Tangibles, intangibles and services: a new taxonomy for the classification of output

The distinction between goods and services has been traditionally interpreted by economists as if it were equivalent to a distinction between physical commodities, or tangible material products, on the one hand and immaterial, or intangible, products on the other. The economics literature is full of statements to the effect that goods are material, or tangible, whereas services are immaterial, or intangible. Such statements are casual and conventional rather than scientific, as the nature of an immaterial product is not explained. In practice, intangible products deserve more serious attention because they play a major role in the ‘information economy.’ They are quite different from services. This paper examines what are the economically relevant characteristics of goods and services that enable them to be distinguished from each other, usually without difficulty. The distinction is economically important because it marks a fundamental divide within an economy in the ways in which processes of production and distribution are organized. The divergent trends between goods and services industries, such as the slower growth of productivity in services, must be partly attributable to the fact that the nature of service output is such that it is produced and delivered under constraints that do not apply to goods output. The main thrust of this paper is that the distinction between goods and services has become erroneously and unnecessarily confused with quite a different one, namely that between tangible and intangible products. There is now an extremely important and fast growing class of intangible products in the form of entities that are recorded and stored on media such as paper, films, tapes or disks. Advances in computer, communications and audio-visual technology have greatly enhanced the economic importance of these intangibles. On closer analysis, it emerges that they have all the salient economic characteristics of goods and nothing in common with services. In the global economy their production and distribution are organized in patently different ways from services. Treating them as services not only obscures the real nature and economic significance of intangibles but also causes confusion about the true characteristics of services.