Factors or production
Factors of production are the resources used to produce goods and services that satisfy the needs of society, all the goods that exist in a society are obtained by using the factors of production.
The factors of production are: Land, labor and capital (1). Some authors include a fourth factor, the entrepreneur factor.
The four factors of production
Land
Land is the first factor of production and is an originary factor because it’s prior to human beings and provides the environment and resources to be able to survive. Then, human beings, with their ability to change their reality with their intelligence, use nature and transforms it in order to satisfy their needs. The payment of land is rent.
Labor
Labor the human activity involved in the production process to obtain goods and services. Labor is another originary factor of production, and the payment of labor is wage.
Capital
Capital are the instruments of any kind that are used in production, such as buildings and machinery, and it also implies sums of money, credits or loans, etc. The payment of capital is interest.
Entrepreneur factor
Some authors add the entrepreneur factor to this list, which determines which productive factors to use and the best way to combine them, the entrepreneur is paid with profit.
Comparative table of factors of production
Comparative table according to origin (originating or not), definition, consequences, and payment.
| Factor of production | Origin | Definition | Consequences | Factor payment |
| Land | Originary | Resources or raw materials from nature transformed to satisfy needs. | Obtaining basic raw material to produce goods and services. | Rent |
| Labor | Originary | Human activity applied to obtain or produce goods and services. | Goods and services transformed and ready to satisfy needs. | Wage |
| Capital | Derivative | Instruments used to produce (machinery, money, etc.) | It makes possible to combine the other factors. | Interest |
| Entrepreneur | Derivative | Individuals who take the initiative to combine the factors of production to produce goods and services and choose the best way to do it. | Systematic and efficient execution of plans to combine these factors and obtain goods and services under convenient conditions both for consumers and producers. | Profit |
The government as a factor of production
The government guarantees a nation’s social order and the economic well-being, it lays the foundations for the balance and correct combination of the other factors of production.
For example, first, while exercising the power granted by its citizens, the State establishes the legal foundations of the economic, political, and social system, the government is in charge of the executive, legislative, and judicial power that structure and control things such as the issuance of money or banking activity.
The government must also stimulate and regulate commercial, agricultural, and industrial activities, and of course, provide the infrastructure so that the rest of the economic activities are possible.
Let’s use Venezuela as an example, the State owns basic industries such as steel and electricity and provides public and commercial services.
Government acts as an entrepreneur and the payment of their factors of production is done as in a private company, therefore, it contributes directly or indirectly to the creation of basic goods and services that make up the economic circuit. (2)
Given this, you can see how the government acts as a factor of production, especially as an entrepreneur, it has to use the administrative process and factors of production in order to guarantee an economic balance and wellbeing for society.