many species of wheat together make up the genus ''Triticum'' ; the most widely grown is common wheat (''T. aestivum''). The archaeologi ...
, or
rice
Rice is the seed of the grass species ''Oryza sativa'' (Asian rice) or less commonly ''Oryza glaberrima
''Oryza glaberrima'', commonly known as African rice, is one of the two domesticated rice species. It was first domesticated and grown i ...
.
Hard commodities are
mined. Examples include
gold
Gold is a chemical element with the symbol Au (from la, aurum) and atomic number 79. This makes it one of the higher atomic number elements that occur naturally. It is a bright, slightly orange-yellow, dense, soft, malleable, and ductile met ...
,
silver
Silver is a chemical element with the Symbol (chemistry), symbol Ag (from the Latin ', derived from the Proto-Indo-European wikt:Reconstruction:Proto-Indo-European/h₂erǵ-, ''h₂erǵ'': "shiny" or "white") and atomic number 47. A soft, whi ...
,
helium
Helium (from el, ἥλιος, helios, lit=sun) is a chemical element with the symbol He and atomic number 2. It is a colorless, odorless, tasteless, non-toxic, inert, monatomic gas and the first in the noble gas group in the periodic table. ...
, and
oil
An oil is any nonpolar chemical substance that is composed primarily of hydrocarbons and is hydrophobic (does not mix with water) & lipophilic (mixes with other oils). Oils are usually flammable and surface active. Most oils are unsaturated ...
.
Energy commodities include electricity, gas,
coal
Coal is a combustible black or brownish-black sedimentary rock, formed as rock strata called coal seams. Coal is mostly carbon with variable amounts of other elements, chiefly hydrogen, sulfur, oxygen, and nitrogen.
Coal is formed when dea ...
and oil. Electricity has the particular characteristic that it is usually uneconomical to store, and must therefore be consumed as soon as it is produced.
Commoditization
Commoditization
In business literature, commoditization is defined as the process by which goods that have economic value and are distinguishable in terms of attributes (uniqueness or brand) end up becoming simple commodities in the eyes of the market or consu ...
occurs as a goods or services market loses differentiation across its supply base, often by the diffusion of the
intellectual capital Intellectual capital is the result of mental processes that form a set of intangible objects that can be used in economic activity and bring income to its owner (organization), covering the competencies of its people ( human capital), the value rela ...
necessary to acquire or produce it efficiently. As such, goods that formerly carried premium
margins for
market
Market is a term used to describe concepts such as:
*Market (economics), system in which parties engage in transactions according to supply and demand
*Market economy
*Marketplace, a physical marketplace or public market
Geography
*Märket, an ...
participants have become commodities, such as
generic pharmaceuticals
A generic drug is a pharmaceutical drug that contains the same chemical substance as a drug that was originally protected by chemical patents. Generic drugs are allowed for sale after the patents on the original drugs expire. Because the active ch ...
and
DRAM chips. An article in ''
The New York Times
''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...
'' cites
multivitamin supplements as an example of commoditization; a 50 mg tablet of
calcium
Calcium is a chemical element with the symbol Ca and atomic number 20. As an alkaline earth metal, calcium is a reactive metal that forms a dark oxide-nitride layer when exposed to air. Its physical and chemical properties are most similar to ...
is of equal value to a consumer no matter what company produces and markets it, and as such, multivitamins are now sold in bulk and are available at any supermarket with little brand differentiation.
Following this trend,
nanomaterials
*
Nanomaterials describe, in principle, materials of which a single unit is sized (in at least one dimension) between 1 and 100 nm (the usual definition of nanoscale).
Nanomaterials research takes a materials science-based approach to na ...
are emerging from carrying premium profit margins for market participants to a status of commodification.
