Factors of Production
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The factors of production are the means (resources) employed to produce goods and services.
1. Original (or primary) factors
These are those that are not the result of a prior productive process:
- Land (nature): includes the soil, natural resources, the physical forces of the environment, etc.
- Labor (human action): man’s physical and intellectual effort.
These two are the only original factors. Everything else derives from them.
2. Capital (capital goods)
It is not an original factor, but a produced factor.
They are intermediate goods used to produce other goods. Example: tools, machines, buildings, livestock, infrastructure, software, etc.
Capital:
- Is heterogeneous (it is not a “homogeneous fund”).
- Has temporal structure (there are stages more distant and closer to consumption).
- Is the result of prior processes of saving and investment (abstention from present consumption).
Key difference with other schools
Classical economics (and later Marxist economics) used to speak of three “coordinated” factors: land, labor, and capital, as if capital were original and stood at the same level.
Austrian economics insists that:
- Only land and labor are original.
- Capital is a product of human action over time.
- The value of all factors is subjective and is determined by their marginal contribution to the satisfaction of ends valued by individuals (imputation of value).
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Last updated: 2026-07-23
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