Meaning of Production. Production in common language means making, creating, growing and manufacturing. For example, a conjurer produces a rabbit from his hat; farmers produce good crops; factories produce woollen goods. But in Economics, the term production refers to the creation of utilities and not to the creation of matter. For example, when a potter produces earthenwares, he creates utility in the damp earth.
Dr Richard Ely says that production means, “creation of economic utility” Fairchild says, “production consists of the creation of utility in wealth.”
Let us take more examples and see what these economists mean by the term production in Economics. A mason puts brick and mortar and gets a house built. He simply re-arranges and combines articles of matter and gives them a form of house which has greater utility for a man than before. Thus, more utility has been created.
A carpenter makes a chair. He changes the form of wood that really exists before. Wood is already there; he makes it more useful for man, i.e., he creates utility in wood.
A tailor does not create a bush-shirt; he simply creates a utility with the help of his needle and thread. Thus, production means the creation of utilities and not matter.
Definition of Production: Let us analyse the definition of production given by Dr Fairchild. He says, “The addition of economic utilities of commodities alone is production.” By the term economic utilities, he means exchange value. Production does not mean the creation of utilities, but on the contrary, it means the creation of economic utilities.
Economic utilities are created in goods and services mainly in three ways:
Form utilities
Time utilities
Place utilities.
Thus, the term production in Economics means the creation of goods and services that have exchange value.
In recent years, a new definition of the term ‘Production’ has come up. Prof. J. R. Hicks defines production as, “any activity whether physical or mental which is directed to the satisfaction of other people’s wants through exchange.”
Various Factors of Production. Land, Labour, Capital, Organisation and Enterprise are the five factors which makes the production possible.
The explanation of each factor is as follows:
1. Land: In economics, land means all the natural resources available not only on land but also in water and air which are given to human beings as free gifts of nature. Thus, by land we do not mean merely soil but it stands for all the free gifts of nature like mountains, hills valleys, rivers, plains, trees, wind, light, etc. The land which forms the original or basic source of all material wealth, thus, is the most important factor of production.
2. Labour: Any type of work undertaken by mind or body with a view to earning an income can be termed as labour. Thus, under the term ‘labour’ , we can include not only the labour of unskilled workers but also all those categories of work both mental and physical which are exerted to earn an income.
3. Capital: Capital plays a vital role in the modern productive system. Capital signifies all those physical goods which are used purposely for further production by human beings. But in the ordinary sense of the term, capital is used for money. Whereas in economics, capital stands not only for money but also for tools, instruments, machines, factories, raw materials, transport, equipment etc.
Capital and wealth are two different things. Capital is that part of wealth which is used for further production of wealth. Thus, all wealth is not capital, but all capital is wealth.
4. Organization: A village artisan can perform his work without much organizing skill. This is because his work is quite simple and is done on a small scale. But organization is of supreme importance in the large scale production of modern times where the division of labour and the use of machines are applied extensively. Land, labour and capital need to be brought up together and put into production effectively. This requires skill and efficiency. A person who has got the skill and organising capacity can make these factors to co-operate effectively in the most harmonious way.
5. Enterprise: Small scale production, small capital and small output do not involve a greater degree of risk. Industrialization, large scale production, division of labour have changed the quantum of risk in modern times. The risk element borne by concerns which were quite meagre in the yesteryears has turned out to be greater nowadays. The task of bearing uncertainty or risk is now borne by the enterprise, and production on a large scale which involves considerable risk and makes it another factor of production.
