Factors of production
Encyclopedia
In economics
, factors of production means inputs and finished goods means output. Input determines the quantity of output i.e. output depends upon input. Input is the starting point and output is the end point of production process and such input-output relationship is called a production function
. All factors of production like land, labour, capital and entrepreneur are required in combination at a time to produce a commodity. In economics, production means creation or an addition of utility.factors of production (or productive inputs or resources) are any commodities or services used to produce goods
and services. 'Factors of production' may also refer specifically to the primary factors, which are stocks including land
, labor (the ability to work), and capital goods
applied to production. The primary factors facilitate production but neither become part of the product (as with raw materials) nor become significantly transformed by the production process (as with fuel used to power machinery). 'Land' includes not only the site of production but natural resource
s above or below the soil. Recent usage has distinguished human capital
(the stock of knowledge in the labor force
) from labor. Entrepreneurship is also sometimes considered a factor of production. Sometimes the overall state of technology
is described as a factor of production. The number and definition of factors varies, depending on theoretical purpose, empirical emphasis, or school of economics
.
Differences are most stark when it comes to deciding which factor is the most important. For example, in the Austrian
view—often shared by neoclassical
and other "free market" economists—the primary factor of production is the time of the entrepreneur, which, when combined with other factors, determines the amount of output of a particular good or service. However, other authors argue that "entrepreneurship
" is nothing but a specific kind of labor or human capital and should not be treated separately. The Marxian school
goes further, seeing labor (in general, including entrepreneurship) as the primary factor of production, since it is required to produce capital goods and to utilize the gifts of nature. But this debate is more about basic economic theory (the role of the factors in the economy) than it is about the definition of the factors of production.
of Adam Smith
, David Ricardo
, and their followers focuses on physical resources in defining its factors of production, and discusses the distribution of cost and value among these factors. Adam Smith and David Ricardo referred to the "component parts of price" as the costs of using:
The classical economists also employed the word "capital" in reference to money. Money, however, was not considered to be a factor of production in the sense of capital stock since it is not used to directly produce any good. The return to loaned money or to loaned stock was styled as interest while the return to the actual proprietor of capital stock (tools, etc.) was styled as profit. See also returns
.
" to be:
The "subject of labor" refers to natural resources and raw materials, including land. The "instruments of labor" are tools, in the broadest sense. They include factory buildings, infrastructure, and other human-made objects that facilitate labor's production of goods and services.
This view seems similar to the classical perspective described above. But unlike the classical school and many economists today, Marx made a clear distinction between labor actually done and an individual's "labor power
" or ability to work. Labor done is often referred to nowadays as "effort" or "labor services." Labor-power might be seen as a stock
which can produce a flow
of labor.
Labor, not labor power, is the key factor of production for Marx and the basis for Marx's labor theory of value
. The hiring of labor power only results in the production of goods or services ("use-values
") when organized and regulated (often by the "management"). How much labor is actually done depends on the importance of conflict or tensions within the labor process.
, one of the branches of mainstream economics
, started with the classical factors of production of land, labor, and capital. However, it developed an alternative theory of value and distribution. Many of its practitioners have added various further factors of production (see below).
include the following:
s; Frank Knight
introduced managers who co-ordinate using their own money (financial capital) and the financial capital of others. In contrast, many economists today consider "human capital
" (skills and education) as the fourth factor of production, with entrepreneurship as a form of human capital. Yet others refer to intellectual capital
. More recently, many have begun to see "social capital" as a factor, as contributing to production of goods and services.
, central planners decide how land, labor, and capital should be used to provide for maximum benefit for all citizens. Of course, just as with market entrepreneurs, the benefits may mostly accrue to the entrepreneurs themselves.
The word has been used in other ways. The sociologist C. Wright Mills
refers to "new entrepreneurs" who work within and between corporate and government bureaucracies in new and different ways. Others (such as those practicing public choice theory
) refer to "political entrepreneur
s," i.e., politicians and other actors.
Much controversy rages about the benefits produced by entrepreneurship. But the real issue is about how well institutions they operate in (markets, planning, bureaucracies, government) serve the public. This concerns such issues as the relative importance of market failure
and government failure
.
from other forms of capital such as human capital
. Human capital is embodied in a human being and is acquired through education and training, whether formal or on the job.