There is a spectrum of commoditization, rather than a binary distinction of "commodity versus differentiable product". Few products have complete undifferentiability and hence fungibility; even electricity can be differentiated in the market based on its method of generation (e.g., fossil fuel, wind, solar), in markets where
energy choice lets a buyer opt (and pay more) for renewable methods if desired. Many products' degree of commoditization depends on the buyer's mentality and means. For example, milk, eggs, and notebook paper are not differentiated by many customers; for them, the product is fungible and lowest price is the main decisive factor in the purchasing choice. Other customers take into consideration other factors besides price, such as environmental sustainability and animal welfare. To these customers, distinctions such as "
organic versus not" or "
cage free versus not" count toward differentiating brands of milk or eggs, and percentage of recycled content or
Forest Stewardship Council
The Forest Stewardship Council A. C. (FSC) is an international non-profit, multistakeholder organization established in 1993 that promotes responsible management of the world's forests via timber certification. It is an example of a market-ba ...
certification
Certification is the provision by an independent body of written assurance (a certificate) that the product, service or system in question meets specific requirements. It is the formal attestation or confirmation of certain characteristics of a ...
count toward differentiating brands of notebook paper.
Global commodities trading company
This is a list of companies trading globally in commodities, descending by size as of October 28, 2011.
#
Vitol
Vitol is a Swiss-based multinational energy and commodity trading company that was founded in Rotterdam in 1966 by Henk Viëtor and Jacques Detiger. Though trading, logistics and distribution are at the core of its business, these are complement ...
#
Glencore International AG
Glencore plc is a Swiss multinational commodity trading and mining company with headquarters in Baar, Switzerland. Glencore's oil and gas head office is in London and its registered office is in Saint Helier, Jersey. The current company was ...
#
Trafigura
Trafigura Group Pte. Ltd. is a Singaporean-based Swiss multinational commodity trading company founded in 1993 that trades in base metals and energy. It is the world's largest private metals trader and second-largest oil trader having built or ...
#
Cargill
Cargill, Incorporated, is a privately held American global food corporation based in Minnetonka, Minnesota, and incorporated in Wilmington, Delaware. Founded in 1865, it is the largest privately held corporation in the United States in ter ...
#
Salam Investment
#
Archer Daniels Midland
#
Gunvor (company)
Gunvor Group Ltd is a Cypriot-domiciled multinational commodity trading company registered in Cyprus, with its main trading office in Geneva, Switzerland. Gunvor also has trading offices in Singapore, the Bahamas, and Dubai, with a network of r ...
#
Mercuria Energy Group
Mercuria Energy Group Ltd is a Cypriot-domiciled multinational commodity trading company active in a wide spectrum of global energy markets including crude oil and refined petroleum products, natural gas (including LNG), power, biodiesel, base ...
#
Noble Group
Noble Resources Trading Holdings Limited (commonly known as Noble resources) is a commodity trader based in Hong Kong. It trades energy products and industrial raw materials. Its predecessor, Noble Group Ltd was embroiled in an accounting fraud ...
#
Louis Dreyfus Group
Louis Dreyfus Company B.V. (LDC), also called the Louis-Dreyfus Group, is a French merchant firm that is involved in agriculture, food processing, international shipping, and finance. The company owns and manages hedge funds, ocean vessels, dev ...
#
Bunge Limited
Bunge Limited is an American agribusiness and food company, incorporated in Bermuda, and headquartered in St. Louis, Missouri, United States.
As well as being an international soybean exporter, it is also involved in food processing, grain tr ...
#
Wilmar International
Wilmar International Limited (); is a Singaporean food processing and investment holding company with more than 300 subsidiary companies. Founded in 1991, it is one of Asia's leading agribusiness groups alongside the COFCO Group. It ranks amongs ...
#
Olam International
Olam International is a major food and agri-business company, operating in 60 countries and supplying food and industrial raw materials to over 20,900 customers worldwide. Its value chain includes farming, origination, processing and distributi ...
#
Rochel International
Rachel () was a Biblical figure, the favorite of Jacob's two wives, and the mother of Joseph and Benjamin, two of the twelve progenitors of the tribes of Israel. Rachel's father was Laban. Her older sister was Leah, Jacob's first wife. Her au ...
