Noted economist, N. Gregory Mankiw states, “The factors of production are the inputs used to produce goods and services. Economic history tells us land, labor, and capital are the most important factors of production”. Seemingly useful for centuries, it is long past time to revisit this dictum. Do the factors of land, labor, and capital speak to the world we know? Do they encompass economic and financial reality? Is the production process wholly contained within the mind of the capitalist? These and other questions must be addressed when identifying factors of production.
Society
The production process begins long before machines are set in motion. When the capitalist initiates his or her enterprise, the production process transcends the factory floor. The production process begins with the culture, ethos, customs, laws, and organizations that have evolved within any given society over time. The production process is, of necessity, dependent collectively on the persistent social interactions that define a population and that which reinforces its values and beliefs.
The benefits a well-structured society affords is where the interests of labor and capital take root. The persistent interactions of a well-functioning society, therefore, must be recognized as a viable force in the production of goods and services. When identified as a factor of production, it becomes obvious that society plays a crucial role within the flow of commerce. If it were necessary for the capitalist to educate, refine, literate, instruct, guide, inculcate, indoctrinate, and otherwise edify each of his or her many workers, the entrepreneur might think twice about the business venture. In most parts of the world, this convention is already in place. Almost all of today’s societies recognize the importance of a well-educated and value-laden populous. It’s part of the role that society plays in one’s culture. Without a properly funded judiciary, military, police department, educational system, treasury department, health department, and the list goes on, the most gifted entrepreneur and the most willing of workers would be compromised in their abilities to produce. If we are to inspire a more enlightened brand of capitalism, the interplay of capital, labor, and society is where the story must begin.
Misidentification of the three major factors of production has the effect of misallocating costs associated with a given enterprise. John Maynard Keynes refers to these as factor costs and defines them as the amount the entrepreneur pays out to the factors of production for their current services. Within this context it’s easy to see how a publicly built and maintained road represents a service that private capital must contribute to and help to maintain. When that road is viewed as a component of the production process, it becomes even more clear that tax evasion is not only unethical (and perhaps illegal) but that this strategy potentially interferes with the production process.
Labor and Capital
When early political economists first identified land as a factor of production centuries ago, most economic participants were tied to the land for subsistence. Their very survival centered around the ability to work the land. Thanks largely to the industrial revolution, this is no longer the case. In today’s world, land, whether rented or owned, can no longer be distinguished from capital. It may still be a factor of production, but land, by all measures, is a tool of the capitalist.
In more recent years entrepreneurship has been identified as a factor of production. While intelligence precedes action, distinguishing entrepreneurship as a factor is redundant. Capital assumes leadership. Parsing out entrepreneurship as a factor does not add value. If entrepreneurship is to be defined as a factor, then union leadership must be considered in that trade unions or the threat of trade unions influence corporate strategies and the production process.
It might also be noted that factors of production are not truly economic principles. They are financial principles. It is firms who produce, and firms are not governed by economic principles. Factors of production have long been associated with the discipline of economics due to it being conceived of at a time when the practices of economics were indistinguishable from financial practices. As economic theory becomes more refined, what we call factors of production will likely cease to exist in economic textbooks.
Conclusion
Major factors of production begin their influence long before the wheels of production are set in motion. When setting the corporate agenda, we must strive to properly identify and protect all that contribute and brings value to the production process. We must pay homage to the gift of a well-functioning and resilient society in which commerce takes part.
The current production framework sends the wrong message. Ignoring the contributions of a value laden populous distorts reality. A necessary first step is ignored. Those who write the textbooks must recognize commerce is not a solitary pursuit. It is part of our social firmament. The short-term corporate interests inherent in a capitalistic economy are only available with the help of others. Teaching new students of economics ideas which have, at best, outlived their usefulness does a disservice to the student and to the profession of economics itself.
Identifying the three-legged stool upon which the factors of production rest is important for its implications. Imagining that the production process exists outside of the society in which it operates is myopic. To do so overlooks the glue that binds. Objectively identifying critical factors of production will ensure capitalism serves people instead of the other way around. Correcting this misalignment will allow a proper focus on what really matters and allow both capitalism and democracy to flourish.
No comments:
Post a Comment