Introduction to factors of production:
According to Frederick Benham, “Anything which contributes towards output is a factor of production.” The quality of factors of production determines the quantity of the output of a country. The factors of production comprises of land, labor, capital and Organisation. Short explanations of these factors of production are given below:
A. Land: The term land is used in Economics in wider sense. All the natural resources are included in it. E.g.; Mineral resources, forest, mountains, rivers, cultivated land etc. Land provides area for production. According to Marshall, “By land is meant… materials and forces which nature gives freely for man’s aid in land, water, air, light and heat.” Therefore, land is a stock of free gifts of nature.
B. Labor: Labor are the human resource used in production. They are the active factors of production. Labor include the mental and physical labor offered for monetary reward. To do anything for entertainment without expecting monetary reward are not called labor in economics. According to R.G. Lipsey and C. Harbury, “The term labor refers to all human resources that could be used in the production of goods and services.”
C. Capital: capital are the man made factors for producing wealth. It includes factory, machine, equipment, raw materials, etc. Capital is divided into human capital and physical capital. The educated and skilled manpower are called human capital and material goods are called physical capital. According to Marshall, “Capital consists of those kinds of wealth, other than free gifts of nature, which yields income.”
D. Organization: Output is produced by bringing together the factors like land, labor, and capital. The task of bringing them together by paying rent, wages, and interest and using them properly is done by an organization. In an organization, the functions like organizing, controlling, supervision, management and innovation is done by an entrepreneur. The organization may be defined as the attempt towards bringing the various factors of production into the most effective cooperation.