Commodity trade
In the original and simplified sense, ''commodities'' were things of value, of uniform quality, that were produced in large quantities by many different producers; the items from each different producer were considered equivalent. On a commodity exchange, it is the underlying standard stated in the contract that defines the commodity, not any quality inherent in a specific producer's product.
Commodities exchanges include:
* Bourse Africa (formerly GBOT)
*
Bursa Malaysia
Bursa Malaysia is the stock exchange of Malaysia. It is one of the largest bourses in ASEAN. It is based in Kuala Lumpur and was previously known as the Kuala Lumpur Stock Exchange (KLSE). It provides a full integration of transactions, offe ...
Derivatives (MDEX)
*
Chicago Board of Trade
The Chicago Board of Trade (CBOT), established on April 3, 1848, is one of the world's oldest futures and options exchanges. On July 12, 2007, the CBOT merged with the Chicago Mercantile Exchange (CME) to form CME Group. CBOT and three other excha ...
(CBOT)
*
Chicago Mercantile Exchange
The Chicago Mercantile Exchange (CME) (often called "the Chicago Merc", or "the Merc") is a global derivatives marketplace based in Chicago and located at 20 S. Wacker Drive. The CME was founded in 1898 as the Chicago Butter and Egg Board, an a ...
(CME)
*
Dalian Commodity Exchange
The Dalian Commodity Exchange (DCE) () is a Chinese futures exchange based in Dalian, Liaoning province, China. It is a non-profit, self-regulating and membership legal entity established on February 28, 1993.
Dalian Commodity Exchange trades in ...
(DCE)
*
Euronext.liffe
Euronext N.V. (short for European New Exchange Technology) is a pan-European bourse that offers various trading and post-trade services.
Traded assets include regulated equities, exchange-traded funds (ETF), warrants and certificates, bonds, de ...
(
LIFFE
The London International Financial Futures and Options Exchange (LIFFE, pronounced 'life') was a futures exchange based in London. In 2014, following a series of takeovers, LIFFE became part of Intercontinental Exchange, and was renamed ICE ...
)
*
Kansas City Board of Trade
The Kansas City Board of Trade (KCBT), was an American commodity futures and options exchange regulated by the Commodity Futures Trading Commission. Specializing in the hard-red winter wheat contract, it was located at 4800 Main Street in Kan ...
(KCBT)
*
London Metal Exchange
The London Metal Exchange (LME) is a futures and forwards exchange with the world's largest market in standarised forward contracts, futures contracts and options on base metals. The exchange also offers contracts on ferrous metals and precious ...
(LME)
*
Marché à Terme International de France (MATIF)
* Mercantile Exchange Nepal Limited (MEX)
*
Multi Commodity Exchange
Multi Commodity Exchange of India Ltd (MCX) ( BSE: 534091) is a India’s first recognised commodity exchange. MCX is regulated by Securities Exchange Board of India (SEBI), which is the securities market regulator in India since 28th September ...
(MCX)
*
National Commodity and Derivatives Exchange
National Commodity & Derivatives Exchange Limited (NCDEX) is an Indian online commodity and derivative exchange based in India. It is under the ownership of Ministry of Finance, Government of India. It has an independent board of directors an ...
(NCDEX)
*
National Commodity Exchange Limited
Pakistan Mercantile Exchange Limited (formerly National Commodity Exchange Limited) is Pakistan's first futures commodity market having its registered Head office in Karachi, Sindh. It is the only company in Pakistan to provide a centralized and r ...
(NCEL)
*
New York Mercantile Exchange
The New York Mercantile Exchange (NYMEX) is a commodity futures exchange owned and operated by CME Group of Chicago. NYMEX is located at One North End Avenue in Brookfield Place in the Battery Park City section of Manhattan, New York City.
...
