The Concept of the Commodity
in Its Popular and Scientific Meanings
I
n an isolated household economy the productive activity of each economizing unit is directed solely to the production of goods necessary for its own consumption. The very nature of
such an economy precludes the production of goods for the purpose of exchange. But the various tasks that must be performed to meet the requirements of the household could be assigned by the head of the family to the various members of the family and to any servants he has, with due regard to their special faculties and skills. Hence the characteristic feature of the isolated household economy is not the absence of any division of labor but its self-sufficiency, production being concerned exclusively with goods destined for the consumption of the household itself, and not at all with goods destined to be exchanged for other goods.
236It is, of course, quite evident that the division of labor remains very narrowly limited in the confines of an isolated household economy. The requirements of a family for any single good are usually much too small to permit an individual to occupy himself fully with its production, much less with a single manual operation. The available food supplies, moreover, are in most cases much too small to feed any considerable number of laborers. Societies in the lower stages of development, therefore, furnish us with examples of a complex division of labor only in the household economies of a few nobles, while the other economizing individuals continue to have little division of labor and narrowly limited wants.
A people can be considered to have taken its first step in economic development when persons who have acquired a certain skill offer their services to society and work up the raw materials of other persons for compensation. The Thetes of Ancient Greece appear to have been artisans of this kind, and even today, in many regions of eastern Europe, there are still no other artisans. Yarn spun in the home of the consumer is worked into cloth by the weaver; grain grown by the consumer is milled into flour by the miller; and even the carpenter and the smith are supplied with the raw materials for products ordered from them by their larger customers.
A further step in the path of economic development to higher levels of well-being can be regarded as having been taken when the artisans themselves begin to procure the raw materials for their products, even though they still produce these products for the consumers only on order. This state of affairs can still, with few exceptions, be observed in small towns, and to some extent even in larger places in some trades. The artisan does not yet manufacture products for later, and hence uncertain, sale. But he is already, to the extent of his labor power, in a position to meet the needs of his customers by making it unnecessary for them to expend efforts on purchasing or producing raw materials in a frequently highly uneconomic manner.1
1 Wilhelm Roscher, Ansichten der Volkswirthschaft aus dem geschichtlichen Standpunkte, Leipzig, 1861, p. 117; Bruno Hildebrand, “Naturalwirthschaft, Geldwirthschaft und Creditwirthschaft,” Jahrbücher für National-Oekonomie und Statistik, II (1864), 17; H.v. Scheel,
This method of providing society with goods already signifies a considerable forward step in economy and comfort for consumers as well as producers. But for both groups it is a step that involves several serious disadvantages. The consumer must still wait some time for his product, and is never quite certain of its properties in advance. The producer is sometimes wholly unengaged and at other times overburdened with orders, with the result that he is sometimes forced to be idle while at other times he cannot meet the demand. These drawbacks have led to the production of goods for uncertain future sale, the producer keeping them in stock in order to be able to meet requirements at once as they arise. It is this method of supplying society that leads, with continuing economic development, to factories (mass production) on the one side and to the purchase of ready-made (standardized) commodities by consumers on the other side. Hence it offers the highest degree of economy to the producer because of the possibility of full exploitation of the division of labor and the employment of machines, and the highest degree of safety (inspection before purchase) and comfort to the consumer.
Products that the producers or middlemen hold in readiness for sale are called commodities. In ordinary usage the term is limited in its application to movable tangible goods (with the exception of money).2 Since the fact that a person keeps a portion of his wealth ready for exchange is not always obvious to other persons, it is understandable that the commodity concept was narrowed down still more in ordinary life. In popular language, the term “commodities” came quite generally to refer only to goods that are so plainly destined for sale by their owner that his intention is obvious even to other persons. An owner can express his intention in very different ways. Most commonly he expresses it by displaying his commodities at places where purchasers are accustomed to assemble—such as markets, fairs, organized exchanges, or other special places that either are well known as sites at which commodities are concentrated or give evidence of being points of concentration by their external appearance or by prominently visible characteristic markings (e.g., shops, stores, warehouses, etc.). In popular usage, therefore, the commodity concept is narrowed down to a designation for those economic goods that are in such external circumstances that the intention of their owner to sell them can be easily discerned by anyone.
