Factors of production

In economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, goods and services. The utilised amounts of the various inputs determine the quantity of output according to the relationship called the production function. There are four basic resources or factors of production: land, labour, capital and entrepreneur (or enterprise). The factors are also frequently labeled "producer goods or services" to distinguish them from the goods or services purchased by consumers, which are frequently labeled "consumer goods".

There are two types of factors: primary and secondary. The previously mentioned primary factors are land, labour and capital. Materials and energy are considered secondary factors in classical economics because they are obtained from land, labour, and capital. 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 also natural resources above or below the soil. Recent usage has distinguished human capital (the stock of knowledge in the labor force) from labour. 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 vary, depending on theoretical purpose, empirical emphasis, or school of economics.

In the interpretation of the currently dominant view and of a 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.

Physiocracy (from the Greek for "government of nature") is an economic theory developed by a group of 18th century Enlightenment French economists who believed that the wealth of nations was derived solely from the value of "land agriculture" or "land development" and that agricultural products should be highly priced.

The classical economics of Adam Smith, David Ricardo, and their followers focus on physical resources in defining its factors of production and discuss 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.

Marx considered the "elementary factors of the labor-process" or "productive forces" to be: