Production has evolved over time from simple hunting and gathering to world wide enterprises employing hundreds of thousands in an organized manner. The fundamental of the need for production is driven by the inescapable fact that humans must produce to survive.
To produce one must have the components of production - land, labor and production functions. Land encompasses all things in existence at a point in time. Labor comprises humans with specific skills at the same point in time. Production functions, which are a form of land when recorded on some sort of media, are the recipes or plans which explain how to combine land and labor to provid more land, more skilled labor or provide a service.
Time is always a factor in production. Production processes take time to execute. After a production process executes, there is a new set of land, labor and production functions as land is transformed by labor.
Over time humans have learned how to use tools, cultivate food crops, domesticate animals, construct buildings, roads, railroads, airplanes, etc. To understand production in its component parts, it is helpful to perform a thought experiment based on historical occurrences. For example in the mid 1700s England was competing with France for control of Nova Scotia, Canada. They enticed a group of German speaking people to migrate from Europe to the area that became the present day Lunenburg County in Nova Scotia. As part of the agreement, each settler was awarded a tract of land for farming and a smaller lot in the planned town of Lunenburg. More details can be found at the Mahone Bay Settlers Museum. They were also given basic farm tools and enough food to survive the winter.
The actual historical events that occurred are unimportant but the reader should imagine the following situation. You have a plot of real property with the boundaries clearly marked and enforced. It is primarily wooded and has game animals and water. You have basic tools, your spouse and food to last one growing season along with seeds for a new crop. You also have the basic knowledge of production functions for building a simple lodging, hunting, digging a well and cultivating corn, hay and basic vegetables. It is also understood that you will be awarded an ox in the spring to use on your farm.
Land is all things in existence at a point in time. Using our example we would see the following categories of land:
The material was brought to your property and left by the main road. It is important to note that land always is located in a particular place on the earth. This spatial property of land must always be considered in its use.
Labor comprises the skills that can be applied by specific humans located in a specific place at a specific time. Using our example standing by the road looking at the land they have just acquired, are two humans, a male and a female. Both can use a rifle to hunt. One has more experience and in the past has, on average, been able to harvest a deer in one day of hunting using 4 bullets. The other has taken an average of two days and used 7 bullets. One is stronger than the other. One knows how to cook. The other knows how to butcher and smoke meat. One can fell a medium sized tree in a day. The other has not mastered the skill. Together they can produce children. They both understand how to plant seeds to produce food. One can sew and clean and process hides. One knows how to plow using an ox or a horse. Both know how to harvest.
A production function is a plan or recipe that explains how to transform land and labor into land or provide a direct service. For example if there were a pair of hair scissors in the material that our example group was given and they had the labor qualifications to use them to cut hair, the production function would be: combine a person who needs a haircut, scissors, a place to sit and another person qualified to provide a haircut. One haircut would consume 20 minutes and result in a certain style based on its description in the production function. The end result after 20 minutes is the service of a hair cut. Assuming the hair clippings were discarded, no land was produced.
Baking bread uses a recipe that describes the land required: facilities and ingredients. The labor would be a bread baker. As we analyze the bread baking example, we find that our two settlers have a recipe book which is land, a Dutch oven, water, wood for a fire, flour and yeast which are also land. The have no eggs so they can not complete the project according to the production function. One of them has the skill to combine the ingredients. The production function estimates it takes about two hours to complete the task if all of the required land and labor are available.
For those who like to think in terms of mathematical notation. A production function Psl operates over a defined period of time to produce a defined piece of land or a service.
Psl(t1-t0) = f(ld,lb)/t(t1-t0)
Where Psl(t1-t0) is produced service or land over time period t0 to t1, Ld is land used over production period t0 to t1 and Lb is labor used over the production period t0 to t1. The units are in physical units of measure, not values.
Continuing to analyze our example, we realize that each item we listed as land was land because it was already produced in a prior time period. The Dutch oven had production functions which had to be executed to produce it and production functions were needed in still earlier time periods to produce inputs to oven production functions.
Finding eggs will be needed to be executed in the future if bread is to be baked according to the production function selected in the previous example.
It was also found that more efficient production will occur if people devote their finite abilities to the specific production functions that they can do well. Being a jack of all trades and master of none, creates flexibility but, reduces the quality of work produced.
Humans vary considerably in their abilities and interests. Because of this there may be a comparative advantage to someone doing work that another could do faster if the faster person could do some work the other could not master. This is the concept of comparative advantage which is dealt with clearly in most standard economic text books.
Production not only requires a production function, land and labor but also requires time to execute. The future is unknown but not unimaginable. There remains always the element of risk that production plans may not turn out as expected.
As humans learn, they become more knowledgeable about specific areas of production. This specialization, first written about by Adam Smith, leads to higher productivity as it allows for lengthening of the production process. Each component of the production process is refined into a more efficient operation.
An enterprise ties together the factors of production land, labor and production functions in an organized manner to produce product. Product can be either land or a service. The difference is that the land product is available for use in future periods whereas a service product is consumed over the time the production process executes.
The section on production is intended to identify the basic concepts underlying the production function so that it can be expressed in a formal way suitable for an analytical approach. If the reader is interested in more detail, please consider reading the references to this chapter. This subject will be discussed further in the economic calculation chapter.
Copyright 2014-2019 Richard A. Cornell, PE