The production process is a set of measures aimed at processing the source material resources using various factors of production in order to create finished products, works or services. That is why it is necessary for any enterprise to have such components as investment attractiveness and capital, labor activity, and land resources. Together they constitute the main factors of production.
Land resources
Earth is a natural resource necessary for the existence of human society, which people use in their economic activities.
Today it is safe to say that land is the main factor of production traditional society unique of its kind whose offer is limited. Considering it under the prism of geographical science, it can be noted that land is a territory, a place rich in natural resources and minerals. The usefulness of this factor is assessed by its ability to biological reproduction, as well as by its suitability for agricultural operations. In addition to land resources, there are three more main factors of production, which will be described below.
Entrepreneurial ability
For the successful development of any business, this is a very important factor. An entrepreneur must possess a number of certain qualities and skills, as well as theoretical and practical knowledge, in order to qualitatively establish production and commercial activities.
Entrepreneurship is a kind of initiative and independent actions of citizens (or their associations), which are aimed at obtaining personal income (or profit). Such activities are carried out on their own behalf and at their own risk, under personal property responsibility, or on behalf of a legal entity under his responsibility. Entrepreneurial ability is a special type of human capital that supplements the main factors of production aimed at creating goods, works or services with the aim of making a profit and satisfying one's own needs. Business (entrepreneurial ability) links together all other production resources.
Capital as the main factor in the production of industrial society
All property that is used for profit is collectively capital. Investments (investments) is the direction of assets in the production or provision of services with the aim of obtaining not just income, but also profit. As such, the term "capital" is almost never used as a pointer to the main factor of production of an industrial society.
In modern accounting, a number of other indicators of financial analysis are used. For example, additional paid-in capital, equity, retained earnings or reserves. Investments in their material form act as the main factors of production (fixed assets) and are used to create goods or services, increasing the economic efficiency of the enterprise.
Labor as a factor of production
The main factors of production include human resources, or rather, labor. This is a conscious human activity, which is aimed at satisfying the needs of both society as a whole and each individual.It is thanks to such activity that a person adapts the surrounding reality, forcing objects of nature and objects of his activity to influence each other in such a way that this leads to the desired goal. Listing the main factors of production in the economy, it should be noted that labor is a kind of human capital (physical, professional abilities, intelligence).
The features of human activity are the following points:
- labor force is formed, as a rule, over many years;
- labor requires constant renewal and reproduction;
- it is important to constantly maintain labor skills and the physical fitness of workers.
The main factors of production are innovation and information.
Innovative activity
The introduced innovation, which provides a qualitative improvement of processes or products and is in demand by the market, is called innovation. An example is the introduction to the market of new goods or services with brand new consumer properties increasing the efficiency of production systems. Innovations as the main factors of production in the economy are the final product of human intellectual activity, his thoughts, the creative process, rationalization, inventions and discoveries.
In the period of the emergence of the capitalist mode of production, as well as the diversified development of the mechanisms of market relations, science becomes an essential factor in production, while not separating from it.
Information as the main factor in the production of post-industrial society
Today it is one of the most important resources that is universally used in economic processes. Information can be applied in all parts of the system of productive forces of modern society. It is also an integral element of all stages of human activity, acting simultaneously as a means, and subject, and a component of living labor. Determining the main factors of production, it should be noted that information is a productive force, occupying one of the main roles in the development of production in modern society. This is possible due to the multifunctionality of information flows and their rapid reorientation from one stage of the production process to another.
And although information has become a significant factor in production and development not so long ago, nonetheless, mankind has been using it since its inception, transforming the world around itself, thereby changing information flows. Physico-geographical parameters are converted when a person changes the riverbeds or drains the swamps. The information contained in the topography of the earth's surface undergoes changes when houses are being built or minerals are being mined. Information contained in the genotype is transformed when a new plant variety or animal breed is developed.
A necessary condition for resolving issues arising before the subjects of economic activity is the possession of reliable and complete information. However, this cannot guarantee success. You must be able to correctly use the information obtained in order to make the best decisions in a particular situation. This is where knowledge comes into play. The carriers of this type of resource are highly qualified personnel.
Rent and wages as types of income from factors of production
In today's market, everything economic resources easily bought and sold, thereby bringing factor income to owners. Income from a production factor such as land is called rent. The entrepreneur receives rent in excess of the established profit on the spent capital and labor.More favorable production conditions lead to the formation of rents - for example, the land of one of the entrepreneurs is more fertile than the competitor’s land.
The factor income for labor is wages. This is a reward for the employee’s activities, depending on qualifications, complexity, quality and quantity of work performed, as well as working conditions. The salary may also include various incentive payments, bonuses, compensations.
Interest and profit as types of factor income
Capital income is the percentage that indicates the share of remuneration for the benefits it brings, capital. Value ratio is determined by the general measure - money. This applies to both standing capital and working capital. The amount of remuneration is determined by the ratio of demand to supply. The higher the demand relative to supply, the higher the percentage. Interest on capital is a perfectly fair as well as necessary form of income.
The factor income from entrepreneurial ability is profit. This is the difference between the amount of income and the cost of production, purchase, storage, processing, transportation, marketing of goods and services. Profit may be negative. In this case, it is customary to use the word “loss”. The concept of "profit" is quite ambiguous. But in general, it is perhaps the most important indicator of the financial result of the economic activities of entrepreneurs and organizations.
Marxist theory in the study of factors of production
K. Marx, a German philosopher and economist, identified the following factors of production: personal and material. In the first case, the person himself acts as a production factor as a carrier of labor. In the second case, it means the means of production, consisting of means of labor and directly objects of labor.
Means of labor - these are various tools, machines, tools, machines, with which a person can influence nature. This also includes land, roads, buildings and structures. In the process of his activity, a person creates means of labor, which, in a broader sense, should include any material working conditions necessary for its implementation. Subjects of labor - these are those natural matters that a person acts to satisfy his needs.
According to Karl Marx, the sum of all production factors appears as a productive force, which is inextricably linked with production relations. The first characterizes the material-material content of the production process, and the second - its historically defined form. In the process of improvement, this tandem constitutes a completely new and unique way of production.
Non-Marxist Judgments in the Economic Doctrine of the Factors of Production
Unlike Marx, his opponents believe that new value is created not only thanks to wage workers, but also all the factors involved in production. For example, A. Marshall argued that capital and labor interact, earning income from a national dividend, respectively, to the extent of marginal productivity. He believed that cooperation between labor and capital is absolutely necessary, and in themselves they are doomed to failure.
