We explain what production factors are, what they are for and what the main characteristics of each one are.
What are the factors of production?
In economics, production factors are known as inputs and resources, both human and of another nature, on whose availability and correct management the generation of wealth in any economic system depends. That is, it is called that the “inputs” of any production process without which a “way out” cannot be obtained: the satisfaction of human beings' needs for goods and services.
Factors of production are understood as especially those inputs whose abundance is not absolute such as certain natural resources (atmospheric air, for example). And in general terms, four major factors are always considered in every productive process: land, work, capital and organization/knowledge.
As will be understood, production, and therefore also the income and expenditure of any human enterprise, depends, in principle, on these factors. However, It is possible that these four factors will vary in their specific meaning as the world changes and our industrial and consumer processes as well. Thus, for example, the “land” factor was vital in an agricultural consideration of the world and represented exactly that: the possession of land for sowing; something that has had to be redefined after the advent of industrial society.
the land
Current understanding of the need for land occurs in a broader sense than simply owning land. The latter is particularly valid for agricultural production, but in the case of industrial or post-industrial production models it refers rather to the resources found in the Earth's crust, and which can be of mineral, organic, biological, etc. origin. .
That is, from oil, the different minerals, the wood from the forests or the fruits grown in a field are considered part of the land factor, and are usually considered the basic elemental factor, the primary material input, from which the process of changes that is production.
This, of course, It will depend on the economic activity to which we refer. For example, a software company will not require any type of land, beyond the physical space in which its offices are located. Instead, a real estate company will consider land as its sole and primary input.
In particular non-renewable resources (such as fossil fuels) have a very aggressive market in their competition and countries that have these resources in abundance tend to be favored in their terms of trade. The payment to the land factor is what must be paid for the use of natural resources.
The work
The work refers to the various efforts that an individual faces to bring a product or service to the consumer market which can well happen in many ways. Work is the very work of production in which, for example, a farmer grows certain fruits; but also the collection and transportation of said fruits to the place where they are processed, and from there to the industry that turns them into food. The same happens with the person in charge of distributing these foods, and selling them to potential buyers. Services are also work, so a company in this sector essentially offers its clients a specialized type of work.
In the capitalist system, Workers are rewarded for this work effort with a salary calculated based on the hours of work performed and the level of professionalization or specialization that said work represents. Highly qualified workers are known as human capital and their generation in a country or society is what motivates the existence of an educational system, especially one oriented towards practical knowledge.
The capital
Capital is typically understood as money, that is, the monetary and financial resources that allow a productive process to start either providing it with its basic supplies or serving to pay its workers.
However, money is not directly involved in the production of a good or service, so it is usually understood as capital. the acquisition of the material resources essential for production to take place. For example, a tractor is necessary for agricultural production, as are desks and computers for the production of a software company.
Similarly, We speak of human capital to refer to the quantity and quality of workers of an organization, as well as the money it invests in its education and professional improvement, to enjoy a more suitable and higher-value workforce.
This type of resources is known as investment and is deducted from the income produced by the company to distinguish between the capital required for the continuation of the process or even for its expansion, from the profits generated by the production process.
The organization/knowledge
This last factor refers to the production methodology used, that is, to the way in which the other factors are coordinated and orchestrated in favor of sustained and profitable production. It is useless to have capital and land if you do not have the specific knowledge to plant or if it is planted in such a way that inputs are wasted and profitability is minimal.
We speak therefore of the know-how (knowing how) of the production process, and in that it refers to both the basic knowledge of production, to the management methods used and the administrative scheme of the organization. Many authors prefer to call this factor entrepreneurship or entrepreneurship.
References
- “Factors of production” on Wikipedia.
- “Factors of production” in Economipedia.
- “Factors of production” (video) in Educatina.
- “Factors of production” in The Economy.
- “Factors of Production” in Investopedia.
- “Factors of Production” in The Encyclopaedia Britannica.
