Factors of production (FOP):
- These are resources that are the basic building blocks of production in any economy.
- They are basic inputs that are necessary for producing any good or service that is useful to final consumers.
- Land, labour, capital, and material are widely considered to be the three main factors of production.
- Others may include time and entrepreneurship.
- Entrepreneurship is considered to be the most crucial factor of production that brings together the other three factors.
- It may involve an element of uncertainty due to time factor and can be seen as the product of mixing the three primary factors of production, namely land, labour, and time.
- An entrepreneur’s ideas can be considered fundamentally to be a form of labour as well.
- And the real estate and other materials the entrepreneur personally uses for work can be classified as land.
Ownership of FOP – Marxist economists
- FOP need to be collectively owned by the state.
- This was the driving philosophy behind centrally planned economies like the erstwhile Soviet Union in contrast to economies
- Private ownership of the factors of production leads to the exploitation of labour supplied by the working class and the mismanagement of scarce resources.
- Stale planners can overcome both these problems by framing a proper collective economic plan.
Free market economists:
- Believe in private ownership of all factors of production in an economy.
- Private ownership offers resource owners the incentive to use the factors of production most efficiently, both in terms of avoiding unnecessary wastage and extracting the most value out of limited resources.
- In the United States factors of production are largely owned by private individuals or groups.
Source: The Hindu