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A commodity is a basic good, material, or product that is produced in very large quantities and is usually sold in raw or only partly processed form. The most common commodities are essential agricultural products such as wheat, sugar, rubber, and coffee and basic mineral-derived products like copper, tin, or silver. On a more general level, a commodity may also be any manufactured product — for example, computer chips — that has become so common or inexpensive in design or manufacture that it is almost impossible to tell the difference between two producers' versions of that commodity.[1]

Commodity money

How does a commodity such as gold or silver turn into money? To be spontaneously adopted as a medium of exchange, a commodity must be desired for its nonmonetary services (for its own sake) and be marketable, that is, it must be widely bought and sold. The prices that are initially being paid for its nonmonetary services enable prospective buyers to estimate the future prices at which one can reasonably expect to resell it. The prices paid for its nonmonetary use are, so to speak, the empirical basis for its use in indirect exchange. The monetary demand then adds to the original nonmonetary demand, so that the price of the money-commodity contains a monetary component and a nonmonetary component.

The medieval scholastics called money a res fungibilis et primo usu consumptibilis ("A thing that is fungible and primarily used in consumption."). It was in the very nature of money to be a marketable thing that had its primary use in consumption.[2]

The distinguishing characteristic of money is that it is the general medium of exchange. It has evolved from the most marketable commodity.[3]


  1. "Commodity.", Gale Encyclopedia of U.S. Economic History. 1999. Referenced 2010-06-22.
  2. Jörg Guido Hülsmann. "The Ethics of Money Production" (pdf), 2. The Origin and Nature of Money p.23-24, referenced 2010-06-22.
  3. Frank Shostak. "The Mystery of the Money Supply Definition" (pdf), The Quarterly Journal of Austrian Economics Vol.3, No.4, Winter 2000. Referenced 2010-06-22.