Commodification, a 19th century case study

“…the emergence of large-scale grain markets in Chicago during the middle of the nineteenth century.

Before 1850, grain was bought and sold in large, open air marketplaces near the waterfront of Chicago. . . . Grain was sent by the sackful from a farm to a merchant, who would haggle face-to-face with buyers in an effort to obtain the best price. The merchant acted as a middleman for the farmer, who retained ownership over his grain and paid the merchant a commission for each sale.

“…the rise of the railroads transformed this mode of exchange and ‘transmute[d] wheat and corn into monetary abstractions.’ Railroads allowed crops to be efficiently transported from outlying farms into Chicago, rapidly increasing the amount of grain that entered the city’s market. When it became clear that bulk grain was more efficiently sold at market, traditional grain sacks were abandoned and farmers pooled their crops into freight cars. But combining grain from different farms raised the question of how to deal with the ownership of the grain that each farmer contributed to a given carload.

A private industry consortium, the Chicago Board of Trade (CBOT), eventually solved the problem through standardization. The CBOT designated three categories of grain and four levels of quality (‘Club,’ ‘No. 1,’ ‘No. 2,’ and ‘Rejected’). Farmers putting grain into a train car re ceived a receipt indicating a quantity of grain and a quality level. The receipt was redeemable for an equal quantity of the same quality grain-not the same grain, but its func tional equivalent.

Once standardized, grain became abstracted into a commodity. The receipts could be bought and sold with out regard to the specific identity of the farmer who originally produced the grain. People with no interest in grain production could make a profit by buying and selling receipts. Famously, the CBOT also facilitated the rise of a vigorous trade in ‘futures,’ speculative contracts betting on the future price of grain.”

China, global trade, finance and the “Internet of Things”

“The real threat to American financial hegemony comes not from the digital currency as such, but from the integration of so-called smart logistics and the ‘Internet of Things.’ China is racing to lead a revolution in transport and warehousing that will allow counter parties to track all goods at every stage of production and shipment around the world, making global supply chains transparent. This will drastically reduce the banking system’s role as intermediary and shrink the working capital required for trade.”

“Chips that cost a few cents to produce will be embedded in every traded product and communicate in real time with servers that direct them to automated warehouses, driverless trucks, digitally-controlled ports, and ultimately to end users. Artificial Intelligence will direct goods to the cheapest and fastest transport and allow buyers to find the cheapest prices. 5G communications between servers and goods will verify the production, transit, and storage status of trillions of items in trade. The working capital required for transactions in international trade will shrink.”

“…China is several years ahead of the United States in deploying 5G networks and building out the manufacturing and logistics technology that 5G enables. The technologies associated with the Fourth Industrial Revolution, moreover, may give China a degree of influence in huge swaths of the world unimaginable within the framework of existing industrial organization. Billions of people in the developing world live on the margins of the global economy, working subsistence plots, engaging in petty commerce, with little access to information, education, medical care, and social services. Cheap mobile broadband is connecting them to the world market, integrating them into what Huawei calls its ‘ecosystem’ of telecommunications, e-commerce, e-finance, telemedicine, and smart agriculture. . . . China tore out traditional society at the grass roots and urbanized 600 million people during the past 35 years, and it believes that it can integrate billions more into its virtual empire during the next decade.”