“Der Begriff des Geldes in seiner historisch-ökonomischen Entwickelung,” ibid., VI (1866), 15; Gustav Schmoller, Zur Geschichte der deutschen Kleingewerbe im 19. Jahrhundert, Halle, 1870, pp. 165, 180, 511ff.
2The remainder of this paragraph and the next paragraph appear here as a single footnote in the original.—TR.The higher the level of civilization attained by a people and the more specialized the production of each economizing individual becomes, the wider become the foundations for economic exchanges and the larger become the absolute and relative amounts of those goods that at any time have commodity character, until finally the economic gains that can be derived from the exploitation of the above relationship become sufficiently large to call forth a special class of economizing individuals who take care of the intellectual and mechanical parts of exchange operations for society and who are reimbursed for this with a part of the gains from trade. When this has occurred, economic goods no longer, for the most part, pass directly from producers to consumers but often follow very complex paths through the hands of more or less numerous middlemen. By occupation these persons are accustomed to treat certain economic goods as commodities and to keep special places open to the public for the purpose of selling them. Popular usage has now limited the term “commodity” to goods that are in the hands of these traders and in the hands of producers who produce them with the obvious intention of selling them. This usage doubtless arose because the intention of the owners of selling these goods (merchandise, marchandises, Kaufmannsgüter, mercanzie, etc.) is especially easy for anyone to discern.
But in scientific discourse a need was felt for a term designating all economic goods held ready for sale without regard to their tangibility, mobility, or character as products of labor, and without regard to the persons offering them for sale. A large number of economists, especially German economists, therefore defined commodities as (economic) goods of any kind that are intended for sale.
The commodity concept in the popular sense is nevertheless of importance not only because law-givers3 and a large number of economists employ the term in the popular sense, but also because some of those who are aware of the wider, scientific, sense of the term sometimes employ this or that element of the narrower, popular, meaning in their definitions.4
From the definition just given of a commodity in the scientific sense of the term, it appears that commodity-character is nothing inherent in a good, no property of it, but merely a specific relationship of a good to the person who has command of it. With the disappearance of this relationship the commodity-character of the good comes to an end. A good ceases to be a commodity, therefore, if the economizing individual possessing it gives up his intention of disposing of it, or if it comes into the hands of persons who do not intend to exchange it further but to consume it. The hat that a hatter, and the silk cloth that a silk merchant, exhibit for sale in their shops are examples of commodities, but they immediately cease to be commodities if the hatter decides to use the hat himself and the silk merchant decides to give the silk cloth as a present to his wife. Packages of sugar and oranges are commodities in the hands of a grocer, but they lose their commodity-character as soon as they have passed into the hands of consumers. Coined metal also immediately ceases to be a “commodity” if its possessor intends to use it, not for exchange, but for some consumption purpose—if he hands his Thalers to a silversmith for the purpose of making silver plate, for instance.
Commodity-character is therefore not only no property of goods but usually only a transitory relationship between goods and economizing individuals. Certain goods are intended by their owners to be exchanged for the goods of other economizing individuals. During their passage, sometimes through several hands, from the possession of the first into the possession of the last owner, we call them “commodities,” but as soon as they have reached their economic destination (that is, as soon as they are in the hands of the ultimate consumer) they obviously cease to be commodities and become “consumption goods” in the narrow sense in which this term is opposed to the concept of “commodity.” But where this does not happen, as is the case very frequently, for example, with gold, silver, etc., especially in the form of coins, they naturally continue to be “commodities” as long as they continue in the relationship responsible for their commodity-character.5
3See the first paragraph of Appendix H (p. 308) for the material originally appearing here as a footnote.—TR.Two things are evident from this: (1) the frequently-stated proposition that money is a “commodity” contributes nothing at all toward explaining the unique position of money among commodities; (2) the view of those who deny the commodity character of money because “money as such, especially in the form of coin, does not serve any consumption purpose” is untenable simply because the same argument can be advanced against the commodity-character of all other goods—even if we were to ignore the fact that there is a misconception of the important function of money in the assumption that it is not consumed. For no “commodities” as such serve a consumption purpose, and least of all in the forms in which they are traded (i.e., in the form of ingots and bales, and in cases, packages, etc.). To be consumed a good must cease to be a “commodity” and relinquish the form in which it has been traded (i.e., it must be melted down, divided, unpacked, etc.). The coin and the ingot are the most common forms in which the precious metals are traded, and the fact that these forms must be abandoned before the precious metals can be brought into consumption is therefore nothing that justifies doubting their commodity-character.