Human capital is important in modern economic theory. Education is a key element in explaining economic growth
over time (see growth accounting
). It is also often seen as the solution to the "Leontief paradox
" in international trade.
, used especially as to information technology
, recorded music, written material. This intellectual property
is protected by copyrights, patents, and trademarks.
This view posits a new Information Age
, which changes the roles and nature of land, labour, and capital. During the Information Age
(circa 1971–1991), the Knowledge Age
(circa 1991 to 2002), and the Intangible Economy
(2002–present) many see the primary factors of production as having become less concrete. These factors of production are now seen as knowledge, collaboration, process-engagement, and time quality.
According to economic theory, a "factor of production" is used to create value and allow economic performance. As the four "modern-day" factors are all essentially abstract, the current economic age has been called the Intangible Economy. Intangible factors of production are subject to network effects and the contrary economic laws such as the law of increasing returns.
is often hard to define, but to one textbook it is:
Another kind of social capital can be owned individually. This kind of individual asset involves reputation, what accountants call "goodwill
", and/or what others call "street cred," along with fame, honor, and prestige. It fits with Pierre Bourdieu
’s definition of "social capital" as:
This means that the value of individual social assets that Bourdieu points to depend on the current "social capital" as defined above.
analysis support results derived from linear exponentional (LINEX) production functions.
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, factors of production means inputs and finished goods means output. Input determines the quantity of output i.e. output depends upon input. Input is the starting point and output is the end point of production process and such input-output relationship is called a production function
Production function
In microeconomics and macroeconomics, a production function is a function that specifies the output of a firm, an industry, or an entire economy for all combinations of inputs...
. All factors of production like land, labour, capital and entrepreneur are required in combination at a time to produce a commodity. In economics, production means creation or an addition of utility.factors of production (or productive inputs or resources) are any commodities or services used to produce goods
Good (economics and accounting)
In economics, a good is something that is intended to satisfy some wants or needs of a consumer and thus has economic utility. It is normally used in the plural form—goods—to denote tangible commodities such as products and materials....
and services. 'Factors of production' may also refer specifically to the primary factors, which are stocks including land
Land (economics)
In economics, land comprises all naturally occurring resources whose supply is inherently fixed. Examples are any and all particular geographical locations, mineral deposits, and even geostationary orbit locations and portions of the electromagnetic spectrum. Natural resources are fundamental to...
, labor (the ability to work), and capital goods
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
applied to production. The primary factors facilitate production but neither become part of the product (as with raw materials) nor become significantly transformed by the production process (as with fuel used to power machinery). 'Land' includes not only the site of production but natural resource
Natural resource
Natural resources occur naturally within environments that exist relatively undisturbed by mankind, in a natural form. A natural resource is often characterized by amounts of biodiversity and geodiversity existent in various ecosystems....
s above or below the soil. Recent usage has distinguished human capital
Human capital
Human capitalis the stock of competencies, knowledge and personality attributes embodied in the ability to perform labor so as to produce economic value. It is the attributes gained by a worker through education and experience...
(the stock of knowledge in the labor force
Labor force
In economics, a labor force or labour force is a region's combined civilian workforce, including both the employed and unemployed.Normally, the labor force of a country consists of everyone of working age In economics, a labor force or labour force is a region's combined civilian workforce,...
) from labor. Entrepreneurship is also sometimes considered a factor of production. Sometimes the overall state of technology
Technology
Technology is the making, usage, and knowledge of tools, machines, techniques, crafts, systems or methods of organization in order to solve a problem or perform a specific function. It can also refer to the collection of such tools, machinery, and procedures. The word technology comes ;...
is described as a factor of production. The number and definition of factors varies, depending on theoretical purpose, empirical emphasis, or school of economics
Schools of economics
Schools of economic thought describes the variety of approaches in the history of economic theory noteworthy enough to be described as a 'school of thought'. While economists do not always fit into particular schools, particularly in modern times, classifying economists into schools of thought is...
.
