Factors of Production
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Factors Of Production
Land, labor, capital, and entrepreneurship: These are four generally recognized factors of production. Of course, in a literal sense anything contributing to the productive process is a factor of production. However, economists seek to classify all inputs into a few broad categories, so standard usage refers to the categories themselves as factors. Before the twentieth century, only three factors making up the "classical triad" were recognized: land, labor, and capital. Entrepreneurship is a fairly recent addition.
The factor concept is used to construct models illustrating general features of the economic process without getting caught up in inessential details. These include models purporting to explain growth, value, choice of production method, income distribution, and social classes. A major conceptual application is in the theory of production functions. One intuitive basis for the classification of the factors of production is the manner of payment for their services: rent for land, wages for labor, interest for capital, and profit for entrepreneurship. A discussion of each of the factors follows.
LAND
This category sometimes extends over all natural resources. It is intended to represent the contribution to production of nonhuman resources as found in their original, unimproved form.
For the French physiocrats led by Francois Quesnay in the 1750s and 1760s, land was the only factor yielding a reliable gain to its owner. In their view, laborers and artisans were powerless and in excess supply, and hence they earned on average only a subsistence-level income; and in the same way what they produced outside of agriculture fetched enough to cover only their wages and input costs with no margin for profit. Only in agriculture, due to soil fertility and other "gifts of nature," could a laborer palpably produce more than required to cover subsistence and other
Factors Of Production
Land, labor, capital, and entrepreneurship: These are four generally recognized factors of production. Of course, in a literal sense anything contributing to the productive process is a factor of production. However, economists seek to classify all inputs into a few broad categories, so standard usage refers to the categories themselves as factors. Before the twentieth century, only three factors making up the "classical triad" were recognized: land, labor, and capital. Entrepreneurship is a fairly recent addition.
The factor concept is used to construct models illustrating general features of the economic process without getting caught up in inessential details. These include models purporting to explain growth, value, choice of production method, income distribution, and social classes. A major conceptual application is in the theory of production functions. One intuitive basis for the classification of the factors of production is the manner of payment for their services: rent for land, wages for labor, interest for capital, and profit for entrepreneurship. A discussion of each of the factors follows.
LAND
This category sometimes extends over all natural resources. It is intended to represent the contribution to production of nonhuman resources as found in their original, unimproved form.
For the French physiocrats led by Francois Quesnay in the 1750s and 1760s, land was the only factor yielding a reliable gain to its owner. In their view, laborers and artisans were powerless and in excess supply, and hence they earned on average only a subsistence-level income; and in the same way what they produced outside of agriculture fetched enough to cover only their wages and input costs with no margin for profit. Only in agriculture, due to soil fertility and other "gifts of nature," could a laborer palpably produce more than required to cover subsistence and other