2.The Marketability6 of Commodities
A. The outer limits of the marketability of commodities
The problem of explaining the causes of the different and changing proportions in which quantities of goods are exchanged for each other has always been given special attention by scholars in the field of economics. There have been as many attempts to solve this problem as there have been independent economic treatises. In fact some writers have actually turned their treatises into theories of prices. But the fact that different goods cannot be exchanged for each other with equal facility was given only scant attention until now. Yet the obvious differences in the marketability of commodities is a phenomenon of such far-reaching practical importance, the success of the economic activity of producers and merchants depending to a very great extent on a correct understanding of the influences here operative, that science cannot, in the long run, avoid an exact investigation of its nature and causes. Indeed, it is also clear that a complete and satisfactory solution to the still controversial problem of the origin of money, the most liquid of all goods, can emerge only from an investigation of this topic.
5The next paragraph appears here as a footnote in the original.—TR. 6“Absatzfähigkeit”—TR.As far as I have been able to observe, the marketability of commodities is limited in four directions:
(1) Their marketability is limited with respect to the persons to whom they can be sold. The owner of a commodity does not have the power to sell it to any person of his choice. On the contrary, there is always only a definite number7 of economizing individuals to whom it can be sold. He has no chance of selling his commodity to persons (a) who have no requirements for it, (b) who are prevented, by legal or physical circumstances, from purchasing it,8 or (c) who have no knowledge of the exchange opportunity offered them,9 or finally (d) to anyone to whom a given quantity of the commodity in question is not the equivalent of a larger quantity of the good that is tendered in exchange for it than is the case with the initial owner of the commodity.10
If we observe the numbers of persons to whom the marketability of different commodities is restricted, we are confronted with a picture of vast differences. Compare only the number of persons to whom bread and meat can be sold with the number to whom astronomical instruments can be sold. Or compare the number of persons who purchase wine and tobacco with the number who purchase works in Sanskrit. Similar differences can be observed, in perhaps a still more striking manner, in the marketability of goods of different subcategories but of the same general type or kind. Dealers in optical goods have glasses for all degrees of long- and short-sightedness ready for sale. Hat and glove merchants, shoemakers, and furriers, have hats, gloves, shoes, and furs of different sizes and qualities. But how great is the difference between the number of persons to whom the marketability of the most powerful glasses is limited and the number to whom glasses of medium strength can be sold! How great is the difference between the number of persons to whom the marketability of gloves or hats of medium sizes extends and the number of persons purchasing gloves and hats of very large sizes!
(2) The marketability of commodities is limited with respect to the area within which they can be sold. For a commodity to be sold in any one place, it is necessary, in addition to the previous requirement that there must be a number of persons to whom it can be sold, that (a) there be no physical or legal barrier to its transportation to that place or to its being offered there for sale, and that (b) the costs and expenses of transportation shall not exhaust the gain that can be derived from the expected exchange opportunity (p. 189).
The differences between different commodities are not less great with respect to the geographical extent of the areas in which they can be sold than the differences we have just observed with respect to the numbers of persons to whom they can be sold. There are commodities which, as a result of spatially limited requirements for them, can be sold only in a single town or village, others that can be sold only in a few provinces, some only in a certain country, others in all civilized countries, and still others that can be sold in all the inhabited parts of the world. The peculiar hats worn by the rural population in some of the valleys of the Tyrol can be sold only in a particular valley; the hats of Swabian or Hungarian peasants cannot easily be sold elsewhere than in Swabia or Hungary; but the markets of the entire civilized world stand open to hats of the newest French fashion. For the same reason, the marketability of heavy furs is restricted to northern regions, and the marketability of heavy woollens to regions in the northern and temperate zones, while light cotton goods can be sold almost anywhere in the entire world.
A no less important difference in the size of the sales area is founded on the economic sacrifices involved in transporting commodities to distant markets. Where there are no railroads, the sales area of common building stone taken from a quarry not situated on a waterway, and the sales areas of ordinary sand, clay, and manure, do not often extend farther than two or three miles. Even where railroads do exist, it is only in the rarest instances that the sales areas of these commodities exceed 15 or 20 miles. The sales areas of coal, peat, and firewood are, under the same conditions, more extended but still narrowly restricted. The sales areas of pig iron and wheat are considerably wider; those of steel and wheat flour are still wider; and the sales area of precious metals, precious stones, and pearls, comprises practically all parts of the globe where requirements for these goods exist and where the means of payment for them are at hand.
