Thursday, January 21, 2016

113 - The four factors of production

The classical economics of Adam Smith, David Ricardo, and their followers focused on physical resources in defining factors of production. Lately other authors have included others - the most notable being entrepreneurship. So here they are: Land or natural resource — naturally-occurring goods like water, air, soil, minerals, flora and fauna that are used in the creation of products. The payment for use and the received income of a land owner is rent.

Labor — human effort used in production which also includes technical and marketing expertise. The payment for someone else's labor and all income received from ones own labor is wages. Labor can also be classified as the physical and mental contribution of an employee to the production of the good(s).

The remuneration being wages. The capital stock — human-made goods which are used in the production of other goods. These include machinery, tools, and buildings.

The remuneration is interest on the capital expenditure.

Money as such is not considered to be a factor of production in the sense of capital stock since it is not used to directly produce any good.

Then we have entrepreneurship - the remuneration being profit.

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