When you make (almost) anything you need materials such as wheat flour, wood, steel, or plastic, which in turn come from natural resources such as land, forests, iron ore or oil. Labor is required to process these natural resources. The farmer grows the wheat on the land, the wood is harvested from the forest, the iron ore is mined and processed to make steel, and the plastic is processed in a plant which employs engineers and others. As these examples show, in addition to raw materials and labor, machines and tools are required to harvest, smelt, and process just about any manufactured product and almost all services. The machines, tools, buildings and so on used to produce goods and services are called capital in classic economics.

These three inputs to everything humans make or do are called “factors of production”.