(NYMEX)
Markets for trading commodities can be very
efficient, particularly if the division into pools matches demand
segments. These markets will quickly respond to changes in
supply and demand
In microeconomics, supply and demand is an economic model of price determination in a Market (economics), market. It postulates that, Ceteris paribus, holding all else equal, in a perfect competition, competitive market, the unit price for a ...
to find an
equilibrium 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 ...
and quantity. In addition, investors can gain passive exposure to the commodity markets through a
commodity price index A commodity price index is a fixed-weight index or (weighted) average of selected commodity prices, which may be based on spot or futures prices. It is designed to be representative of the broad commodity asset class or a specific subset of commodit ...
.
In order to
diversify their investments and mitigate the risks associated with
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 ...
ary debasement of currencies,
pension funds and
sovereign wealth fund
A sovereign wealth fund (SWF), sovereign investment fund, or social wealth fund is a state-owned investment fund that invests in real and financial assets such as stocks, bonds, real estate, precious metals, or in alternative investments such ...
s allocate capital to non-listed assets such as a commodities and commodity-related infrastructure.
Inventory data
The
inventory
Inventory (American English) or stock (British English) refers to the goods and materials that a business holds for the ultimate goal of resale, production or utilisation.
Inventory management is a discipline primarily about specifying the shap ...
of commodities, with low inventories typically leading to more volatile future prices and increasing the risk of a "
stockout
A stockout, or out-of-stock (OOS) event is an event that causes inventory to be exhausted. While out-of-stocks can occur along the entire supply chain, the most visible kind are retail out-of-stocks in the fast-moving consumer goods industry (e.g. ...
" (inventory exhaustion). According to economist theorists, companies receive a
convenience yield
A convenience yield is an implied return on holding inventories. It is an adjustment to the cost of carry in the non-arbitrage pricing formula for forward prices in markets with trading constraints.
Let F_ be the forward price of an asset with in ...
by holding inventories of certain commodities.
Data
In the pursuit of knowledge, data (; ) is a collection of discrete values that convey information, describing quantity, quality, fact, statistics, other basic units of meaning, or simply sequences of symbols that may be further interpreted ...
on inventories of commodities are not available from one common source, although data is available from various sources. Inventory data on 31 commodities was used in a 2006 study on the relationship between inventories and commodity futures risk premiums.
Commodification of labour
In classical political economy and especially in
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 ...
's
critique of political economy
Critique of political economy or critique of economy is a form of Social criticism, social critique that rejects the various social categories and structures that constitute the mainstream discourse concerning the forms and modalities of resourc ...
, a commodity is an object or a good or service ("product" or "activity") produced by
human labour. Objects are external to man. However, some objects attain "
use value
Use value (german: Gebrauchswert) or value in use is a concept in classical political economy and Marxist economics. It refers to the tangible features of a commodity (a tradeable object) which can satisfy some human requirement, want or need, or ...
" to persons in this world, when they are found to be "necessary, useful or pleasant in life". "Use value" makes an object "an object of human wants", or "a means of subsistence in the widest sense".
As society developed, people found that they could trade goods and services for other goods and services. At this stage, these
goods and services
Goods are items that are usually (but not always) tangible, such as pens, physical books, salt, apples, and hats. Services are activities provided by other people, who include architects, suppliers, contractors, technologists, teachers, doctor ...
became "commodities". According to Marx, commodities are defined as objects which are offered for sale or are "exchanged in a market". In the marketplace, where commodities are sold, "use value" is not helpful in facilitating the sale of commodities. Accordingly, in addition to having use value, commodities must have an "exchange value"—a value that could be expressed in the market.
Prior to Marx, many economists debated as to what elements made up exchange value.
Adam Smith
Adam Smith (baptized 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the thinking of political economy and key figure during the Scottish Enlightenment. Seen by some as "The Father of Economics"——— ...
maintained that exchange value was made up of
rent
Rent may refer to:
Economics
*Renting, an agreement where a payment is made for the temporary use of a good, service or property
*Economic rent, any payment in excess of the cost of production
*Rent-seeking, attempting to increase one's share of e ...
,
profit,
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 ...
and the costs of wear and tear on the instruments of husbandry.
