Factors of production

• Land - naturally occurring goods such as soil and minerals.
• Labor - human effort used in production.
• Capital - goods which are used in the production of other goods, such as machinery, tools and buildings.

These were codified originally in the analyses of Adam Smith, 1776, David Ricardo, 1817, and the later contributions of John Stuart Mill as part of one of the first coherent theories of production.

In the classical analysis, capital was generally viewed as being physical items such as tools and machinery. More modern analysis often distinguishes this physical capital from other forms of capital such as human capital. Some economists mention enterprise, individual capital or just "leadership" as a fourth factor.

The classical theory, further developed, remains useful to the present day as a basis of microeconomics.

Alternative views

Marxist and socialist economists also employ the concept of factors of production. But they tend to treat labour very differently from the other factors. Their analysis does not substantially alter the idea of factors of production, although it puts special emphasis on means of production, defined as the factors minus labor, which it sought to differentiate from human factors.

They focus on the central role of human capital, in particular the social capital (community trust) and instructional capital (actual worker's skills and instructions) that became increasingly important through the 20th century.

Most modern analyses usually cite four to seven types of capital, as in Natural Capitalism or the theories of intellectual capital. Brands have also been considered "brand capital", a special form of intangible firm-specific social capital distinct from that inherited from the larger society, in the analysis of Baruch Lev.

Land has become natural capital, imitative aspects of Labor have become instructional capital, creative or inspirational aspects or "Enterprise" have become individual capital (in some analyses), and social capital has become increasingly important. The classical relationship of financial capital and infrastructural capital that was sharply criticized by Karl Marx is still recognized as central, but there is a wider debate on means of production and various means of protection, or "property rights", to secure their reliable use.

When disputes arise regarding these fine distinctions, most economists will fall back to the three classical factors. No major theory has yet substantially altered the foundation assumptions of either "left" (Marxist) or "right" (neoclassical) theory.

See also

• microeconomics
• production, costs, and pricing
• production theory basics
• production, costs, and pricing
• labor theory of value
• cost of production theory of value

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