Economics Dictionary of ArgumentsHome
| |||
|
| |||
| Factors of production: Factors of production are the resources used to produce goods and services. They include land (natural resources), labor (human effort), capital (tools, machinery, and infrastructure), and entrepreneurship (innovation and risk-taking). These inputs are essential for economic activity and wealth creation. See also Production, Production Structure._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
| Author | Concept | Summary/Quotes | Sources |
|---|---|---|---|
|
Murray N. Rothbard on Factors of Production - Dictionary of Arguments
Rothbard III 37 Factors of Production/Rothbard: Factors of production are valued in accordance with their anticipated contribution in the eventual production of consumers’ goods. Factors, however, differ in the degree of their specifity, i.e., the variety of consumers’ goods in the production of which they can be of service. Certain goods are completely specific - are useful in producing only one consumers’ good. Rothbard III 38 Just as a supply of consumers’ goods will go first toward satisfying the most urgent wants, then to the next most urgent wants, etc., so a supply of factors will be allocated by actors first to the most urgent uses in producing consumers’ goods, then to the next most urgent uses, etc. The loss of a unit of a supply of a factor will entail the loss of the least urgent of the presently satisfied uses. Convertibility: The less specific a factor [of production] is, the more convertible it is from one use to another. >Convertibility. Example: The mandrake weed lost its value because it could not be converted to other uses. Factors such as iron or wood, however, are convertible into a wide variety of uses. If one type of consumers’ good falls into disuse, iron output can be shifted from that to another line of production. On the other hand, once the iron ore has been transformed into a machine, it becomes less easily convertible and often completely specific to the product. Rothbard III 39 Value/production/good: Suppose, (…) that some time after cigars lose their value this commodity returns to public favor and regains its former value. The cigar machines, which had been rendered valueless, now recoup their great loss in value. On the other hand, the tobacco leaves, land, etc., which had shifted from cigars to other uses will reshift into the production of cigars. These factors will gain in value, but their gain, as was their previous loss, will be less than the gain of the completely specific factor. These are examples of a general law that a change in the value of the product causes a greater change in the value of the specific factors than in that of the relatively nonspecific factors. Rothbard III 40 Value/Convertibility: Convertible factors will be allocated among different lines of production according to the same principles as consumers’ goods are allocated among the ends they can serve. Each unit of supply will be allocated to satisfy the most urgent of the not yet satisfied wants, i.e., where the value of its marginal product is the highest. A loss of a unit of the factor will deprive the actor of only the least important of the presently satisfied uses, i.e., that use in which the value of the marginal product is the lowest. This choice is analogous to that involved in previous examples comparing the marginal utility of one good with the marginal utility of another. Rothbard III 41 The value of a unit of a convertible factor is set, not by the conditions of its employment in one type of product, but by the value of its marginal product when all its uses are taken into consideration. >Productive forces, >Production/Rothbard, >Capital goods/Rothbard, >Labour/Rothbard. Rothbard III 319 Factors of production/Rothbard: In the technical combination of factors of production to yield a product, as one factor varies and the others remain constant, there is an optimum point - a point of maximum average product produced by the factor. This is the law of returns. It is based on the very fact of the existence of human action. Rothbard III 328 Factors of Production/Rothbard: Crucial to understanding the process of production is the question of the specificity of factors (…) A specific factor is one suitable to the production of only one product. A purely nonspecific factor would be one equally suited to the production of all possible products. (…) we have seen that human action implies more than one existing factor. Even the existence of one purely nonspecific factor is inconceivable if we properly consider “suitability in production” in value terms rather than in technological terms.(1) In fact,(…) there is no sense in saying that a factor is “equally suitable” in purely technological terms, since there is no way of comparing the physical quantities of one product with those of another. If X can help to produce three units of A or two units of B, there is no way by which we can compare these units. Only the valuation of consumers establishes a hierarchy of valued goods, their interaction setting the prices of the consumers’ goods. (Relatively) nonspecific factors, then, are allocated to those products that the consumers have valued most highly. It is difficult to conceive of any good that would be purely nonspecific and equally valuable in all processes of production. Rothbard III 329 Now let us for a time consider a world where every good is produced only by several specific factors. In this world, a world that is conceivable, though highly unlikely, every person, every piece of land, every capital good, would necessarily be irrevocably committed to the production of one particular product. There would be no alternative uses of any good from one line of production to another. Rothbard III 330 (…) all factors are purely specific, [when] no good is used at different stages of the process or for different goods. >Production/Rothbard, >Production theory/Rothbard. Rothbard III 331 Income from production: Now (…) we must trace the direction of monetary income. This is a reverse one, from the consumers back to the producers. The consumers purchase the stock of a consumers' good at a price determined on the market, yielding the producers a certain income. Two of the crucial problems of production theory are the method by which the monetary income is allocated and the corollary problem of the pricing of the factors of production. First, let us consider only the "Iowest" stage of production, the stage that brings about thefinal product. In that Stage, numerous factors, all now assumed to be specific, co-operate in producing the consumers' good. There are three types of such factors: labor, original nature, and produced capital goods.