What production means.
Economic Production.—Production is the general term applied to all the processes whereby economic goods are adapted to the satisfaction of human wants. We are often told that no man can either create or destroy a single atom of matter. Strictly speaking, therefore, production does not mean the creation of economic goods but the utilization of materials in such a way that they may satisfy the consumers’ demands. This utilization may involve changing their form, as where iron is made into tools or wool into cloth. The miner who takes coal out of the earth; the farmer who makes two blades of grass grow where one grew before; the mason who hews the stone for the building; the baker who makes flour into bread; the manufacturer who takes leather and turns it into shoes—all are engaged in production. So, also, are such workers as statesmen, judges, lawyers, physicians, and teachers. They may not directly produce commodities but their services are essential to the smooth working of the processes of production. The only workers who do not deserve to be called productive laborers are thieves, swindlers, counterfeiters, and other parasites. They often work harder than would suffice to earn them an honest living; but their labor is not productive. They live on what others produce.
Natural resources, labor, capital, organization, and government.
The Factors in Production.—There are five factors in production; namely, (1) natural resources (including land); (2) labor; (3) capital; (4) organization and management; (5) government. Natural resources, without the application of labor to them, do not go far in satisfying human wants. Men cannot live on soil, climate, rainfall, and minerals. Nor can labor and natural resources, when one is applied to the other, succeed in producing all the economic goods which people in an advanced stage of civilization require. Capital is also essential—capital in the form of machinery, or in the form of money to support labor during the process of production. These three things, natural resources, labor, and capital must be brought together, furthermore, and kept working in unison. This is where organization, the fourth factor in production, comes in. It borrows the capital, buys the raw materials, sets the labor to work, and markets the products. Government is not commonly looked upon as a factor in production, but it ought to be. Without the protection and regulation which government affords we could not carry on production at high efficiency. It is government that assures to labor, capital, and organization their rightful shares in the joint production and thus affords them the incentive to do their best.
Land and its resources.
Nature’s Contributions to Production.—Nature contributes to the production of economic goods such things as land, timber, waterways for transportation, minerals, coal and oil, the motive power of steam,—in a word nature provides all the materials and the environment of production. Hence it is fundamentally the most important of all the factors. If one studies the history of those nations which have become great in various periods in history, it will be found that the basis of their material greatness was in practically every case the bounty of nature. Civilization made its first advance in the fertile valleys of the Euphrates and the Nile. Its progress since the dawn of history has been conditioned by man’s success in discovering and using natural resources.
Among the contributions of nature to production some, such as land, can be brought under private ownership. So long as land was plentiful and population scanty there was no occasion for private property in land. When Caesar first came into contact with the Teutonic tribes he found that land was not held in private ownership. Everyone took what he wanted; when the land seemed to be growing exhausted the whole tribe moved on to some other region. But as these tribes grew in number and unoccupied land became less plentiful, common ownership gave way to private ownership. The Anglo-Saxons had reached this stage before they migrated to England.
Rent.
Land held in private ownership can be bought, sold, and leased. When it is leased, the owner receives for its use a payment known as rent. Rent may be defined as the return which is obtained by the owner of any form of natural resource. This includes not only land but mines, water-powers, trout-streams, and so forth. The return which is received for the use of unimproved land is usually called ground rent, while the return which results from improvements such as buildings upon the land, fences, and drains is called improvement rent. Strictly speaking, this is not rent, but a return upon invested capital. The amount of ground rent paid for any piece of land depends upon its relative fertility, if it is to be used for agriculture, and its location. Location alone determines the ground rent of land in towns and cities.
What is labor?