Production: Meaning and Factors of Production

Production refers to the creation of wealth or utility. However, in economics, production means the creation of goods for the purpose of selling in the market.

Nowadays, both material goods and services are considered to be production.

According to Cairncross, “Production is the making of goods for sale or the rendering of paid services.”

According to Peterson, “Production can be defined as any activity that creates present and future utility.”

Factors of Production:

Modern economists express the factors determining production as production function. It is a technological relationship between inputs produced and output used, i.e.

Q = f (L, K, T, E)

Q → Output produced

f→ Technological Function

L→ Labour

K →Capital

T→ Land

E→ Entrepreneur

Land:

In economics land means upper part of the earth used in production of goods or services. Thus it denotes all the natural resources available to man for providing wealth. According to Alfred Marshall, ‘Land means the materials and the forces which nature gives freely for man’s aid, in land and water, in air and light and heat.”

The main features of land are:

(i) It is a free gift of nature;

(ii) It is limited in supply;

(iii) It is heterogeneous in nature;

(iv) It has multiple uses; and

(v) It is subject to the operation of law of diminishing returns.

Therefore, land plays a fundamental role in production. Thus, return from land is rent.

Labour:

It is the main and primary factor of production, without which nothing can be produced. It is also the most important factor of production. The employment of labourer solves the problem of unemployment directly. Commonly, labour is often used in place of labourers. However, in economics labourer is an individual and labour is his service. Hence, labour can be defined as the mental and physical effort a labourer can give.

According to Alfred Marshall, “Any exertion of the body or mind undertaken wholly or partly with some object other than the pleasure derived from the labour itself.” According to A. Smith, “Labour includes all the efforts made by man to earn a living.” Labour is totally different from other factors of production, because it is a living factor.

The main features of labour are as given below:

(i) Labour means human exertion.

(ii) Labour cannot be separate from labourer.

(iii) Labour power co-exists,

(iv) Labour is perishable,

(v) Labour has less bargaining power,

(vi) Labour is a mobile factor of production.

(vii) Labour is both mean of production and end to it.

(viii) Different labourers have different efficiency and it can be increased too.

Therefore, labour plays a production.

Capital:

According to J.S. Mill, “Capital is the accumulated product of past labour destined for the production of wealth.”

The main features of capital are:

(i) Capital is the result of labour.

(ii) Capital is productive.

(iii) Capital is prospective.

(iv) Capital is not permanent.

(v) Capital is a mobile factor.

(vi) Capital is a passive factor.

Hence, capital is a basic factor to boost up the production of land and labour.

Entrepreneur:

It is also termed as organiser. According to Benham, “Organisation means directing, deciding and designing the forms of business.” It is the entrepreneur who sets up a production unit for producing goods and services. He organizes the production process by hiring workers, rent, land and borrows capital. This means one who plans, organizes and manages business enterprise is an entrepreneur. He must be far-sighted and have skill and the qualities of leadership. He must be experienced and seasoned. He must be a good administrator having perfect knowledge of psychology of workers and market.

The main features of an entrepreneur are:

(i) He plans for the production.

(ii) He organizes the production.

(iii) He manages the production.

(iv) He bears all the risks and uncertainties of production.

(v) He must have innovative ideas.

Thus, an entrepreneur is the main architect of production.