Productive Resources

Introduction

A resource is something we rely on or use to accomplish a goal. If you are trying to read a book, a dictionary is a resource you might rely on. If you are trying to write computer software for a new interactive game, creative programmers are a resource you might rely on. If you are trying to run a factory, labor and available land are resources you might rely on. If you are trying to heat your home or melt steel for car production, gas, oil, coal, and electricity are resources you might rely on.

People worry a lot about the resources on which they depend. They make decisions about what to do in advance and reasonably worry that the prices they are accustomed to might rise. They worry that an increase in population or even just more people living in the area in which they live, work, or trade could change what they take for granted or rely on. They worry that in a worst-case scenario, the resources they rely on might disappear or run out entirely. Are these worries justified? Sometimes yes, sometimes no. Economists study these questions.

In economics, it is most common to divide productive resources into three simple categories–land, labor, and capital–which are sometimes called the basic factors of production. Human capital–that is, knowledge and skills–is an important clarification of the simply ideas of raw labor or raw capital. An alternative division is to think of resources as either natural or produced.

The economic study of resources is the study of how resources we sometimes take for granted–the people, land, natural endowments of our countries and the earth–also respond to incentives. The size of the population and the size of reserves or resources are more flexible than you might first think.

Definitions and Basics

Factors of production, at Investopedia.

Factors of production is an economic term that describes the inputs that are used in the production of goods or services in order to make an economic profit. The factors of production include land, labor, capital and entrepreneurship. These production factors are also known as management, machines, materials and labor, and knowledge has recently been talked about as a potential new factor of production.

Population, from the Concise Encyclopedia of Economics

Lower birthrates and longer life lead to “population aging” (i.e., more elderly people and fewer children). Population aging is most rapid, and has gone farthest, in the developed world….

Labor, from Lalor’s Cyclopedia of Political Economy

Lower birthrates and longer life lead to “population aging” (i.e., more elderly people and fewer children). Population aging is most rapid, and has gone farthest, in the developed world….

Natural Resources, from the Concise Encyclopedia of Economics

The earth’s natural resources are finite, which means that if we use them continuously, we will eventually exhaust them. This basic observation is undeniable. But another way of looking at the issue is far more relevant for assessing social welfare. Our exhaustible and unreproducible natural resources, if measured in terms of their prospective contribution to human welfare, can actually increase year after year, perhaps never coming anywhere near exhaustion. How can this be? The answer lies in the fact that the effective stocks of natural resources are continually expanded by the same technological developments that have fueled the extraordinary growth in living standards since the industrial revolution….

Human Capital, from the Concise Encyclopedia of Economics

To most people capital means a bank account, a hundred shares of IBM stock, assembly lines, or steel plants in the Chicago area. These are all forms of capital in the sense that they are assets that yield income and other useful outputs over long periods of time.

But these tangible forms of capital are not the only ones. Schooling, a computer training course, expenditures of medical care, and lectures on the virtues of punctuality and honesty also are capital. That is because they raise earnings, improve health, or add to a person’s good habits over much of his lifetime. Therefore, economists regard expenditures on education, training, medical care, and so on as investments in human capital….

Investment, from the Concise Encyclopedia of Economics

What is investment? Although in general parlance investment may connote many types of economic activity, economists normally use the term to describe the purchase of durable goods by households, businesses, and governments….

Research and Development, from the Concise Encyclopedia of Economics

Research and development (R&D) is the creation of knowledge to be used in products or processes….

In the News and Examples

Think Globally, Act Irrationally:Â Recycling, by Mike Munger. Econlib, July 2, 2007. Also: Munger on Recycling, EconTalk podcast.

“These two bottles. Suppose you value earth stewardship, and want to use the fewest resources. What if you want to minimize the negative impact on the environment? With that as your goal… should these bottles be made of recycled glass? Should anything be recycled? How would we know?”…

There is a simple test for determining whether something is a resource (something valuable) or just garbage (something you want to dispose of at the lowest possible cost, including costs to the environment)….

Immigration, from the Concise Encyclopedia of Economics

Immigration is again a major component of demographic change in the United States. Since 1940 the number of legal immigrants has increased at a rate of 1 million per decade….

Gender Gap, from the Concise Encyclopedia of Economics

When economists speak of the “gender gap,” these days they usually are referring to systematic differences in the outcomes that men and women achieve in the labor market. These differences come in the percentages of men and women in the labor force, the types of occupations they choose, and the difference in the average incomes of men and women. These economic gender gaps have been a major issue in the women’s movement and a major issue for economists….

A Little History: Primary Sources and References

Capital and Interest A Critical History of Economical Theory, by Eugen von Böhm-Bawerk

It is generally possible for any one who owns capital to obtain from it a permanent net income, called Interest.

This income is distinguished by certain notable characteristics. It owes its existence to no personal activity of the capitalist, and flows in to him even where he has not moved a finger in its making. Consequently it seems in a peculiar sense to spring from capital, or, to use a very old metaphor, to be begotten of it. It may be obtained from any capital, no matter what be the kind of goods of which the capital consists: from goods that are barren as well as from those that are naturally fruitful; from perishable as well as from durable goods; from goods that can be replaced and from goods that cannot be replaced; from money as well as from commodities. And, finally, it flows in to the capitalist without ever exhausting the capital from which it comes, and therefore without any necessary limit to its continuance. It is, if one may use such an expression about mundane things, capable of an everlasting life….

Advanced Resources

Frank Knight, biography from the Concise Encyclopedia of Economics

Knight’s final contribution was his work on capital theory in the thirties. Knight criticized Böhm-Bawerk’s view that capital could be measured as a period of production (see Böhm-Bawerk). Knight was seen to have won the debate over the Austrian concept of capital.

The Positive Theory of Capital, by Eugen von Böhm-Bawerk

There is scarcely a system or a text-book of Political Economy which does not, at some point or other, bring in discussions of matters belonging to the physical sciences. Usually these are introduced in the chapter on Production. There we are taught that to create new goods does not mean to create new material, since matter is constant and cannot be increased. We learn what nature contributes to the work of production in the shape of materials and powers; what is done by the mechanical, what by the chemical, and what by the organic powers of nature; what importance climate, heat, moisture have on the development of production; on what physical and technical foundations the working of machinery rests; and many things of this sort….