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factors of production

  The ingredients necessary to the production process, i.e. those things that must be assembled at one place before production can begin. The three broad headings conventionally adopted are land, labour and capital. Sometimes the fourth factor of \'enterprise\' is added, to recognize the contribution of the \'entrepreneur\' or risk-taker and the legitimacy of a special return to this particular participant in the productive process. However, in the current complexity of economic organization it is hard to distinguish enterprise from general management functions, so this factor is more appropriately subsumed under labour. The combination of factors of production reflects the state of technology applied in the activity in question, e.g. whether it is capital-intensive or labour-intensive.

Land is necessary for any productive activity, whether it is agriculture, mining, manufacturing or services. Land may be a direct source of a raw material, as is the case with mining, or it may be required for the cultivation of a crop or to support the physical plant of a manufacturing activity. Modern industry requires increasing quantities of land, as factory sites and for such associated uses as storage, roadways and parking.

Labour requirements vary with the nature of the activity in question. Some need numerous unskilled workers while others require more skilled operatives, technicians, office personnel, etc. The availability of particular types of labour can have an important bearing on the location of economic activity. Despite the growing capital intensity of modern industry, cheap labour with a record of stability is still an attraction. That the value of production can ultimately be traced to the factor of labour is central to the labour theory of value.

Capital includes all things deliberately created by humans for the purpose of production. This includes the physical plant, buildings and machinery, i.e. fixed capital, plus the circulating capital in the form of stocks of raw materials, components, semi-finished goods, etc. Private ownership of capital and land is the major distinguishing feature of the capitalist mode of production, which carries with it important implications for the distribution of income and wealth (see Marxian economics; neo-classical economics).

The conventional categories of land, labour and capital (and enterprise) can serve an ideological role in legitimizing the differential rewards of the various contributors to production under capitalism. The concept of productive forces is preferred in socialist economics. In any event, for practical purposes these broad categories tend to be subdivided into the individual inputs actually required in particular productive activities. (DMS)

Suggested Reading Smith, D.M. 1981: Industrial location: an economic geographical analysis, 2nd edn. New York: John Wiley.



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