Factors of Production
The Science of Political Economy
Book III, The Production of Wealth*
Order of the Three Factors of Production
Showing the Agreement of All Economists as to the Names and Order of the Factors of Production
All economists give the factors of production as three -- land, labor and capital. And without exception that I know of, they name them in this order. This, indeed, is the natural order; the order of their appearance. The world, so far as political economy takes cognizance of it, began with land. Reason tells us that land, with all its powers and potentialities, including even all vegetable and animal life, existed before man was, and must have existed before he could be. But whether still "formless and void," or already instinct with the lower forms of life, so long as there was in the world only the economic element land, production in the economic sense could not be, and there was no wealth. When man appeared, and the economic element labor was united to the economic element land, production began, and its product, wealth, resulted. At length (for in the myths and poems in which mankind have expressed all the wisest could tell of our far beginnings they have always loved to picture a golden age devoid of care), or more probably almost immediately (for the very first of our race must have possessed that reason which is the distinguishing quality of man), the greater power that could be gained by using wealth in aid of labor was seen, and a third factor of production, capital, appeared.
But between this third factor and the two factors which precede it, a difference in nature and importance is to be noted. Land and labor are original and necessary factors. They cannot be resolved into each other, and they are indispensable to production, being necessary to production in all its modes. But capital is not an original factor. It is a compound or derivative factor, resulting from the union of the two original factors, land and labor, and being resolvable on final analysis into a form of the active factor, labor. It is not indispensable to production, being necessary, as before explained, not in all modes of production, but only in some modes. Nevertheless, the part that it bears in production is so separable, and the convenience that is served by distinguishing it from the original factors is so great, that it has been properly recognized by the earliest and by all subsequent writers in political economy as a separate factor; and the three elements by whose union wealth is produced in the civilized state are given by the names and in the order of (1) land, (2) labor, and (3) capital.
It may seem to the reader superfluous that I should lay such stress upon the order of the three factors of production, for it is not more self-evident that the mother must precede the child than that land must precede labor, and that labor must precede capital. But I dwell upon this question of order because it is the key to confusions which have brought the teaching of the science of political economy to absurdity and stultification. Such of these writers as have condescended to make any definitions of the terms they use have indeed in these definitions recognized the natural order of the three factors of production. But whoever will follow them will see that without seeming conscious of it themselves they soon slip into a reversal of this order, and, literally making the last first, proceed to assume that capital is the prime factor in production. Socialism, which gives such undue prominence to capital and yet is so completely at sea as to the real nature and functions of capital has the root of its absurdities in the teachings of the scholastic economists.
But the results of this confusion as to the nature and order of the factors of production will be more fully treated when we come to consider the distribution of wealth. All that it is necessary to do here is to point out the true order of the factors of production and to make clear what they are. Let us proceed to consider them one by one.