Archive for March 12th, 2010

The First Factor of Production

Adam Smith said that the four factors of production are land, labor, capital and management. The only quibble non-Marxist economists have had with that list for a quarter of a millennium has been to argue whether management is not really a subset of labor.

But what is critical is how little thinking, none actually, they have done on the word “land.” They have always thought in Adam’s terms, of “land” as meaning what a factory or a farm needed in HIS day. To Adam Smith the word “land” meant resources as well as a factory site. You need land to graze sheep on or to mine for coal.

Economic thinking on land as a factor of production, is where Adam Smith left it.

Today it is not uncommon for what Smith called “land” to be nonexistent. Some of the most expensive “land” on earth is above the fiftieth floor where a firm is located. SMOM is an independent country in Italy which is recognized by a number of other countries. It is located entirely on the second floor of an otherwise Italian building.

Location, location and location. Smith knew some locations were more valuable than others, but today it has an overwhelming importance he could not have imagined.

And that is least of “modern economitss'” problems with the first factor. Even in Adam Smith’s sense, the place you put a factory is mostly not a matter of resources. Africa has lots of resources and Japan has NONE, but how many people would put a factory in Africa?

This is why libertarian economists are such complete fools. They know very well that no sane businessman would put a factory in Haiti with the same percentage profits as he would accept in the United States. No LIBERTARIAN would pay the same amount for Haitian investments as he would for the same factory in America.

Why? Because Haiti is full of HAITIANS His money is subject to HAITIAN politics. PERIOD.

Yet every libertarian economist insists that if the American population moved out and the third world moved in, he would be just as willing to invest his money here. It is the American” land” that is productive, and a new population wouldn’t change it.

Like most of my propositions, once you put the thing in plain English you wonder about the sanity of those who haven’t.