David Ricardo
David Ricardo (18 April 1772 – 11 September 1823) was a British Political economy, political economist. He was one of the most influential of the Classical economics, classical economists along with Thomas Robert Malthus, Thomas Malthus, Ad ...
, a follower of Adam Smith, modified Smith's approach on this point by alleging that labour alone is the content of the exchange value of any good or service. While maintaining that all exchange value in commodities was derived directly from the hands of the people that made the commodity, Ricardo noted that only part of the exchange value of the commodity was paid to the worker who made the commodity. The other part of the value of this particular commodity was labour that was not paid to the worker—unpaid labour. This unpaid labour was retained by the owner of the means of production. In capitalist society, the capitalist owns the means of production and therefore the unpaid labour is retained by the capitalist as rent or as profit. The means of production means the site where the commodity is made, the raw products that are used in the production and the instruments or machines that are used for the production of the commodity.
However, not all commodities are reproducible nor were all commodities originally intended to be sold in the market. These priced goods are also treated as commodities, e.g. human labour-power, works of art and natural resources ("earth itself is an instrument of labour"), even though they may not be produced specifically for the market, or be non-reproducible goods.
Marx's analysis of the commodity is intended to help solve the problem of what establishes the
economic value
In economics, economic value is a measure of the benefit provided by a good or service to an economic agent. It is generally measured through units of currency, and the interpretation is therefore "what is the maximum amount of money a specif ...
of goods, using the
labour theory of value
The labor theory of value (LTV) is a theory of value that argues that the economic value of a good or service is determined by the total amount of " socially necessary labor" required to produce it.
The LTV is usually associated with Marxian ...
. This problem was extensively debated by
Adam Smith
Adam Smith (baptized 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the thinking of political economy and key figure during the Scottish Enlightenment. Seen by some as "The Father of Economics"——— ...
,
David Ricardo
David Ricardo (18 April 1772 – 11 September 1823) was a British Political economy, political economist. He was one of the most influential of the Classical economics, classical economists along with Thomas Robert Malthus, Thomas Malthus, Ad ...
and
Karl Rodbertus-Jagetzow
Johann Karl Rodbertus (August 12, 1805, Greifswald, Swedish Pomerania – December 6, 1875, Völschow, Jagetzow), also known as Karl Rodbertus-Jagetzow, was a German economist and socialist and a leading member of the ''Linkes Zentrum'' (centre ...
among others.
All three of the above-mentioned economists rejected the theory that labour composed 100% of the exchange value of any commodity. In varying degrees, these economists turned to supply and demand to establish the price of commodities. Marx held that the "price" and the "value" of a commodity were not synonymous. Price of any commodity would vary according to the imbalance of supply to demand at any one period of time. The "value" of the same commodity would be consistent and would reflect the amount of labour value used to produce that commodity.
Prior to Marx, economists noted that the problem with using the "quantity of labour" to establish the value of commodities was that the time spent by an unskilled worker would be longer than the time spent on the same commodity by a skilled worker. Thus, under this analysis, the commodity produced by an unskilled worker would be more valuable than the same commodity produced by the skilled worker. Marx pointed out, however, that in society at large, an average amount of time that was necessary to produce the commodity would arise. This average time necessary to produce the commodity Marx called the "socially necessary labour time". Socially necessary labour time was the proper basis on which to base the "exchange value" of a given commodity.
Commodity Super Cycle
Commodity Super Cycles are periods of times, around a decade where commodities as a whole trade at a price that is greater than their long term
Moving average
In statistics, a moving average (rolling average or running average) is a calculation to analyze data points by creating a series of averages of different subsets of the full data set. It is also called a moving mean (MM) or rolling mean and is ...
. A Super Cycle will usually occur when there is large industrial and commercial change in a country or world that requires more resources to support the change. As prices rise goods and services that rely on commodities rise with them.