The economic sacrifices involved in transportation must be recovered from the difference between the price at the point of origin and the price at the destination. For commodities of low value this difference can evidently never be significant. Firewood can be purchased at infinitesimally low prices in the virgin forests of Brazil and even in some regions of eastern Europe. In many cases it can be obtained entirely free of charge. But the price of a hundredweight of firewood is nowhere high enough that the difference between it and the price at the place of origin, even if the latter were equal to zero, would suffice to cover the costs of a long overland haul. In the case of commodities of high value (watches, for example), on the other hand, the difference between the price of a hundredweight of the commodity at the place of production and at the most distant markets (at Geneva, and at New York or Rio de Janeiro, for instance) may easily, in spite of the already considerable price in the market of origin, be sufficiently high to compensate for the expense of transporting the commodity to the distant regions of sale. Hence the more valuable a commodity the greater, other things being equal, is its sales area.
(3) Commodities are limited quantitatively in their marketability. The marketability of a commodity is restricted quantitatively to the requirements for it that have still to be met—even further, it is restricted to those quantities with respect to which the foundations for economic exchange operations are present. However large the requirements of a single individual for a commodity, purchases of quantities exceeding this amount cannot be expected during a given time period. Even within the limits of his requirements, an individual will be prepared to take in exchange only those quantities of the commodity with respect to which the foundations for economic exchange operations are present for him. The demand for a commodity in general is composed of the demands of the various economizing individuals desiring it. The total quantity of a commodity that can be sold to the members of a society is, therefore, in any given economic situation, strictly limited, and sales beyond this limit are inconceivable.
The quantitative limits of marketability are remarkably different for different goods. There are commodities that can never be sold, at given points in time, except in narrowly limited quantities because of narrowly limited requirements for them. There are others for which requirements are larger, and for which, in consequence, the quantitative limits of marketability extend considerably further. And there are still others that can be sold in almost any practically conceivable amounts.
The publisher of a work on the language of the Tupi Indians could count on a sale of perhaps 300 copies at a moderate price for the work. But even at the lowest price, he could not count on a sale of more than 600 copies. A scholarly work in which only a narrow group of specialists is interested, and which is intended for the needs of several generations of scholars, often attains its sales only with the increasing fame of its author, and can be sold only over a long period of time. But a work about a science that is attracting general interest may, in spite of its scholarly character, attain sales of several thousand copies. Popular scientific publications may attain sales of 20,000 to 30,000 copies or more. Important works of fiction may, under favorable circumstances, sell in editions of several hundred thousand copies. Consider the differences in the quantitative limits of the marketability of a work on Peruvian archeology and the poems of Friedrich Schiller, or of a work on Sanskrit and the plays of Shakespeare! But the differences in the quantitative limits of the marketability of commodities are still greater if we consider bread and meat on the one hand, and quinine or castoreum on the other, or cotton and woollen goods on the one hand, and astronomical instruments and anatomical specimens on the other. Finally, compare the quantitative limits of the marketability of hats and gloves of medium and of extra large sizes.
(4) Finally, commodities are also limited in their marketability with respect to the time periods in which they can be sold. There are goods for which requirements exist only in winter; others for which they exist only in summer; and still others for which a demand exists only during some other more or less fleeting period. Programs for coming festivals or fine art exhibits, and even, in a certain sense, newspapers and articles of fashion, are goods of this sort. In fact, all perishable goods are, by their very nature, restricted in their marketability to a narrow time period.
To this must be added the fact that keeping commodities “in stock” usually involves not inconsiderable economic sacrifices on the part of the owner. The effect of storage fees, costs of safekeeping, and loss of interest, on the limits of the marketability of commodities in time is similar to the effect of freight charges and other transportation costs on the spatial limits of their marketability. A cattle trader in our civilization who has a herd of cattle ready for slaughter and sale must necessarily exercise care to sell them within certain time limits because they will otherwise not be in prime condition, because of loss of interest, and in general because of the other economic sacrifices unavoidably associated with the possession of these animals as “commodities.” A wool merchant or an iron merchant also has commodities whose marketability is restricted to certain time periods partly for physical and partly for economic reasons (storage costs, loss of interest).
