On the theory of production in economics and production management

Koskela, L

Abstract

What do we know about production? What determines the outcome of production? Why are some factories, nations and industries more productive than others? Given that sciences tend to present their most fundamental knowledge in the form of theories: What is our theory of production? In view of these questions, the task is to critically assess theory of production in two relevant fields, economics and production management.


Comparison reveals that the economical theory of production broadly equates to the transformation theory of production, as used in production management. In production management, the transformation theory of production has been the underpinning of the mainstream thinking in the major part of the 20th century. It is only in the last decades of that century that the two other theories, flow theory and value generation theory, have started to challenge the transformation theory. However, today, the transformation theory is in many production management circles rejected as the sole theory of production. This is causing a theoretical rift between economics and production management.


The current theory of production in economics started to be developed around 1870, and became the dominant view in the first half of the 20th century, in the so called marginalist turn. However, in pursuing towards a coherent conceptualization of the machinery of the whole economy, the marginalists have been compelled to adopt foci and assumptions which are not helpful, but rather even counterproductive when it comes to understanding production. Such foci and assumptions comprise: elevation of scarcity to the main topic, refusal to consider any internal organization of production than that caused by process and costs, assumption of optimal efficiency, assumption of ends as given, assumption of momentary production as well as the isolation of economic phenomena from other phenomena.


These assumptions have especially contributed to two major failures, namely with respect to acknowledging waste and value loss. Economics has focused on the scarcity of given means to fulfil given ends. However, the means are not given, but we usually waste part of them. Similarly, ends are not given, but we can influence their emergence and realization in design and production. Thus, it is not enough to find the best means towards an end – rather we have also to address the evolution and attainment of the end, as well as the reduction of wasted means.


In 1935, one of the leading economists, Robbins, asked whether the conception of economics he is advocating runs the danger of tipping the baby out with the bath water, that is, ‘excluding from the subject-matter of Economics just those matters where economic analysis is most at home’, namely production. Unfortunately, it seems that this very danger, so vehemently denied by Robbins, has been realized. Mainstream economics seems to have little to say on the productive processes that create valuable artefacts. It is thus opportune to suggest that also economics should critically assess its prevailing theory of production, and adopt more valid theories.

Citation

Koskela, L. (2011). On the theory of production in economics and production management. In G. de Valence (Ed.), Modern construction economics: New developments in theory (80-99). Abingdon: Spon Press

• Publication Date: Jan 1, 2011
• Deposit Date: Aug 6, 2012
• Pages: 80-99
• Book Title: Modern construction economics: New developments in theory
• Publisher URL: http://www.routledge.com/books/details/9780415397063/