Jargon du Jour - Factors of Production

Factors of Production: A phrase used to refer to the combination of the land, labor, and capital used to produce finished goods which are then bought and sold in the economy. This is the view held by classical economists Adam Smith and David Riccardo.

For example, to produce one table I am going to need a workshop (land), some tools (capital), and a carpenter to put it together (labor).

Some economists like to add technology to their list of factors of production, as it helps make the allocation of land, labor, and capital more efficient. Others like to add entrepreneurship as a factor, and consider it a catalyst of all production. However, many economists argue that entrepreneurship is just a type of labor.

Recently, more economists are including human capital into their list of production factors, which accounts for the knowledge base of the laborers. This is becoming increasingly relevant in a service based economy.