Definitions — Factors of Productions

Last modified by Administrator on 2023/02/17 01:53

The disciplines of ECONOMICS and ACCOUNTING consider four factors of production, and three types of intellectual capital. These frame the substance of various complex LAWS and BUSINESS agreements. Each factor has a monetary aspect, and financial accounting underlies the whole structure. 

  • LAND refers to the resources of the Earth, consisting of the material / energy configurations and self-organizing processes, both inanimate and alive. Their integrity and availability are pre-conditions for human life, and they establish the underlying constraints upon all forms of economic production. 
  • LABOUR is the deliberate expenditure of human effort, physical and/or mental, by individuals or communities, in the production any material and/or intangible result (incl. goods and services).
  • INTELLECTUAL CAPITAL is the set of re-usable organizational assets (structured information, cognitive abilities, stakeholder relationships) that enable the efficient simplicity or the elegant complexity with which Land and Labour are applied and managed to enhance the productivity of Land and Labour.
    • COGNITIVE INTELLECTUAL CAPITAL is the value of the workforce’s depth and breadth of experience, skills, knowledge, know-how and competencies in fields that are important to the success of the enterprise, along with individual and team aptitudes, attitudes and mental health. This is the living and thinking part of the intellectual capital resources. 
    • RELATIONAL INTELLECTUAL CAPITAL is the value of all the organization's relationships that exist amongst an organization and its external stakeholders, such as customers, intermediaries employees, suppliers, alliance partners, regulators, pressure groups, communities, creditors and investors. Some relationships are informal, while others are formalized in contracts. 
    • STRUCTURAL INTELLECTUAL CAPITAL is the value of the organization’s essential operating processes, the way it is structured, its policies, procedures, technologies, routines, its information architecture, availability and feedback loops, and management coherence, including financial coherence (though not the financial capital value itself). 
  • PHYSICAL CAPITAL refers to re-usable intermediate material assets produced via the application of Intellectual Capital upon Labour and Land. These assets are specifically designed to physically enhance the productivity of Labour and Land.

Conceptual Origins of "Intellectual Capital"

The inclusion of Organization and Intellectual Capital in economic thinking is not new. In his "Principles of Economics" published in 1920 Alfred Marshall emphasized the idea of Organization as a fourth distinct agent of production: 

 "The distinction between public and private property in knowledge and organization is of greater importance than that between public and private property in material things; and partly for that reason it seems best sometimes to reckon Organization apart as a distinct agent of production. ... Capital consists in a great part of knowledge and organization: and of this some part is private property and the other part is not." Source

It is useful to notice that this concept of Intellectual Capital emerged during the height of the Industrial Revolution, and did not require the so-called "Knowledge Revolution" to be realized.

As part of more recent global discussions within the accounting profession from the mid-1990s, the Canadian Institute of Chartered Accountants (CICA) launched the Canadian Performance Reporting Initiative, seeking ways to measure intangible 'intellectual capital' in organizations. They considered that "the current accounting model does not adequately deal with intellectual capital", so that conventional balance sheets present a distorted picture of value. CPRI concluded that intellectual capital is a "value creating platform" for an organization. They recommended that Intellectual Capital value be measured and reported on separately from traditional financial performance measures when documenting value realization.

Consensus amongst accounting bodies arrived at an ontology with the three basic types of intellectual capital defined above: Cognitive, Structural and Relational. (The definitions above have been adapted from: Marr, B., Schiuma, G., & Neely, A. 2004. Disclosing the invisible: Publishing intellectual capital statements. CMA Management. Society of Management Accountants of Canada. August/September, 35-39. http://www.cma-canada.org/index.cfm/ci_id/12935/la_id/1

Useful References on Intellectual Capital

Some Notes on the Terminology of "IP" (or... "You Say Tom-8-to, I say Tom-a-to")

The phrase "Intellectual Property" seems entirely coherent to some and entirely incoherent to others:

Within this syllabus on free/libre/open source business management we ask participants to perform a mental swap in order to use the word "Provenance" in place of "Property". Whenever you read or hear "IP", we ask that you try to mentally parse that into: "Intellectual Provenance". 

We make this request in the interest of achieving a more precise expression. Provenance exactly means: "1. Place of origin; derivation. 2. (a) The history of the ownership of an object, especially when documented or authenticated. Used of artworks, antiques, and books. (b) The records or documents authenticating such an object or the history of its ownership." Source: http://www.thefreedictionary.com/provenance

This cognitive swap results in statements that both perspectives in the aforementioned debate may be able to agree upon. For example, here's the first paragraph from the Wikipedia entry on "IP", in which the words have been swapped:

 Intellectual Provenance (IP) is a legal concept which refers to creations of the mind for which exclusive rights are recognized. Under intellectual provenance law, owners are granted certain exclusive rights to a variety of intangible assets, such as musical, literary, and artistic works; discoveries and inventions; and words, phrases, symbols, and designs. Common types of intellectual provenance rights include copyright, trademarks, patents, industrial design rights, trade dress, and in some jurisdictions trade secrets.
  Adapted from http://en.wikipedia.org/wiki/Intellectual_property

Useful Sources:

Intellectual Resources

In economics and accounting, a “resource” is any available supply of the four "factors of production" (Land, Labour, Capital and Organization) that can be drawn upon when needed. Resources in the form of data, information or knowledge are often referred to  "intellectual resources". The phrase "intellectual resources" was introduced by Kenneth Boulding in a 1963 article. This phrase is used occasionally in this syllabus, but it should be considered as a colloquial, or informal way to refer to any +intellectual capital+ that is available to a project.

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