(2) Rothbard III 366 Costs of production/Rothbard: It must be understood that “factors of production” include every service that advances the product toward the stage of consumption. Thus, such services as “marketing costs,” advertising, etc., are just as legitimately productive services as any other factors.(3) Rothbard III 332 Incom from production: (…) it is clear that, since only factors of production may obtain income from the consumer, the price of the consumers' good - i.e., the income from the consumers' good, equals the sum of the prices accruingto the producing factors, i.e., the income accruing to the factors. Capital good: It is clear that, conceptually, no one, in the last analysis, receives a return as the owner of a capital good. Since every capital good analytically resolves itself into original nature-given and labor factors, it is evident that no money could accrue to the owner of a capital good. Rothbard III 336 Income: (…) the income from sale of a capital good equals the income accruing to the factors of its production. Rothbard III 337 Time: It is obvious that the production process takes time, and the more complex the production process the more time must be taken. During this time, all the factors have had to work without earning any remuneration; they have had to work only in expectation offuture income. Their income is received only at a much later date. Secification: The income that would be earned by the factors, in a world of purely specific factors, depends entirely on consumer demand for the particular final product. >Costs/Rothbard, >Costs of production/Rothbard. Rothbard III 365 Cumulation: Suppose, for example, that a certain machine, containing two necessary parts, can be used in several fields of production. The two parts, however, must always be combined in use in a certain fixed proportion. Suppose that two (or more) individuals owned these two parts, i.e., two different individuals produced the different parts by their labor and land. The combined machine will be sold to, or used in, that line of production where it will yield the highest monetary income. But the price that will be established for that machine will necessarily be a cumulative price so far as the two factors - the two parts – are concerned. The price of each part and the allocation of the income to the two owners must be decided by a process of bargaining. Economics cannot here determine separate prices. This is true because the proportions between the two are always the same, even though the combined product can be used in several different ways.(4) Rothbard III 373 Capital: It is already clear that the old classical trinity of “land, labor, and capital” earning “wages, rents, and interest” must be drastically modified. It is not true that capital is an independent productive factor or that it earns interest for its owner, in the same way that land and labor earn income for their owners. Land/labour: land and labor are not homogeneous factors within themselves, but simply categories of types of uniquely varying factors. Each land and each labor factor, then, has its own physical features, its own power to serve in production; each, therefore, receives its own income from production (…). Rothbard III 474 Factors of production: A factor will always be employed in a production process in such a way that it is in a region of declining APP (average physical product) and declining but positive MPP (marginal physical product). >Returns to scale/Rothbard, >Factor market/Rothbard, >Marginal product/Rothbard. Rothbard III 483 Factors of production/production structure/land/Frank H. Knight/Rothbard: If we base our approach on the present, must we not follow the Knightians in scrapping the production-structure analysis? A particular point of contention is the dividing line between land and capital goods. The Knightians, in scoffing at the idea of tracing periods of production back through the centuries, scrap the land concept altogether and include land as simply a part of capital goods. This change, of course, completely alters production theory. KnightVsBöhm-Bawerk/Rothbard: The Knightians point correctly, for example, to the fact that present-day land has many varieties and amounts of past labor “mixed” with it: canals have been dug, forests cleared, basic improvements have been made in the soil, etc. They assert that practically nothing is pure “land” anymore and therefore that the concept has become an empty one. RothbardVsKnight/MisesVsKnight: As Mises has shown, however, we can revise Böhm-Bawerk’s theory and still retain the vital distinction between land and capital goods. We do not have to throw out, as do the Knightians, the land baby with the average-period-of-production bathwater. We can, instead, reformulate the concept of “land.” >Land/Mises. 1. The literature in economics has been immeasurably confused by writers on production theory who deal with problems in terms oftechnology rather than valuation. For an excellent article on this problem, cf. Lionel Robbins, "Remarks upon Certain Aspects of the Theory of Costs," Economic Journal, March, 1934, pp. 1 - 18. 2. (…) this does not signify adoption of the old classical fallacy that treated each of these groups of factors as homogeneous. Clearly, they are heterogeneous and for pricing purposes and in human action are treated as such. Only the same good, homogeneous for human valuation, is treated as a common "factor," and all factors are treated alike - for their contribution to revenue - by producers. The categories "land, labor, and capital goods" are essential, however, for a deeper analysis of production problems, in particular the analysis ofvarious income returns and of the relation of time to production. 3. The fallacy in the spurious distinction between “production costs” and “selling costs” has been definitely demonstrated by Mises, Human Action, New Haven, Conn.: Yale University Press, 1949. Reprinted by the Ludwig von Mises Institute, 1998. p. 319. 4. See Mises, Human Action, p. 336._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
||
> Counter arguments against Rothbard
> Counter arguments in relation to Factors of Production
Authors A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Concepts A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
