ABSTRACT
This chapter illustrates the complex processes involved in producing even simple goods such as pencils or gummi bears. It reflects Adam Smith's idea that the division of labour increases productivity. Economists later expanded this concept to include the division of land and the division of (physical) capital. The Austrian School of Economics has developed the concept of the structure of production to illustrate the complexity of the production process and the division of labour. Despite their importance for economic development, modern economics research and education often take the division of labour and the organisation of the structure of production for granted or overlook them entirely. The chapter also highlights the problems that arise when economists define capital as a factor of production. They often do so in order to demonstrate the productivity of (physical) capital against critics of the market economy. However, to be recognised as a productive factor, capital must meet several requirements: It must physically contribute to production, be quantifiable, and have a uniform rate of return. So far, no theory has managed to fulfil all of these requirements.