Historical schools and factors
In the interpretation of the currently dominant view of classical economic theory developed by neoclassical economists, the term "factors" did not exist until after the classical period and is not to be found in any of the literature of that time.Differences are most stark when it comes to deciding which factor is the most important. For example, in the Austrian
Austrian School
The Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...
view—often shared by neoclassical
Neoclassical economics
Neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits...
and other "free market" economists—the primary factor of production is the time of the entrepreneur, which, when combined with other factors, determines the amount of output of a particular good or service. However, other authors argue that "entrepreneurship
Entrepreneurship
Entrepreneurship is the act of being an entrepreneur, which can be defined as "one who undertakes innovations, finance and business acumen in an effort to transform innovations into economic goods". This may result in new organizations or may be part of revitalizing mature organizations in response...
" is nothing but a specific kind of labor or human capital and should not be treated separately. The Marxian school
Marxian economics
Marxian economics refers to economic theories on the functioning of capitalism based on the works of Karl Marx. Adherents of Marxian economics, particularly in academia, distinguish it from Marxism as a political ideology and sociological theory, arguing that Marx's approach to understanding the...
goes further, seeing labor (in general, including entrepreneurship) as the primary factor of production, since it is required to produce capital goods and to utilize the gifts of nature. But this debate is more about basic economic theory (the role of the factors in the economy) than it is about the definition of the factors of production.
Physiocracy
In French Physiocracy, the main European school of economics before Adam Smith, the productive process is explained as the interaction between participating classes of the population. These classes are therefore the factors of production within physiocracy: capital, entrepreneurship, land, and labor.- The farmer labors on land (sometimes using "crafts") to produce food, fiber, and the like.
- The artisan labors to produce important capital goods (crafts) to be used by the other economic actors.
- The landlord is only a consumer of food and crafts and produces nothing at all.
- The merchant labors to export food in exchange for foreign imports.
Classical
The classical economicsClassical economics
Classical economics is widely regarded as the first modern school of economic thought. Its major developers include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill....
of Adam Smith
Adam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...
, David Ricardo
David Ricardo
David Ricardo was an English political economist, often credited with systematising economics, and was one of the most influential of the classical economists, along with Thomas Malthus, Adam Smith, and John Stuart Mill. He was also a member of Parliament, businessman, financier and speculator,...
, and their followers focuses on physical resources in defining its factors of production, and discusses the distribution of cost and value among these factors. Adam Smith and David Ricardo referred to the "component parts of price" as the costs of using:
- LandLand (economics)In economics, land comprises all naturally occurring resources whose supply is inherently fixed. Examples are any and all particular geographical locations, mineral deposits, and even geostationary orbit locations and portions of the electromagnetic spectrum. Natural resources are fundamental to...
or natural resourceNatural resourceNatural resources occur naturally within environments that exist relatively undisturbed by mankind, in a natural form. A natural resource is often characterized by amounts of biodiversity and geodiversity existent in various ecosystems....
— naturally-occurring goods such as 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 capital stockCapital (economics)In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
— human-made goods (or means of productionMeans of productionMeans of production refers to physical, non-human inputs used in production—the factories, machines, and tools used to produce wealth — along with both infrastructural capital and natural capital. This includes the classical factors of production minus financial capital and minus human capital...
), which are used in the production of other goods. These include machinery, tools, and buildings.
The classical economists also employed the word "capital" in reference to money. Money, however, was not considered to be a factor of production in the sense of capital stock since it is not used to directly produce any good. The return to loaned money or to loaned stock was styled as interest while the return to the actual proprietor of capital stock (tools, etc.) was styled as profit. See also returns
Returns (economics)
Returns, in economics and political economy, are the distributions or payments awarded to the various suppliers of the factors of production.-Wages:...
.
Marxian
Marx considered the "elementary factors of the labor-process" or "productive forcesProductive forces
Productive forces, "productive powers" or "forces of production" [in German, Produktivkräfte] is a central idea in Marxism and historical materialism....
" to be:
- Labor ("work itself")
- The subject of labor (objects transformed by labor)
- The instruments of labor (or means of laborMeans of laborMeans of labor is a concept in Marxist political economy that refers to "all those things with the aid of which man acts upon the subject of his labor, and transforms it." Means of labor include tools and machinery , as well as buildings and land used for production purposes and...
).
