THE NATIONAL INCOME AND PRODUCT ACCOUNT
Many years ago the people of Nolandia were content to consume a single product known as brothausen. Brothausen served all their needs: they could eat it, wear it, and use it for protection against the wind and rain. It was produced from a mineral known as brot, which was found in great abundance on the surface of the soil, and which could be transformed into brothausen with only a few hours of labor. All the brothausen in Nolandia was produced by a single company, appropriately named the Brothausen Corporation, and all gainfully employed persons worked for this company.
The amount of brothausen that people were entitled to consume depended on how much work they did for the company. The company would pay them in script, known as dollars, with which the recipients might then buy brothausen. Some people working for the company were owners, who had organized it and managed it, and others were laborers. The corporation employed the laborers, paying them fixed hourly rates in dollars, and any dollars left over from the sale of output were paid to the owners.
As producers, the laborers and owners were collectively known as factors of production. Since books on the principles of economics have adequately defined the four kinds of factors of production (providers of land, labor, capital, and entrepreneurial ability), it is not necessary for us to treat them at length here, except to point out a confusion prevalent in economic literature. Economists have not been quite sure whether a factor of production consists of productive activity itself (e.g., labor) or the person providing that activity (e.g., the laborer). In this book, the factors of production are always persons; that is, the persons who provide labor, capital services, the use of land, or the genius of the entrepreneur. The activity itself--labor, use of land or capital, and application of entrepreneurial ability--is referred to as factor services.