Resources and factors of production

The creation of material and spiritual goods and services requires resources and factors of production. What does economic theory mean by these categories?

The resources of production are a set of material and financial means, natural, social and spiritual forces that can be used in the process of creating goods, services and other values.

In economic theory, resources are divided into four groups:

1) natural – potentially suitable for use in production natural forces and substances, among which a distinction is made between “inexhaustible” and “exhaustible” (and in the latter – “renewable” and “non-renewable”);

2) material – all man-made (“man-made”) means of production, which are themselves the result of production;

3) labor – the population of working age, which in the “resource” aspect is usually evaluated by three parameters: socio-demographic, professional-qualification and cultural-educational;

4) financial – funds that the company is able to allocate for the organization of production.

The importance of certain types of resources has changed with the transition from pre-industrial to industrial, and from it to post-industrial technology. In pre-industrial society, priority belonged to natural and labor resources, in industrial – material, in post-industrial – intellectual and information resources.

Natural, material and labor resources are inherent in any production, so they are called “basic”; and the financial resources that arose at the “market” level became known as “derivatives”.

Along with the concept of “production resources”, economic theory also operates with the concept of “factors of production”. What is the difference between them?

We have noted that resources are material, natural and social forces that can be involved in production. Factors of Production” is an economic category denoting the resources already really involved in the production process. Consequently, “inputs of production” is a broader concept than “factors of production”. In other words, factors of production are producing resources.

Unlike resources, factors become so only within the framework of interaction; therefore, production is always an interacting unity of its factors.

In economic theory, there are several classifications of factors (Fig. 4.2.), for example, Marxist theory distinguishes personal (labor power) and material (means of labor and objects of labor) factors as factors of production. Modern economic science determines three main factors of production:

“land” as a factor of production has a threefold meaning: in a broad sense, it means all natural resources used in the production process; in a number of branches (agrarian, extractive, fishing), “land” is an object of management, when it simultaneously acts as both an “object of labor” and a “means of labor”; within the entire economy, “land” can act as an object of ownership (in this case, its owner may not take a direct part in the production process – he participates indirectly, by providing “his” land);

2) “capital” – the so-called material and financial resources in the system of factors of production: monetary assets, shares, equipment, buildings, transport and means of communication, raw materials, etc .;

3) “labor” acts as any physical and intellectual activity of a person aimed at the production of goods and the provision of services. The totality of the abilities of the individual, due to education, vocational training, health skills, represents human capital. This is the part of society that is directly engaged in the production process (sometimes such a term as “economically active population” is used, which covers only the able-bodied, engaged in production).

Each of these factors of production is able to bring its owner income (Fig. 4.3.):

The profitability of all factors means that all their owners act as independent and equal partners. Moreover, we can even talk about a kind of economic justice, because the incomes of each participant in production correspond to the contribution of the factor belonging to him in the creation of total income.

It should be noted that, having considered production as the interaction of its three main factors, we gave a technological characteristic of production. But since each factor is represented by its owner, production acquires a social character, becomes a social process. Production becomes the result of production relations between the owners of the factors of production. And since individuals, their groups, and social institutions can act as owners, production is represented by the relationship of various economic entities (or different forms of ownership – individual, collective, state).

As we have already said, not every owner of the factor of production necessarily has to take a direct part in production. However, this is the privilege of the owners of only alienated factors of production – “land” and “capital”. The ability to work is impossible to transfer. Therefore, one who represents only the factor “labor” must always take a direct part in production. Consequently, his status as an “employee” is objective, which, however, does not prevent him from owning other factors of production (for example, to acquire shares, real estate, etc.).

In modern conditions, as factors of production, in addition to the three main ones, entrepreneurial abilities, science, information and others are also distinguished.

Entrepreneurial abilities are a special type of human resources associated with the initiative activity of combining the resources of land, capital and labor into a single process of production of goods or services; making major decisions in the process of doing business; risk, innovation, introduction of new products, production technologies and new forms of production organization.

Science as a factor of production is a sphere of human activity, the function of which is the development and systematization of objective knowledge about reality. Features of this factor of production are that science:

as an element of the productive forces, it becomes a participant in production; has an impact on the level of production efficiency; affects the process of training a highly qualified workforce; determines the level of technology and organization of production; turns into a direct productive force.

Information as a factor of production provides systematization of knowledge materialized into a system of mechanisms, machines, equipment, management and marketing models.

The environmental factor is becoming increasingly important in modern production, which acts either as an impulse for economic growth or as a limiter of its possibilities due to the negative impact on the natural environment.

Some economists single out time as a special economic resource. People in their production and economic activities have a limited amount of this irreproducible resource.

A great influence on the efficient use of resources is exerted by the production technology, which is a specific way of processing objects of labor, a certain order of production processes, as well as the organization of production, which ensures the coherence of the functioning of all its resources. The managed organization of production, labor and management is called management, which in the economic literature of the XX century is considered a factor of production.

A special role in the modern economy is played by such a factor as infrastructure – a set of industries and spheres of activity that create general conditions for the functioning of production.

All factors of production, firstly, are inextricably linked and are interchangeable. Secondly, each good for its production requires a certain set of factors. Third, any good can be produced by using various factors in a variety of combinations and proportions. Fourth, the economic entity organizing production combines all its factors in such a way as to obtain more product at the lowest possible cost. Fifth, the organization of production ensures the coordinated functioning of all factors of production, their proportional quantitative ratio, interchangeability. Sixth, all economic resources, or factors of production, are available in limited quantities. This poses a problem for society to use them effectively.