The "subject of labor" refers to natural resources and raw materials, including land. The "instruments of labor" are tools, in the broadest sense. They include factory buildings, infrastructure, and other human-made objects that facilitate labor's production of goods and services.
This view seems similar to the classical perspective described above. But unlike the classical school and many economists today, Marx made a clear distinction between labor actually done and an individual's "labor power
Labor power
Labour power is a crucial concept used by Karl Marx in his critique of capitalist political economy. He regarded labour power as the most important of the productive forces of human beings. Labour power can be simply defined as work-capacity, the ability to do work...
" or ability to work. Labor done is often referred to nowadays as "effort" or "labor services." Labor-power might be seen as a stock
Stock and flow
Economics, business, accounting, and related fields often distinguish between quantities that are stocks and those that are flows. These differ in their units of measurement. A stock variable is measured at one specific time, and represents a quantity existing at that point in time , which may have...
which can produce a flow
Stock and flow
Economics, business, accounting, and related fields often distinguish between quantities that are stocks and those that are flows. These differ in their units of measurement. A stock variable is measured at one specific time, and represents a quantity existing at that point in time , which may have...
of labor.
Labor, not labor power, is the key factor of production for Marx and the basis for Marx's labor theory of value
Labor theory of value
The labor theories of value are heterodox economic theories of value which argue that the value of a commodity is related to the labor needed to produce or obtain that commodity. The concept is most often associated with Marxian economics...
. The hiring of labor power only results in the production of goods or services ("use-values
Use value
Use value or value in use is the utility of consuming a good; the want-satisfying power of a good or service in classical political economy. In Marx's critique of political economy, any labor-product has a value and a use-value, and if it is traded as a commodity in markets, it additionally has an...
") when organized and regulated (often by the "management"). How much labor is actually done depends on the importance of conflict or tensions within the labor process.
Neoclassical economics
Neoclassical economicsNeoclassical economics
Neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits...
, one of the branches of mainstream economics
Mainstream economics
Mainstream economics is a loose term used to refer to widely-accepted economics as taught in prominent universities and in contrast to heterodox economics...
, started with the classical factors of production of land, labor, and capital. However, it developed an alternative theory of value and distribution. Many of its practitioners have added various further factors of production (see below).
Further distinctions
Further distinctions from classical and neoclassical microeconomicsMicroeconomics
Microeconomics is a branch of economics that studies the behavior of how the individual modern household and firms make decisions to allocate limited resources. Typically, it applies to markets where goods or services are being bought and sold...
include the following:
- Capital — This has many meanings, including the financial capitalFinancial capitalFinancial capital can refer to money used by entrepreneurs and businesses to buy what they need to make their products or provide their services or to that sector of the economy based on its operation, i.e. retail, corporate, investment banking, etc....
raised to operate and expand a business. In much of economics, however, "capital" (without any qualification) means goods that can help produce other goods in the future, the result of investmentInvestmentInvestment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
. It refers to machines, roads, factories, schools, infrastructure, and office buildings which humans have produced in order to produce goods and services. - Fixed capital — This includes machinery, factories, equipment, new technology, factories, buildings, computers, and other goods that are designed to increase the productive potential of the economy for future years. Nowadays, many consider computer software to be a form of fixed capital and it is counted as such in the National Income and Product AccountsNational Income and Product AccountsThe National Income and Product Accounts are part of the national accounts of the United States. They are produced by the Bureau of Economic Analysis of the Department of Commerce...
of the United States and other countries. This type of capital does not change due to the production of the good. - Working capital — This includes the stocks of finished and semi-finished goods that will be economically consumed in the near future or will be made into a finished consumer good in the near future. These are often called inventories. The phrase "working capital" has also been used to refer to liquid assets (money) needed for immediate expenses linked to the production process (to pay salaries, invoices, taxes, interests...) Either way, the amount or nature of this type of capital usually changed during the production process.
- Financial capital — This is simply the amount of money the initiator of the business has invested in it. "Financial capital" often refers to his or her net worth tied up in the business (assets minus liabilities) but the phrase often includes money borrowed from others.
