The Nature of Business

Business is the human activity related to material things. It is necessary for civilization. It is found in all societies, even the simplest ones. Business may in-clude the production of goods: making airplanes, building buildings, and constructing paper boxes are examples of production. It can also provide the financing for these activities. Lending money, trading stocks and bonds, and selling insurance policies relate to the securing of capital (getting money) for business activities. Other forms of business include merchandising, which is the selling of products, and providing various services, such as accounting, distributing, and repair. Business, then, is the activity of producing and distributing goods and services.

In our study of business, it is necessary to understand the four basic factors of production. These four factors are land, labor, capital, and entrepreneurship. What is meant by these four terms?

In order to produce things, it is necessary to use land. Here, the term land, is used in the most general way. It refers not only to a piece of real estate where we might build a factory, but it also means all the raw materials used for production. Some of these raw materials are found on the earth's surface, such as trees, which yield (give) wood for lumber. Other raw materials are found under the earth's surface in mines and oil wells, and still other raw materials may be extracted (taken) from the air. All the raw materials for production come from the land, the air, and the ocean.

Labor refers to the use of mental or physical work to produce goods. Most labor changes raw materials into finished products and then distributes these to buyers. In industrialized countries, labor is generally more mental than physical. For example, in both manufacturing and agriculture, machines accomplish the very tiring physical work that unskilled laborers used to do. In other industries computer programmed robots and other forms of data processing equipment perform many of the jobs which used to require a lot of mental labor. Therefore, to a certain extent the next factor, capital, can be used to replace labor or reduce the amount of physical and mental labor that humans have to use in order to conduct (do) business.

In everyday language, capital means several things. The most general meaning is wealth or money. But it also refers to the equipment that money purchases. As one of the basic factors of production and capital is all of the things that workers use in production and distribution. It includes their tools, machines, and buildings such as factories and warehouses where goods are produced and stored. Capital, there-fore, refers to anything which helps to produce and distribute goods.

Putting together land, labor, and capital to make something of value, is called entrepreneurship. The entrepreneur is the person responsible for controlling and directing the other three factors. The entrepreneur does not make things with his own hands unless he is also a worker. In a business the workers take orders from the entrepreneur. He is the leader, and the employees follow his direction.

Entrepreneurship includes some other important activities. The entrepreneur is responsible for initiating (beginning) business activity. He must begin his business by bringing together the land, labor, and capital. Next, he must manage the business by deciding, the general policies for business operation. In order to be successful, an entrepreneur must also be innovative (have new ideas). He must look for new products or new ways of making things, and new methods of distribution, or he must offer new services. He must be able to decide on the value of things which other people invent, whether it is a new toy, a new method of filing, or a new way of advertising. Finally, he bears all the risks (takes all the chances) of the business.

Everyone connected with a business shares in the risks of the business. When a company goes bankrupt, that is, becomes unable to pay its debts, it causes problems for many people. It is hard for the employees who may have to seek work elsewhere; the customers must look for another place to buy their products; creditors (people the business owes money to) usually lose some of the money that they have lent to the company. But the entrepreneur takes the biggest risk. If the business succeeds or fails, the must pay them up to the limit of his ability to pay. If he is skillful – and lucky – the money he receives from his business venture (activity) will pay for the land, labor, and capital, and there will still be some extra money remaining for him. This extra money is the profit. If the money he receives from the business venture is not enough to pay for all of the coasts, the difference is a loss.

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