No Free Lunch: Economics for A Fallen World

7 | Production: Man At Work

Factors of Production

The production process takes various inputs to make an output; historically most economists have categorized the factors of production as land, labor, and capital. Others have also recognized the importance of entrepreneurship to guide the application of those factors. In this chapter we will explore the interaction of these factors of production to answer questions such as: (1) how much should employees be paid; (2) what value does the entrepreneur add to the production process; and (3) how do middlemen fit in the production process?

We can illustrate the production process through the example of the building of Solomon’s Temple as in Figure 7.2 below. Solomon has to take raw materials from land such as gold, silver, cedar trees, etc., and convert those raw materials into the temple. Solomon built the temple in Jerusalem, which required land as well. Capital equipment would include any of the tools that made this process easier: saws, hammers, boats, and horses—anything used in the production process that ultimately was not part of the final product. In the building of the temple, scripture doesn’t give tremendous details, but we see that timbers were sent by sea in rafts and we know that saws cut timber. The building of the temple required both skilled (such as Huram-abi) and unskilled (such as the 150,000 aliens) labor. All of the building was done according to the direction and leadership of Solomon, who acted as an entrepreneur to determine both the end product and how land, labor, and capital were allocated to produce the temple.

El Escorial
Figure 7.2, Factors of Production in the Production Process. The production process—directed by an entrepreneur—will involve some combination of land, labor, and capital to produce a given product. In our case, Solomon will apply entrepreneurial skills to produce the temple. A modern attempt to recreate Solomon’s Temple is seen in the picture above, the "El Escorial" built in Spain for King Philip II in the 1500s.

Next Page: Structure of Production: Stages of Capital »

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