- Technological progress — For over a century, economists have known that capital and labor do not account for all of economic growth. This is reflected in total factor productivityTotal factor productivityIn economics, total-factor productivity is a variable which accounts for effects in total output not caused by inputs. If all inputs are accounted for, then total factor productivity can be taken as a measure of an economy’s long-term technological change or technological dynamism.If all inputs...
and the Solow residualSolow residualThe Solow residual is a number describing empirical productivity growth in an economy from year to year and decade to decade. Robert Solow defined rising productivity as rising output with constant capital and labor input...
used in economic models called production functionsProduction functionIn microeconomics and macroeconomics, a production function is a function that specifies the output of a firm, an industry, or an entire economy for all combinations of inputs...
that account for the contributions of capital and labor, yet have some unexplained contributor which is commonly called technological progress. Ayres and Warr (2009) present time series of the efficiency of primary energy (exergy) conversion into useful work for the US, UK, Austria and Japan revealing dramatic improvements in model accuracy. With useful work as a factor of production they are able to reproduce historical rates of economic growth with considerable precision and without recourse to exogenous and unexplained technological progress, thereby overcoming the major flaw of the Solow Theory of economic growth.
A fourth factor?
As mentioned, recent authors have added to the classical list. For example, J.B. Clark saw the co-ordinating function in production and distribution as being served by entrepreneurEntrepreneur
An entrepreneur is an owner or manager of a business enterprise who makes money through risk and initiative.The term was originally a loanword from French and was first defined by the Irish-French economist Richard Cantillon. Entrepreneur in English is a term applied to a person who is willing to...
s; Frank Knight
Frank Knight
Frank Hyneman Knight was an American economist who spent most of his career at the University of Chicago, where he became one of the founders of the Chicago school. Nobel laureates James M. Buchanan, Milton Friedman and George Stigler were all students of Knight at Chicago. Knight supervised...
introduced managers who co-ordinate using their own money (financial capital) and the financial capital of others. In contrast, many economists today consider "human capital
Human capital
Human capitalis the stock of competencies, knowledge and personality attributes embodied in the ability to perform labor so as to produce economic value. It is the attributes gained by a worker through education and experience...
" (skills and education) as the fourth factor of production, with entrepreneurship as a form of human capital. Yet others refer to intellectual capital
Intellectual capital
The value of an enterprise is made of physical assets, various financial assets and, finally, intangible assets, i.e., intellectual capital . The term intellectual capital conventionally refers to the difference in value between tangible assets and market value. ....
. More recently, many have begun to see "social capital" as a factor, as contributing to production of goods and services.
Entrepreneurship
Consider entrepreneurship as a factor of production, leaving debate aside. In markets, entrepreneurs combine the other factors of production, land, labor, and capital in order to make a profit. Often these entrepreneurs are seen as innovators, developing new ways to produce and new products. In a planned economyPlanned economy
A planned economy is an economic system in which decisions regarding production and investment are embodied in a plan formulated by a central authority, usually by a government agency...
, central planners decide how land, labor, and capital should be used to provide for maximum benefit for all citizens. Of course, just as with market entrepreneurs, the benefits may mostly accrue to the entrepreneurs themselves.
The word has been used in other ways. The sociologist C. Wright Mills
C. Wright Mills
Charles Wright Mills was an American sociologist. Mills is best remembered for his 1959 book The Sociological Imagination in which he lays out a view of the proper relationship between biography and history, theory and method in sociological scholarship...
refers to "new entrepreneurs" who work within and between corporate and government bureaucracies in new and different ways. Others (such as those practicing public choice theory
Public choice theory
In economics, public choice theory is the use of modern economic tools to study problems that traditionally are in the province of political science...
) refer to "political entrepreneur
Political entrepreneur
The term Political entrepreneur may refer to any of the following:* someone who founds a new political project, group, or political party...
s," i.e., politicians and other actors.
Much controversy rages about the benefits produced by entrepreneurship. But the real issue is about how well institutions they operate in (markets, planning, bureaucracies, government) serve the public. This concerns such issues as the relative importance of market failure
Market failure
Market failure is a concept within economic theory wherein the allocation of goods and services by a free market is not efficient. That is, there exists another conceivable outcome where a market participant may be made better-off without making someone else worse-off...
and government failure
Government failure
Government failure is the public sector analogy to market failure and occurs when a government intervention causes a more inefficient allocation of goods and resources than would occur without that intervention...