Very great differences can be observed in the time periods during which different commodities must be sold. The time limits within which, for example, oysters, fresh meat, many prepared foods and beverages, cut flowers, programs for coming festivals, political tracts, and so forth, must be sold are, on the whole, restricted to a few days and often to but a few hours. The period within which most fresh fruit, game, potted plants, many articles of fashion, etc., must be sold is limited to a few weeks, and a few months in the case of other similar commodities, while the period within which still other commodities can be sold, provided they can be preserved long enough and requirements for them continue, extends to years, decades, and even centuries.
The economic sacrifices involved in the preservation and storage of commodities vary considerably. From this fact arises a further, very important, factor responsible for differences in the time limits of the marketability of commodities. A person with building stones or firewood for sale has commodities that can be stored in an open field. He will not ordinarily be forced to make his sales as quickly, therefore, as a furniture dealer, and the latter is again under less compulsion to sell quickly than a horse trader. The owner of gold, silver, precious stones, or other commodities that can be stored almost without cost (if we omit consideration of the loss of interest), has goods whose marketability extends much further in time than that of all the abovementioned commodities.
8 Here must be mentioned, above all, the restrictions placed on the marketability of commodities by sumptuary laws and police regulations. In the middle ages, for example, the sale of velvet was limited to members of the nobility and the clergy, and still today the sale of arms is limited in many countries to persons who have obtained an official permit to bear them.
9 Commodities that are little known (“articles that have not yet been introduced”) have very small clienteles simply because they are not known. Producers are therefore accustomed to make their commodities “known,” often at great economic sacrifice, in order to increase the numbers of persons to whom they are saleable. This accounts for the economic importance of public announcements, advertisements, publicity, etc.
10 The marketability of commodities is generally considerably increased by the growing needs and increasing wealth of a people. The marketability of a few commodities, however, is diminished by these factors. There are a number of commodities that can easily be sold in a poor country, but become practically unsaleable as soon as the country attains economic maturity (see pp. 234–5).
B. The different degrees of marketability of commodities.In the previous section, we saw that the marketability of commodities is restricted sometimes to greater and sometimes to smaller numbers of persons, and within sometimes narrower and sometimes wider spatial, temporal, and quantitative limits. In all this, however, I have described only the outside limits within which, in any given economic situation, commodities can be sold. The causes determining the greater or less facility with which commodities can be sold within these limits of marketability remain still to be examined.
It is necessary, for this purpose, to begin with a few words about the nature of commodities and the intentions of their possessors. A commodity is an economic good intended for sale. But it is not intended for sale unconditionally. The owner of a commodity intends to sell it, but by no means at any price. A jeweller with a stock of watches could sell off his entire stock, in almost any situation imaginable, if he were willing to sell his watches at one Thaler each. A leather merchant could clear out his stock too if he were prepared to sell his leather at similar ruinous prices. Both merchants may nevertheless be justified if they complain of sluggish sales, since although their commodities are intended for sale, as has been stated, they are intended for sale, not at any price, but at prices that correspond to the general economic situation.
The prices that become effective are always the product of existing competitive conditions (p. 218), and correspond more closely to the general economic situation the more complete the competition on both sides. If there are any circumstances that restrain a number of those who have requirements for a commodity from competing for it, its price will fall below the level corresponding to the general economic situation. If there are any restraints upon competition on the supply side, the price of the commodity will rise above this level.
If the competition for one commodity is poorly organized and there is danger therefore that the owners will be unable to sell their holdings of the commodity at economic prices, at a time when this danger does not exist at all, or not in the same degree, for the owners of other commodities, it is clear that this circumstance will be responsible for a very important difference between the marketability of that commodity and all others. The other commodities can be brought to their final destinations easily and safely, but the commodity whose market is poorly organized can be brought to its final destination only with economic sacrifices, and in some cases not at all.
Market places, fairs, exchanges, public auctions that are held periodically (as is the case in large sea-ports, for example), and other public institutions of a similar nature, are for the purpose of bringing all persons interested in the pricing of a commodity together at a particular place either permanently or periodically to ensure the establishment of an economic price. Commodities for which an organized market exists can be sold without difficulty by their owners at prices corresponding to the general economic situation. But comm