In economics and sociology, the means of production (also called capital goods or productive property) are the physical and non-financial inputs used in the production of goods and services with economic value. These include raw materials, facilities, machinery and tools used in the production of goods and services.
From the perspective of a firm, a firm uses its capital goods, which are also known as tangible assets as they are physical in nature. Unfinished goods are transformed into products and services in the production process. Even if capital goods are not traded on the market as consumer goods, they can be valued as long as capital goods are produced commodities, which are required for production. The total values of capital goods constitute the capital value.
The social means of production are capital goods and assets that require organized collective labor effort, as opposed to individual effort, to operate on. The ownership and organization of the social means of production is a key factor in categorizing and defining different types of economic systems.
The means of production includes two broad categories of objects: instruments of labor (tools, factories, infrastructure, etc.) and subjects of labor (natural resources and raw materials). People operate on the subjects of labor using the instruments of labor to create a product; or stated another way, labor acting on the means of production creates a good. In an agrarian society the principal means of production is the soil and the shovel. In an industrial society the means of production become social means of production and include factories and mines. In a knowledge economy, computers and networks are means of production. In a broad sense, the "means of production" also includes the "means of distribution" such as stores, the internet and railroads (Infrastructural capital).
The means of production of the firm may depreciate, which means there is a loss in the economic value of capital goods or tangible assets (e.g machinery, factory equipment) due to wear and tear, and aging. This is known as the depreciation of capital goods.
Marxism and Marxist theory of class
The analysis of the technological sophistication of the means of production and how they are owned is a central component in the Marxist theoretical framework of historical materialism and in Marxian economics.
In Marx's work and subsequent developments in Marxist theory, the process of socioeconomic evolution is based on the premise of technological improvements in the means of production. As the level of technology improves with respect to productive capabilities, existing forms of social relations become superfluous and unnecessary, creating contradictions between the level of technology in the means of production on the one hand and the organization of society and its economy on the other.
In relation to technological improvements in means of production, new technologies and scientific breakthroughs can rearrange the market structure, create massive economic impact and disrupt the profit pool in the economy. Further impact of Disruptive Technologies may lead to certain forms of labor power economically unnecessary and uncompetitive and even widening income inequality.
These contradictions manifest themselves in the form of class conflicts, which develop to a point where the existing mode of production becomes unsustainable, either collapsing or being overthrown in a social revolution. The contradictions are resolved by the emergence of a new mode of production based on a different set of social relations including, most notably, different patterns of ownership for the means of production.
Ownership of the means of production and control over the surplus product generated by their operation is the fundamental factor in delineating different modes of production. Capitalism is defined as private ownership and control over the means of production, where the surplus product becomes a source of unearned income for its owners. Under this system, profit-seeking individuals or organizations undertake a majority of economic activities. However, capitalism does not indicate all material means of production are privately owned as partial economies are publicly owned.
By contrast, socialism is defined as social ownership of the means of production so that the surplus product accrues to society at large.
Determinant of class
Marx's theory of class defines classes in their relation to their ownership and control of the means of production. In a capitalist society, the bourgeoisie, or the capitalist class, is the class that owns the means of production and derives a passive income from their operation. Examples of capitalist class include business owners, shareholders and the minority of people who own factories, machinery and lands. Countries considered as the capitalist countries include Australia, Canada and other nations which hold a free market economy. In a capitalist society, it does not provide equal opportunities for the working class as it does not provide work for people who lack competitive skills. In modern society, small business owners, minority shareholders and other smaller capitalists are considered as Petite bourgeoisie according to Marx's theory, which is distinct from bourgeoisie and proletariat as they can buy labour of others but also work along with employees.
In contrast, the proletariat, or working class, comprises the majority of the population that lacks access to the means of production and are therefore induced to sell their labor power for a wage or salary to gain access to necessities, goods and services.
According to Marx, wages and salaries are considered as price of labour power, related to working hours or outputs produced by labour force. At the company level, an employee does not control and own the means of production in a capitalist mode of production. Instead, an employee is performing specific duties under a contract of employment, working for wages or salaries. As for firms and profit-seeking organizations, from a personnel economics perspective, to maximize efficiency and productivity there must be an equilibrium between labour markets and product markets. In human resource practices, compensation structure tend to shift towards pay-for-performance bonus or incentive pay rather than base salary to attract the right workers, even if conflicts of interest exist in a employer-worker relationship.
To the question of why classes exist in human societies in the first place, Karl Marx offered a historical and scientific explanation that it was the cultural practice of ownership of the means of production that gives rise to them. This explanation differs dramatically from other explanations based on "differences in ability" between individuals or on religious or political affiliations giving rise to castes. This explanation is consistent with the bulk of Marxist theory in which Politics and Religion are seen as mere outgrowths (superstructures) of the basic underlying economic reality of a people.
Related terms
Factors of production are defined by German economist Karl Marx in his book Das Kapital as labor, subjects of labor, and instruments of labor: the term is equivalent to means of production plus labor. The factors of production are often listed in economic writings derived from the classical school as "land, labour and capital". Marx sometimes used the term "productive forces" equivalently with "factors of production"; in Kapital, he uses "factors of production", in his famous Preface to the Critique of Political Economy, he uses "productive forces" (that may depend on the translation).
Production relations (German: Produktionsverhältnis) are the relations humans enter into with each other in using the means of production to produce. Examples of such relations are employer/employee, buyer/seller, the technical division of labour in a factory, and property relations.
Mode of production (German: Produktionsweise) means the dominant way in which production is organised in society. For instance, "capitalism" is the name for the capitalist mode of production in which the means of production are owned privately by a small class (the bourgeoisie) who profits off the labor of the working class (the proletariat). Communism is a mode of production in which the means of production are not owned by anyone, but shared in common, without class based exploitation. Besides capitalism and communism, there is another mode of production which is called Mixed Economic System. In a mixed economy, private ownership of capital goods are protected and certain level of market economy is allowed. However, the government has the right to intervene the market and economic activities for social objectives. Different from the pure capitalism, the government regulation exists to control particular means of production over private business sector. Different from communism, the majority of means of production are privately owned rather than shared in common.