History of Super Cycles
There have been four super cycles over the last 120 years worldwide. The first commodity super cycle started in late 1890 and was accelerated on the back of widespread U.S. industrialization and World War 1. In 1917 commodity prices peaked and then entered a downtrend to the 1930s. As war erupted in Europe in the late 1930s and eventually including the U.S. the world saw a new cycle begin. Countries were not just preparing for war but also the
Aftermath of World War II
The aftermath of World War II was the beginning of a new era started in late 1945 (when World War II ended) for all countries involved, defined by the decline of all colonial empires and simultaneous rise of two superpowers; the Soviet Union (US ...
as lots of Europe and Asia faced heavy rebuilding. This cycle eventually peaked in 1951 and faded away in the early 70s.
In the 1970s as world economies grew they needed more materials and energy to support expansion leading to increases in prices across the board. This boom came to an end as foreign investments fled as extractive industries became nationalized.
The most recent of commodity super cycles began in 2000 as China joined the
World Trade Organization
The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. With effective cooperation
in the United Nations System, governments use the organization to establish, revise, and e ...
.
China was also in the beginning of their boom as industry and expansion took off. Workers moved into cities as emerging industries took off and offered a lots of new jobs and opportunities. In 2008 when the
Great Recession
The Great Recession was a period of marked general decline, i.e. a recession, observed in national economies globally that occurred from late 2007 into 2009. The scale and timing of the recession varied from country to country (see map). At ...
hit it put a halt onto the supercycle as GDP's across the world tanked leaving many economies in recessions.
The next or the fifth supercycle could arrive as the world enters the final phases of the COVID-19 pandemic and starts to build massive clean energy infrastructure in view of the commodity price increase.
See also
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2000s commodities boom
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Commercial off-the-shelf
Commercial off-the-shelf or commercially available off-the-shelf (COTS) products are packaged or canned (ready-made) hardware or software, which are adapted aftermarket to the needs of the purchasing organization, rather than the commissioning of ...
or "commercially available off-the-shelf" (COTS)
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Commodification
Within a capitalist economic system, commodification is the transformation of things such as goods, services, ideas, nature, personal information, people or animals into objects of trade or commodities.For animals"United Nations Commodity Trad ...
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Commodity (Marxism)
In classical political economy and especially Karl Marx's critique of political economy, a commodity is any good or service ("products" or "activities") produced by human labour and offered as a product for general sale on the market. Some other p ...
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Commodity currency
A commodity currency is a currency that co-moves with the world prices of primary commodity products, due to these countries' heavy dependency on the export of certain raw materials for income. Commodity currencies are most prevalent in developin ...
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Commodity fetishism
In Marxist philosophy, the term commodity fetishism describes the economic relationships of production and exchange as being social relationships that exist among things (money and merchandise) and not as relationships that exist among people ...
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Commodity market risk and values
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Commodity money
Commodity money is money whose value comes from a commodity of which it is made. Commodity money consists of objects having value or use in themselves (intrinsic value) as well as their value in buying goods.
This is in contrast to representati ...
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Commodity price shocks Commodity price shocks are times when the prices for commodities have drastically increased or decreased over a short span of time.
Post-Napoleonic Irish grain price and land use shocks (1815–1816)
During the international Post-Napoleonic dep ...
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Commodity price index A commodity price index is a fixed-weight index or (weighted) average of selected commodity prices, which may be based on spot or futures prices. It is designed to be representative of the broad commodity asset class or a specific subset of commodit ...
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List of traded commodities
The following is a list of futures contracts on physically traded commodities.
Agricultural
Grains, food and fiber
Symbol from "CME Group Website". cmegroup.com. CME Group. Retrieved 2010-10-20.
Livestock and meat
Energy
Forest product ...
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Sample grade
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Standardization
Standardization or standardisation is the process of implementing and developing technical standards based on the consensus of different parties that include firms, users, interest groups, standards organizations and governments. Standardization ...
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Trade
Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market.
An early form of trade, barter, saw the direct excha ...
Notes
External links
Pricing in Electricity Markets: A Mean Reverting Jump Diffusion Model with SeasonalityCollection of current and historical commodities datafrom
QuandlUnited Nations Human Rights CouncilConceptual problems in commodity regulation
{{Authority control
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Business terms