This paper outlines a resource-based theory of the firm focusing on the physical reality of production, resources, and innovation. This approach differs from previous attempts to extend the resource-based view to explain the firm by identifying the drivers behind resource heterogenization, their role in and effect on the market process, and what the entrepreneurial gains from extending the divisions of labor and capital are. I find that adopting the perspective of economic productivity theory provides valuable insights into the workings of the market, the role of entrepreneurship, and the function of the firm.