Factors of Production: it’s not just ‘Land’

 'Factors of Production' is a bit of a mouthful, but it's a better term to use than 'resources' when describing the ingredients needed to produce goods and services. I realised that when my students were finding the word 'resources' quite misleading at the start of their Economics course.

The reason for this is obvious - the students weren't to blame. It's that in general conversation, 'resources' mean natural resources (which is what economists call 'Land'). So if you ask what resources Brazil needs to build up its economy they will talk about iron, steel, oil and timber. Hydroelectric power might get a mention (which could be described as 'Capital') but that's about it.

Economists have a much wider concept when they talk about resources - sorry - factors of production. So much wider in fact that they are often criticised for undervaluing nature's assets. They might even be happy to see sustainable development occur where natural resources are depleted, but more than made up for with an accumulation of human and physical capital.

Looking ahead a bit, you might like to think about this 'inclusive' concept of wealth, the Real Wealth of Nations:

Note how in this table, human capital (that's essentially the factor of production 'labour') dominates the stock of wealth for most rich countries. The exception in the table is Saudi Arabia (it's probably easy to guess why). And note how important physical capital is too. Economies need all these factors of production in order to grow and develop.

There's more here: a new index that attempts to take stock of countries' total wealth. The place for environmentalism is a huge debate in economics: something you can discover more about elsewhere...