.
Human capital
Contemporary analysis distinguishes tangible, physical, or nonhuman capital goodsCapital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
from other forms of capital such as human capital
Human capital
Human capitalis the stock of competencies, knowledge and personality attributes embodied in the ability to perform labor so as to produce economic value. It is the attributes gained by a worker through education and experience...
. Human capital is embodied in a human being and is acquired through education and training, whether formal or on the job.
Human capital is important in modern economic theory. Education is a key element in explaining economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
over time (see growth accounting
Growth accounting
Growth accounting is a procedure used in economics to measure the contribution of different factors to economic growth and to indirectly compute the rate of technological progress, measured as a residual, in an economy...
). It is also often seen as the solution to the "Leontief paradox
Leontief paradox
Leontief's paradox in economics is that the country with the world's highest capital-per worker has a lower capital/labor ratio in exports than in imports....
" in international trade.
Intellectual capital
A more recent coinage is intellectual capitalIntellectual capital
The value of an enterprise is made of physical assets, various financial assets and, finally, intangible assets, i.e., intellectual capital . The term intellectual capital conventionally refers to the difference in value between tangible assets and market value. ....
, used especially as to information technology
Information technology
Information technology is the acquisition, processing, storage and dissemination of vocal, pictorial, textual and numerical information by a microelectronics-based combination of computing and telecommunications...
, recorded music, written material. This intellectual property
Intellectual property
Intellectual property is a term referring to a number of distinct types of creations of the mind for which a set of exclusive rights are recognized—and the corresponding fields of law...
is protected by copyrights, patents, and trademarks.
This view posits a new Information Age
Information Age
The Information Age, also commonly known as the Computer Age or Digital Age, is an idea that the current age will be characterized by the ability of individuals to transfer information freely, and to have instant access to knowledge that would have been difficult or impossible to find previously...
, which changes the roles and nature of land, labour, and capital. During the Information Age
Information Age
The Information Age, also commonly known as the Computer Age or Digital Age, is an idea that the current age will be characterized by the ability of individuals to transfer information freely, and to have instant access to knowledge that would have been difficult or impossible to find previously...
(circa 1971–1991), the Knowledge Age
Knowledge economy
The knowledge economy is a term that refers either to an economy of knowledge focused on the production and management of knowledge in the frame of economic constraints, or to a knowledge-based economy. In the second meaning, more frequently used, it refers to the use of knowledge technologies to...
(circa 1991 to 2002), and the Intangible Economy
Technocapitalism
Technocapitalism is a term used to describe the changes in capitalism brought about by the emergence of high technology sectors in the economy.-New organizations:Luis Suarez-Villa, in his 2009 book Technocapitalism: A Critical Perspective on Technological...
(2002–present) many see the primary factors of production as having become less concrete. These factors of production are now seen as knowledge, collaboration, process-engagement, and time quality.
According to economic theory, a "factor of production" is used to create value and allow economic performance. As the four "modern-day" factors are all essentially abstract, the current economic age has been called the Intangible Economy. Intangible factors of production are subject to network effects and the contrary economic laws such as the law of increasing returns.
Social capital
Social capitalSocial capital
Social capital is a sociological concept, which refers to connections within and between social networks. The concept of social capital highlights the value of social relations and the role of cooperation and confidence to get collective or economic results. The term social capital is frequently...
is often hard to define, but to one textbook it is:
Knowledge, ideas, and values, and human relationships are transmitted as part of the culture. This type of capital cannot be owned by individuals and is instead part of the common stock owned by humanity. But they are often crucial to maintaining a peaceful society in which normal economic transactions and production can occur.
the stock of trust, mutual understanding, shared values, and socially held knowledge that facilitates the social coordination of economic activity.
Another kind of social capital can be owned individually. This kind of individual asset involves reputation, what accountants call "goodwill
Goodwill (accounting)
Goodwill is an accounting concept meaning the value of an entity over and above the value of its assets. The term was originally used in accounting to express the intangible but quantifiable "prudent value" of an ongoing business beyond its assets, resulting perhaps because the reputation the firm...
