Editing Factors of production (section)

== Historical schools and factors ==
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.<ref>Classical price theory follows "costs of reproduction" and does not allow for "factor" gains. The great questions of Rent, Wages, and Profits must be explained by the proportions in which the whole produce is divided between landlords, capitalists, and laborers, and which are not essentially connected with the doctrine of value. (Ricardo Johnson, David, 1820; 1951, "The Works and Correspondence of David Ricardo", edited by [[Piero Sraffa]], 10 Volumes, Cambridge: Cambridge University Press 1951–1955, VIII, p. 197.</ref>

Differences are most stark when it comes to deciding which factor is the most important.

=== Physiocracy ===
[[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.

=== Classical ===
[[File:Sabah Sarawak labour advert Kuala Lumpur.JPG|thumb|An advertisement for labor from Sabah and Sarawak seen in Jalan Petaling, Kuala Lumpur]]
The [[classical economics]] of [[Adam Smith]], [[David Ricardo]], and their followers focus on physical [[resource]]s 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"<ref>Adam Smith (1776), ''[[The Wealth of Nations]]'', B.I, Ch. 6, Of the Component Parts of the Price of Commodities in paragraph I.6.9.</ref> as the costs of using:
* [[Land (economics)|Land]] or [[natural resource]] — naturally occurring goods like water, air, soil, minerals, flora, fauna and climate that are used in the creation of products. The payment given to a landowner is [[Renting|rent]], loyalties, commission and goodwill.
* [[Labor (economics)|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 one's own labor is [[Returns (economics)#Wages|wages]]. Labor can also be classified as the physical and mental contribution of an employee to the production of the good(s).
* [[Capital (economics)|Capital stock]] — human-made goods which are used in the production of other goods. These include machinery, tools, and buildings. They are of two types, fixed and working. Fixed are one time investments like machines, tools and working consists of liquid cash or money in hand and raw material.

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.<ref>Benchimol, J., 2015, [https://ideas.repec.org/a/sej/ancoec/v821y2015p152-184.html Money in the production function: a new Keynesian DSGE perspective], [[Southern Economic Journal]], Volume 82, Issue 1, pp. 152–184.</ref> 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 (economics)|returns]].

=== Marxism ===
[[File:CNT-FAI Cooperative Barcelona.jpg|thumb|[[CNT-FAI]] worker [[cooperative]] in [[Barcelona]] producing wood and steel products]]
Marx considered the "elementary factors of the labor-process" or "[[productive forces]]" to be:
* Labor
* Subject of labor (objects transformed by labor)
* Instruments of labor (or [[means of labor]]).<ref>"[[Das Kapital]]", chapter 7, section 1.</ref>

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 and flow|stock]] which can produce a [[stock and flow|flow]] of labor.

Labor, not labor power, is the key factor of production for Marx and the basis for earlier economists' [[labor theory of value]]. The hiring of labor power only results in the production of goods or services ("[[use value|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.

=== Neoclassical economics ===
[[Neoclassical economics]], 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).

Further distinctions from classical and neoclassical [[microeconomics]] include the following:
* [[Capital (economics)|Capital]] — this has many meanings, including the [[financial capital]] 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 [[investment (macroeconomics)|investment]]. It refers to machines, roads, factories, schools, infrastructure, and office buildings which humans have produced to create goods and services.
* [[Fixed capital]] — this includes machinery, factories, equipment, new technology, 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 Accounts]] 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 [[inventory]]. 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 changes 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 ([[asset]]s minus [[Liability (financial accounting)|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 economic growth. To include the technological progress into the theory, it was proposed to introduce [[capital service]] and [[labour service]] as production factors in line with capital and labour. This is reflected in ''[[total factor productivity]]'' and the ''[[Solow residual]]'' used in economic models called ''[[production function]]s'' that account for the contributions of capital and labor, yet have some unexplained contributor which is commonly called ''technological progress''. Russian economist [[Vladimir Pokrovskii]] proposed to consider capital service as one of independent production factors in line with labour and capital.<ref name=article>Pokrovski, V.N. (2003).  Energy in the theory of production. Energy 28, 769–788.</ref> Capital service as production factor was interpreted by Ayres and Warr <ref name="Ayres-Warr2009">{{cite book| author = Robert U. Ayres|author2=Benjamin Warr| title = The Economic Growth Engine: How Energy and Work Drive Material Prosperity| year = 2009| publisher = Edward Elgar Publishing| isbn = 978-1-84844-182-8 }}</ref> as useful work of production equipment, which makes it possible to reproduce historical rates of economic growth with considerable precision <ref name=article>Pokrovski, V.N. (2003).  Energy in the theory of production. Energy 28, 769–788.</ref><ref>Pokrovski, V.N. (2007) Productive energy in the US economy, Energy 32 (5) 816–822.</ref><ref name="Ayres-Warr2009"/><ref>{{Cite journal| last = Pokrovskii| first = Vladimir| year = 2021| title = Social resources in the theory of economic growth| url = https://thecomplexsystems.com/| journal = The Complex Systems| issue = 3| pages = 32–43| access-date = 2022-05-24| archive-date = 2022-05-31| archive-url = https://web.archive.org/web/20220531115232/https://thecomplexsystems.com/| url-status = dead}}</ref> and without recourse to exogenous and unexplained technological progress, thereby overcoming the major flaw of the Solow Theory of economic growth.

=== Ecological economics ===
[[Ecological economics]] is an alternative to [[neoclassical economics]]. It integrates, among other things, the first and second laws of thermodynamics (see: [[Laws of thermodynamics]]) to formulate more realistic economic systems that adhere to fundamental physical limitations. In addition to the neoclassical focus on efficient allocation, ecological economics emphasizes sustainability of scale and just distribution. Ecological economics also differ from neoclassical theories in its definitions of factors of production, replacing them with the following:<ref name="The Other Road to Serfdom">{{cite book| author = Eric Zencey| title = The Other Road to Serfdom & the Path to Sustainable Democracy| year = 2012| publisher = U of New England| isbn = 978-1-58465-961-7 }}</ref><ref name=" Ecological Economics: Principles and Applications">{{cite book| author = Herman Daly|author2=Joshua Farley | title =  Ecological Economics: Principles and Applications| year = 2011| publisher = Washington: Island| isbn = 978-1-59726-681-9 }}</ref>
* Matter — the material from which products are produced. Matter can be recycled or reused through refining or reforming, but it cannot be created or destroyed, placing an upper limit on the amount of material that can be withdrawn and used. Consequently, the total amount of available matter is fixed, and once all the available matter is used, nothing more can be produced without recycling or reusing matter from prior products.
* Energy — the physical but non-material inputs of production. We can place different forms of energy on a scale of utility depending on how useful it is for creating a product. Due to the law of entropy, energy tends to decrease in utility over time. (e.g. electricity, a very useful form of energy, is used to run a machine that builds a stuffed bear. In the process, however, electricity is converted to heat, a less useful form of energy). Like matter, energy can neither be created nor destroyed and thus there is also an upper limit to the total amount usable energy.
* Design intelligence — a factor that incorporates the knowledge, creativity, and efficiency of how goods are created - the better the design, the more efficient and beneficial the creation is. Designs are usually improvements on their predecessors since our store of accumulated knowledge grows with time. One possible neoclassical analogue of design intelligence is technological progress.

Integral to ecological economics is the following notion: at the maximum rates of sustainable matter and energy uptake, the only way to increase productivity would be through an increase in design intelligence. This provides the basis for a core tenet of ecological economics, namely that infinite growth is impossible.<ref name="The Other Road to Serfdom"/>