We explain what the factors of production are, what they are for and what are the main characteristics of each one.
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 depends the generation of wealth in any economic system. That is, it is called thus the “inputs” of any production process, without which no “way out” can be obtained: the satisfaction of human needs for goods and services.
It is understood as factors of production 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 any production process: land, work, capital and organization / knowledge.
As will be understood, on these factors depends, in principle, the production, and therefore also the income and expenditure of any human enterprise. Nevertheless, these four factors may vary in their point 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: land tenure for sowing; something that had to be re-signified after the advent of industrial society.
The earth
The current understanding of the need for the land It is 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 models of production, it refers more to the resources found in the earth’s crust, and which can be of mineral, organic, biological origin, etc. .
That is, from oil, different minerals, wood from forests or 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 it is given 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) they 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 the one that must be paid for the use of natural resources.
The job
The work refers to the various efforts that an individual faces to bring a product or service to the consumer market, which may well happen in many ways. The labor of production itself in which, for example, a farmer grows certain fruits is work; but also the collection and conduction 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 of selling them to potential buyers. Services are also work, so that a company in this sector offers its clients, essentially, 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 such 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.
Capital
Capital is typically understood as money, that is, the monetary and financial resources that make it possible to start a production process, either by providing it with its basic inputs or by serving to pay its workers.
However, money is not directly involved in the production of a good or a service, so it is usually understood by capital the acquisition of material resources essential for production to take place. For example, a tractor is necessary for agricultural production, the same as 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 that it invests in their education and professional development, to enjoy a more qualified and valuable workforce.
These types of resources are known as investment and they are 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 a sustained and profitable production. It is useless to have capital and land if you do not have the specific knowledge to sow, or if it is planted in such a way that inputs are wasted and profitability is minimal.
We therefore speak 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.