A commodity is something whose market value arises
from the owner's right to sell rather than the right to use. Example
commodities from the financial world include oil (sold by the barrel),
wheat, and even pork-bellies. More modern commodities include bandwidth,
RAM chips and (experimentally) computer processor cycles, and negative
commodity units like emissions
credits.
In the original and simplified sense, prior to the advent of globalization,
commodities were things of value, of uniform quality, that
were produced in large quantities by many different producers; the
items from each different producer are considered equivalent. It
is the contract
and this underlying standard that define the commodity, not
any inherent quality of it as a living organism as such. One can
reasonably say that food commodities, for example, are defined by
the fact that they substitute for each other in recipes, and that
one use the food without having to look at it too closely:
Wheat is an example. Wheat from many different farms is pooled.
Generally, it is all traded at the same price; wheat from Joe's
farm is not differentiated from wheat from Jane's farm. Some uniform
standard of quality must necessarily be assumed, leading to different
pools: one say for genetically modified wheat, and one for not.
Failures to match the consumer's assessment of risk, usefulness
for some purpose, can lead to lower prices or the necessity of dividing
the market into different pools - a very major issue in agricultural
policy.
If the division into pools is effective, markets
for trading commodities can be very efficient;
like all markets, they quickly respond to changes in supply
and demand to find an equilibrium
price.
Producers often attempt to 'de-commodify' their products by branding
them. Branding attempts to make similar products from different
producers more distinguishable. This stategy can often lead to higher
prices for the items than would be produced in a commodity
market - making a product market. This is the logical consequence
of splitting into one pool per brand
name.
Globalization
has largely obsoleted this older "thing-based" definition, as the
property
right in that "thing", and standard of quality expected, and
right to sue if it is not met, tends to vary widely across even
the most developed nations. Accordingly there is now more emphasis
on contract, and on insurance,
and currency
dynamics in modern commodity
markets.
Some economists advise redefining every commodity and product
market as a service market, wherein state inspections, market regulation,
property rights enforcement, and other services previously assumed
under classical
economics to be the domain of the state, could be charged for.
If this advice were followed, the term commodity would still
apply in human
life analysis, or narrow domains such as relatively safe food
goods, or industrial inputs (oil, screws, wireless spectrum) where
quality is more or less standard globally, and there is little risk
to life of any failure.