", and/or what others call "street cred," along with fame, honor, and prestige. It fits with Pierre Bourdieu
Pierre Bourdieu
Pierre Bourdieu was a French sociologist, anthropologist, and philosopher.Starting from the role of economic capital for social positioning, Bourdieu pioneered investigative frameworks and terminologies such as cultural, social, and symbolic capital, and the concepts of habitus, field or location,...
’s definition of "social capital" as:
an attribute of an individual in a social context. One can acquire social capital through purposeful actions and can transform social capital into conventional economic gains. The ability to do so, however, depends on the nature of the social obligations, connections, and networks, available to you.
This means that the value of individual social assets that Bourdieu points to depend on the current "social capital" as defined above.
Natural resources
Ayres and Warr (2009) are among the economists who criticize orthodox economics for overlooking the role of natural resources and the effects of declining resource capital. See also: Natural resource economicsNatural resource economics
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Energy
Energy can be seen as individual factor of production, with an elasticity larger than labor. A cointegrationCointegration
Cointegration is a statistical property of time series variables. Two or more time series are cointegrated if they share a common stochastic drift.-Introduction:...
analysis support results derived from linear exponentional (LINEX) production functions.
See also
- Conditional factor demandsConditional factor demandsIn economics, a conditional factor demand function specifies the cost-minimizing level of an input such as labor or capital, required to produce a given level of output, for given unit input costs of the input factors...
- Cost of production theory of value
- Economics terminology that differs from common usageEconomics terminology that differs from common usageIn any technical subject, words commonly used in everyday life acquire very specific technical meanings, and confusion can arise when someone is uncertain of the intended meaning of a word...
- Factor payments (economics)Factor payments (economics)Payments made to scares resources, or the factors of production in return of productive services.They are also categorized according to the services of the productive resources being rewarded.As wages are being paid for services of labor,interest is paid for the services of capital, rent is paid...
- Factor worldFactor worldFactor World is a term used by William Easterly to describe the traditional model of aggregate production function which is: Y = K^α . ^...
- Labor demandLabor demandIn economics, labor demand refers to the number of hours of hiring that an employer is willing to do based on the various exogenous variables it is faced with, such as the wage rate, the unit cost of capital, the market-determined selling price of its output, etc...
- Labor theory of valueLabor theory of valueThe labor theories of value are heterodox economic theories of value which argue that the value of a commodity is related to the labor needed to produce or obtain that commodity. The concept is most often associated with Marxian economics...
- Labour economicsLabour economicsLabor economics seeks to understand the functioning and dynamics of the market for labor. Labor markets function through the interaction of workers and employers...
- Means of productionMeans of productionMeans of production refers to physical, non-human inputs used in production—the factories, machines, and tools used to produce wealth — along with both infrastructural capital and natural capital. This includes the classical factors of production minus financial capital and minus human capital...
- MicroeconomicsMicroeconomicsMicroeconomics is a branch of economics that studies the behavior of how the individual modern household and firms make decisions to allocate limited resources. Typically, it applies to markets where goods or services are being bought and sold...
- Production, costs, and pricingProduction, costs, and pricingThe following outline is provided as an overview of and topical guide to industrial organization:Industrial organization – describes the behavior of firms in the marketplace with regard to production, pricing, employment and other decisions...
- Production theory basicsProduction theory basicsProduction refers to the economic process of converting of inputs into outputs. Production uses resources to create a good or service that is suitable for use, gift-giving in a gift economy, or exchange in a market economy. This can include manufacturing, storing, shipping, and packaging. Some...
- Productivity modelProductivity modelProductivity in economics is the ratio of what is produced to what is required to produce. Productivity is the measure on production efficiency. Productivity model is a measurement method which is used in practice for measuring productivity...
- Productivity worldProductivity worldProductivity World is a term used by William Easterly to describe that relative productivity among Factors of production is the same in the sectors across countries, but rich countries have absolute productivity advantage....
- Resource-Based ViewResource-Based ViewThe resource-based view is a business management tool used to determine the strategic resources available to a company. The fundamental principle of the RBV is that the basis for a competitive advantage of a firm lies primarily in the application of the bundle of valuable resources at the firm's...