Factors of Production : Land, Labour, Capital
and Entrepreneur
Some of the important factors of production are: (i) Land (ii) Labour (iii) Capital (iv)
Entrepreneur.
Whatever is used in producing a commodity is called its inputs. For example, for producing wheat, a
farmer uses inputs like soil, tractor, tools, seeds, manure, water and his own services.
All the inputs are classified into two groups—primary inputs and secondary inputs. Primary inputs
render services only whereas secondary inputs get merged in the commodity for which they are used.
In the above example, soil, tractor, tools and farmer’s services are primary inputs because they render
services only whereas seeds, manure, water and insecticides are secondary inputs because they get
merged in the commodity for which they are used. It is primary inputs which are called factors of
production.
Primary inputs are also called factor inputs and secondary inputs are known as non-factor inputs.
Alternatively, production is undertaken with the help of resources which can be categorised into natural
resources (land), human resources (labour and entrepreneur) and manufactured resources (capital).
All factors of production are traditionally classified in the following four groups:
(i) Land:
It refers to all natural resources which are free gifts of nature. Land, therefore, includes all gifts of nature
available to mankind—both on the surface and under the surface, e.g., soil, rivers, waters, forests,
mountains, mines, deserts, seas, climate, rains, air, sun, etc.
(ii) Labour:
Human efforts done mentally or physically with the aim of earning income is known as labour. Thus,
labour is a physical or mental effort of human being in the process of production. The compensation
given to labourers in return for their productive work is called wages (or compensation of employees).
Land is a passive factor whereas labour is an active factor of production. Actually, it is labour which in
cooperation with land makes production possible. Land and labour are also known as primary factors of
production as their supplies are determined more or less outside the economic system itself.
(iii) Capital:
All man-made goods which are used for further production of wealth are included in capital. Thus, it is
man-made material source of production. Alternatively, all man-made aids to production, which are not
consumed/or their own sake, are termed as capital.
It is the produced means of production. Examples are—machines, tools, buildings, roads, bridges, raw
material, trucks, factories, etc. An increase in the capital of an economy means an increase in the
productive capacity of the economy. Logically and chronologically, capital is derived from land and
labour and has therefore, been named as Stored-Up labour.
(iv) Entrepreneur:
An entrepreneur is a person who organises the other factors and undertakes the risks and uncertainties
involved in the production. He hires the other three factors, brings them together, organises and
coordinates them so as to earn maximum profit. For example, Mr. X who takes the risk of manufacturing
television sets will be called an entrepreneur.
An entrepreneur acts as a boss and decides how the business shall run. He decides in what proportion
factors should be combined. What and where he will produce and by what method. He is loosely
identified with the owner, speculator, innovator or inventor and organiser of the business. Thus,
entrepreneur ship is a trait or quality owned by the entrepreneur.
Some economists are of the opinion that basically there are only two factors of production—land and
labour. Land they say is appropriated from gifts of nature by human labour and entrepreneur is only a
special variety of labour. Land and labour are, therefore, primary factors whereas capital and
entrepreneur are secondary factors.
