Factors of production are the ingredients an economy uses to make things. Classical economists named four: land, labor, capital, and entrepreneurship. Land covers natural resources. Labor is human effort, both physical and mental. Capital means man-made tools, machines, and buildings. Entrepreneurship organizes the other three and takes the risk.

Each factor earns a return. Land earns rent. Labor earns wages. Capital earns interest. Entrepreneurship earns profit. These categories are not perfect. Human capital blurs the line between labor and capital. Technology can be seen as capital or as a separate force. Still, the framework helps organize thinking about how economies grow.

Different economies have different endowments. A country rich in oil but short on skilled workers will specialize differently than one with a highly educated population and few natural resources. Trade allows countries to leverage what they have. Over time, endowments change through investment and education.

The four factors

• Land: natural resources
• Labor: human work and effort
• Capital: man-made tools and infrastructure
• Entrepreneurship: organization and risk-taking