Financial commodities: Catalysts in the evolution of capital markets

Abstract

This research presents a theory of the financial commodity and the evolution of capital markets. Financial commodities evolved to facilitate intratemporal and intertemporal exchanges. They reduced not only the direct cost of exchange involving consumable commodities, but also the indirect social cost of storing them. The existence of these commodities is a necessary condition for the evolution capital markets. The presence of both, the financial commodities and markets, in turn, made forward consumption possible, something not feasible in earlier exchange technologies (such as monetary or barter exchange). The theory also explains the continuous drive by market participants to introduce technological cost-cutting innovations in money and other financial commodities. Each efficient innovation yields an expansion of the intertemporal consumption set.