Labor Plus Capital

Some days won't end ever
And some days pass on by
I'll be working here forever
At least until I die
--Huey Lewis and the News

Productivity is defined as how much output is generated per unit of input. Usually, the input of most interest is labor. As such, the most common expression of productivity is output per hour worked.

Suppose an individual produces 100 units of output in an hour of work. How to improve this productivity? One way is to improve the work process--a.k.a. 'work smarter.' Reduce wasted effort, combine steps, etc.

The other way is to develop tools that will help the worker do more. When digging holes in the ground, man first used his hands. Then he used a stick. Then a shovel. Then a back hoe.

Each one of these tools significantly improved how much earth he could move in an hour's worth of work.

The tools that combine with labor to produce output are known as capital. It is labor plus capital that jointly determine productivity and, consequently, standard of living.