The "Four Factors of Production"

Land, labor, capital, and enterprise are said to be the four main factors of production. This fallacy was presented in my high school social science class as well as a beginning economics college course. It continues to be touted to this day. Letís examine the claim by considering some basic mathematical principles. You donít have to be a mathematician to understand these.

Consider Cartesian coordinates, i.e., the usual three-dimensional space we all reside in. We can state where a point is in space-or approximately our own location-by giving three coordinates, in this case its X, Y, and Z coordinates--height, width, and depth. We do this by choosing any arbitrary point and call it point (0,0,0)-this being the point to which all others will be related by giving its relative height, width and depth as measured from point (0,0,0). Assume we are measuring in feet. If I were at point (10,30,576), this would mean I am located at a height of 10 feet, width of 30 feet, and depth of 576 feet from the chosen point of (0,0,0). Height, width, and depth are each mutually exclusive variables. No individual variable can be expressed in terms of any combinations of the others. For instance: a height of 4 feet cannot be expressed as a combination of a certain number of feet of width and another combination of units of depth. Likewise money is only expressed in ONE variable. Multidimensional money doesnít exist, which leads one to conclude that money is derived from only one variable. That one variable as reflected in the average price of a commodity, is the socially necessary labor time it takes for its production. Socially necessary labor time would be counted as the average time it took to produce a specific commodity with the most widely used technology of the day. But we are getting ahead of ourselves.

Imagine, if you will (in the Twilight Zone of capitalismís economics) a money based on the aforementioned claimed-to-be four mutually exclusive distinct variables-land, labor, capital, and enterprise. Lets look at capital first: Since money must represent variables that are mutually exclusive, i.e., each has its own unique essence to offer, we again cannot express capital as a combination of one or more of the remaining variables-land, labor, or enterprise. Let A, B, C, and D represent the amounts of each of the four aforementioned variables to produce a widget. If we had a coin, lets call it coin X, that represented 10 parts A, 20 parts B and 30 parts C, and 90 parts of D, just how could we compare this coin with a coin, lets call it coin Y, that represented 20 parts A, 10 parts B, and 40 parts C, and 70 parts D? Could we state that X was greater than Y? Could Y be greater than X? Could X be equal to Y? Obviously we can't utilize ANY of these comparisons that we normally use with money that successfully compares ONLY ONE VARIABLE. Well, guess what? Prices of commodities (their resulting market value) are compared using money every day because there is only ONE VARIABLE involved in value. We socialists hold that one variable to be the socially necessary labor time for its production.

The next thing we must do is to show that land, labor, capital, and enterprise come from one and only one source. Capital doesnít fall out of the sky at the end of a magic wand. It is borrowed (or owned and withdrawn) from a bank and represents past labor time that was not paid the hired wage workers. We call this portion surplus value. From surplus value comes profit and, if invested, more capital.

Land, by itself is incapable of producing commodities-the goods or services we buy. No arms reach from the soil and aid production. Only as much as land is used to site a facility is it necessary. In the case of a factory, labor time is expended on the land to make possible to build a facility there. Yes, the same house might be more expensive in one neighborhood than another, but that is because houses canít move once built as one might ship a cargo of goods from location to another to take advantage of supply and demand that can alter the price asked for commodities.

Enterprise is always presented as the most important of the four "factors"-mainly because capitalists never tire of reminding us that their ownership is the "king of the chess pieces." Thousands of new businesses are launched every year. In five years less than 5% still survive. Most of these would-be capitalists are workers that are attempting to escape their plight as workers. You canít blame them. Being an owner, they hope, will bring much greater returns than working for somebody else. Everyone personally knows somebody that went into business for themselves. The launch of these hoped-for successful enterprises entails long hours for the would-be capitalist. In fact, most budding entrepreneurs work very hard to start a new business. If they are lucky and make it into the 5% group, the amount of time they personally spend on the enterprise hopefully will be less. This is accomplished by hiring wage/salaried workers to do the work so they can enjoy the surplus value (profits) reaped therefrom-assuming again that they have somehow survived the anarchy of capitalismís marketplace. If the business grows and the capitalist leaves his/her heirs the business, it is very likely that most of the work is done by its hired workers. In other words enterprise if considered as a variable of production is the only one whose exercise disappears inversely in proportion to the success of the business. One would be led to conclude that the less entrepreneurial effort expended the more significant it becomes-the "gift that keeps on giving." This of course makes no sense. Fully 70% of business assets are inherited. The original enterprising efforts have been history for a long time once they are inherited.

To learn more about value read Marxís "Value, Price and Profit" that is a short and easily understandable version of his labor theory of value. You can find it at:

Marxism: Making Sense Out Of
Economic Nonsense