Scientists originally believed that there were only 5 senses: touch, taste, smell, sight and hearing. To this day, most people would name these 5 if asked how many and which senses they have. Over time, however, scientists realised that there were far more ways in which we interacts with the world around us, such as balance, pain, and numerous internal senses that coordinate our organs. By now it is agreed that there are at least 9, and perhaps as many as 20 senses. I believe that economic factors of production are in the same stage the senses were when there were only thought to be 5 – some are excluded, some are lumped in with others, and generally there is no coherent definition by which to distinguish them.
At its most basic level, neoclassical theory only includes two factors of production: capital and labour. But this formulation is incomplete – first, aggregating the mysterious substance known as capital leads us into all sorts of problems. Second, it outright ignores many things that could be considered factors of production.
Even within what most people would commonly imagine to be ‘capital,’ there is a clear divide: between machinery, which can be combined with labour and materials to produce commodities, and the materials themselves. Consider the production of apple juice. Does it really make sense to define the juicer as the same type of factor of production as the apple? The apple is destroyed in the production process, whilst the juicer is not; the the apple is a running cost whilst the juicer is a fixed cost; the apple is essential to the production of the apple juice in question, whilst the juicer can be replaced by a more labour intensive or more capital intensive technique.* This distinction has been highlighted in some areas of economics, and is generally known as ‘working’ versus ‘fixed’ capital.
Another factor which can be separated out is land. As Georgists try to stress, land is fundamentally different from capital, in that it exists independently of people, is impossible to avoid using, and has a fixed supply. Hence, taxing land has completely different effects to taxing capital, because you cannot discourage the production of land. Furthermore, the returns to land are not ‘earned,’ because the landowners don’t actually have to do anything in the production process. Lumping land and capital together creates economic and moral problems.
According to Michael Hudson, the American School of Economics considered public enterprise a separate factor of production, which had the effect of decreasing costs for the other factors of production. This seems to make sense – infrastructure allows for cheaper and quicker transportation of goods and labour; education lowers hiring and training costs for firms; healthcare eliminates the cost of firms providing insurance for employees; basic security also greatly lowers or eliminates the need for firms to defend themselves from marauding thieves. Public enterprise also differs from other factors of production in that its funding is (obviously) public, rather than private. Overall it doesn’t seem to make sense to consider it the same as private capital, from which a direct profit is earned.
Finally, many have argued that an important factor of production is knowledge. After all, we cannot just throw land, labour and various types of ‘capital’ at each other; we have to know how to combine them. Different production techniques lead to different levels of efficiency (less time, more stuff). As the paper linked argues, knowledge differs from other factors of production for several reasons: it can be both ‘bad’ and ‘good;’ it is only useful in a specific time and place, and it generally comes ‘attached’ to other factors of production, and hence cannot always be separated out. Knowledge could also potentially be disaggregated into technological knowledge, the knowledge of each ‘factor of production’ (how to hold a spade) and knowledge of the production process or economy as a whole.
I’m sure one could argue there are many other factors that are required for, or help determine, the success of a production technique or entire economy: trust (if each factor of production thinks the other will just run away with the produce, growth will suffer), motivation (if nobody wants to produce anything, obviously nothing will be produced), natural resources (to commodities as land is to capital – exists independently of people, ultimately fixed in supply).
So how do we define a factor of production most coherently? Like the senses, there is some crossover between them and it is something of a judgement call as to when we should draw the line between different types. The criteria for the factors I have named seem to be that they are both necessary for almost any type of production to take place, and that each has something of a unique effect on production. But perhaps there are alternative definitions that could be more illuminating.