In economics the term utility refers to the satisfaction people get from the goods and services they consume and the activities they pursue, i.e. what it is that makes them happy. In order to understand how the system works, it is important to go back to the simple basics or starting blocks that are required to serve the interests of the people. There are four general categories of economic resources that are traditionally considered components of production: Land, Labor, Capital. and the Entrepreneur.
I suppose you could say that, “In the beginning” there were only two components of production: land and labor. Then the fellow doing all the labor, named “Adam”, figured it out that he would benefit greatly by taking a very sharp stone to kill the wild animal he was going to use for meat, instead of beating it or strangling it. He also enhanced the utility of the process by using yet a sharper stone as a knife to remove the hairy, tough hide of the animal before cooking it or trying to barter it to one of his buddies. At that point, he took a giant step into the position of the entrepreneur while also utilizing components of capital, thus making it four components of production rather than just two. Now back to the serious components of traditional economics.
LAND
By the term land economists mean nature, natural resources, the earth plus the heavens, and the seas. Simply stated, land is God’s gift to the children of men (Psalm 115:16). It is the untouched earth as we find it. That economic term includes everything on, above, and below the surface of the earth. It includes streams, lakes, minerals, forests, air, space, wild animals, plants, fossil fuels, and even rocks brought back from the moon . . . everything that man finds in his environment that is not a product of mankind’s labor.
Two things to remember about land and all things considered natural resources: First, they are found in nature and that no human effort has been used to make or alter them. Second, they can be used for the production of goods and services.
LABOR
The resource component called labor consists of the physical and mental talents of individuals used in producing goods and services. The services of airline pilots, teachers, welders, loggers, retail clerks, mechanics, professional football players, or rocket scientists are all included under the general heading of labor. Generally speaking, a person’s ownership in his or her own unique labor power is the greatest factor of production under that person’s command. That power is at the person’s disposal for exchanging in the marketplace for the many goods and services desired but not yet owned. The terms, free labor market or competitive labor market refer to a person’s being able to exchange or sell his labor power to the highest bidder on the one hand, and the bidder being able to exchange or purchase labor power at the best terms he can find.
CAPITAL
Capital is wealth intended to produce more wealth and is not yet in the hands of the consumer but still somewhere in the process stage of producing more wealth or income. In economic thought, capital, or capital goods includes all manufactured aids used in producing consumer goods and services. Included are factories, warehouses, distribution centers, transportation facilities, as well as items like stone knives, hammers, wrenches, drill presses, industrial robots, or other pieces of machinery. Economists refer to the purchase of capital goods as investments. Capital goods differ from consumer goods because consumer goods satisfy wants directly, whereas capital goods do so indirectly by aiding in the production of consumer goods.
The term capital as used by economists does not refer to money, but to tools and other productive equipment. Because money produces nothing by itself, economists do not include it as a basic economic resource.
THE ENTREPRENEUR
The entrepreneur takes the initiative in combining the resources of land, labor, and capital to produce a good or a service. Both a sparkplug and a catalyst, the entrepreneur is the driving force behind production and the agent who combines the other resources in what is hoped will be a successful business venture. The entrepreneur’s time, effort, and abilities invested do not guarantee any degree of success or profit. The risks may result in losses rather than rewards, and possibly, the entrepreneur will put at risk not only his or her invested assets but those of associates and stockholders as well.
But nothing happens without the entrepreneur . . . a special human resource who takes an idea and attempts to make an economic profit from it by combining all other factors of production. The entrepreneur is the individual who also takes on all of the risks and rewards of the business.
Students sometimes struggle with the concept of entrepreneur. It is a tricky word to spell and pronounce. It is a bit ironic that it was the French who attached the name that stuck to the functional concept, but it is a great word. For me, the easiest way to visualize and remember the function of the entrepreneur is to recall its simplicity. The only thing an entrepreneur really does is to take something of a lesser value from the economic system and place it back into the system at a higher value. That is all an entrepreneur does.
The primitive man simply took a common rock out of the system and returned it back into the economic system as a stone knife.
I feel blessed to be considered an entrepreneur. In our days of real estate development we performed a very simple and rewarding task. We took out of the economy struggling ranches that were not producing very much wealth and delivering almost no tax revenue to the county or state. We developed them into beautiful recreational and business sites in Colorado’s ski country and entered those sites back into the economy at a higher value.
When it was time to meet international needs for medical supplies and equipment for hospitals and clinics in lesser developed countries around the world, Project C.U.R.E. simply removed out of our economic system medical items of lower value, did a bit of enhancement and reinserted those medical items back into the international economy where they were desperately needed, and thousands and thousands of lives were saved in the process.
Wealth is generated from production. Poverty is perpetuated through non-production. It is very important for us to understand the utility that flows from the basic components of production: Land, Labor, Capital, and the Entrepreneur.
Next Week: Cultural Components
(Research ideas from Dr. Jackson's new writing project on Cultural Economics)
© Dr. James W. Jackson
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