Factors of production are resources that are thought to be the basic building blocks of production in any economy. Land, labour, and capital are widely considered to be the three main factors of production. The factors of production are considered to be basic inputs that are absolutely necessary for the production of any good or service that is useful to final consumers. Take the case of something as simple as a burger. The production of burgers requires real estate and raw materials (land), the efforts of a number of workers (labour), and culinary equipment (capital). In fact, such mixing of land, labour, and capital can be seen at various stages of the production process of any good in the modern economy. More recently, entrepreneurship is also considered by many to be the fourth factor of production. It is believed to be the most crucial factor of production that brings together the other three factors. In fact, many believe that other factors of production would be rendered useless without entrepreneurship.
Some heterodox economists, however, consider land, labour, and time to be the three primary factors of production. They believe capital and entrepreneurship to be secondary factors of production in the sense that these factors are derived by first combining land, labour, and time. In the modern economy, physical capital such as machines, for instance, are produced by first mixing land and labour over a certain period of time. Only after this happens do we see capital being brought to life and used to produce other intermediate or final goods and services. Similarly, these economists argue, entrepreneurship which involves an element of uncertainty can also be seen as the product of mixing the three primary factors of production, namely land, labour, and time. Remember that the role of the entrepreneur involves dealing with uncertainties that mire the production process. This element of uncertainty is brought into the picture by time, which is necessarily involved in the production of any good or service. Some individual or group of entrepreneurs usually take the risk of investing money in the present moment and then wait to reap the rewards of the investment some time in the uncertain future. An entrepreneur’s ideas can be considered fundamentally to be a form of labour as well. And the real estate and other materials the entrepreneur personally uses for work can be classified as land.
Private or public ownership
The ownership of the factors of production has been a matter of intense debate among thinkers belonging to different schools of economic thought over many centuries. Marxist economists, for instance, have long argued that the factors of production need to be collectively owned by the state. This was the driving philosophy behind centrally planned economies like the erstwhile Soviet Union in contrast to economies like the United States where factors of production are largely owned by private individuals or groups. Marxists believe that private ownership of the factors of production leads to the exploitation of labour supplied by the working class and the mismanagement of scarce resources. They argue that stale planners, on the other hand, can overcome both these problems by framing a proper collective economic plan. Economists from various free market schools of thought, however, strongly believe in the private ownership of all factors of production in an economy. They argue that private ownership offers resource owners the incentive to use the factors of production most efficiently, both in terms of avoiding unnecessary wastage and extracting the most value out of limited resources.