Monday, July 9, 2012

Was Henry Ford a Socialist?



I recently read an interesting piece about Henry Ford, the person who almost singlehandedly put America on wheels and introduced manufacturing to the "moving assembly line".  He was an innovative thinker for sure.  

Consider this:  In 1914 the average daily wage for a blue collar worker (in high-wage Detroit) was $2.34.  Henry Ford was having difficulty with employee turnover at his car factory (300% annually) so he addressed it by raising the wages of (almost all) his workers to $5.00 a day.  In other words, he took money out of his pocket (and his investor's pockets) and put it in his employee's pockets.  WHAT?  Without being coerced by government or a union?  Was he NUTS?   Some might call that a massive transfer of wealth.  I wonder what his Board of Directors had to say about it at the time?  Was Henry a closet Socialist?

But in reality here's what happened:  His Model T sales went from 250,000 cars in 1914 to 472,000 in 1916.  How?  All those now-well-paid employees could afford to buy the cars they were building.  Plus increases in productivity dropped the price of his basic Model T by approx. 50% to $360.  And to keep their employees motivated other automakers had to follow Ford's lead, and most of them (both the workers and the owners) prospered greatly also.  But it was Henry Ford and his company and his family who prospered the most.  Well-to-do before, the Ford's became wealthy beyond their wildest dreams when his workers prospered, too. 

Well....was he a Socialist?*  Was Henry a "re-distributor of wealth" or just a "pump primer"?  Is there a difference?  Could his example have any relevance for us today?  That's a tough one.  A policy to tax the rich like that being carried out today by Socialist French President Francois Hollande (with a top tax rate of 75%!) seems to be more vindictive than based on business logic.  But as Henry Ford demonstrated, a more balanced income distribution across the board can yield huge positives for workers and entrepreneurs alike.  It's all just a numbers game....unless a thriving middle class can afford to buy what entrepreneurs are offering, businesses stagnate or fail.  

It seems to me the trick is walking the fine line between a vindictive Socialist "share the wealth" money grab and finding that ideal "pump priming " point.  Do the ends ever justify the means?  Semantics aside, was Henry Ford's social experiment a good idea or not?

Thoughts anyone?  

S

*Henry was NOT a "card-carrying" Socialist.  In fact he was outspokenly anti-Socialist, anti-Communist, anti-union, and unfortunately anti-Semitic, too.



10 comments:

  1. I think his idea was a good one. I also know that Ford Motor Co. was one of the only that did not take the government bail-out money and they are manufacturing some of the most fuel efficient and GORGEOUS vehicles today. I have a new respect for Henry Ford after reading this, thanks.

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  2. No, as you say, he wasn’t a socialist. His actions in raising wages was not to narrow the wealth gap, but to increase his company’s (and his) profits. But it is an interesting example of how cutting wages doesn’t necessarily cut profits.
    A better example might be someone like Titus Salt. While he was still a capitalist, he would qualify as a philanthropist by building better-quality housing for his workers out of idealism as much as the desire to increase productivity. There’s a bit of both, and I stress he wasn’t a socialist, but compared to many company heads these days he had moral integrity.

    http://en.wikipedia.org/wiki/Titus_Salt

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  3. Was this not just supply and demand? In order to hold on to good productive workers the higher wage was demanded by the supply. 300% turnover tells you the previous wage was not sufficient. Where did these workers go if not to higher wages elsewhere?

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  4. Joe...You're probably right. His original intent may have simply been to hire and keep good employees. But the consequence, perhaps unintended, was a whole new segment of relatively affluent middle class consumers. It appears he made a lot more money selling more cars than he would have made by paying labor lower wages.

    Simon...I'll read up on Titus Salt. Thanks. I'm not familiar with him.

    Lenn...I agree...the new Ford's are sharp looking!

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  5. Henry Ford was certainly to be admired for his many accomplishments, but I seem to recall that the government took his company away from him during WWII because the old man couldn't deal with converting assembly lines from auto production to planes and tanks. I don't know if he was a socialist or not and I don't care. In it's extreme, Capitalism is every bit as bad as Socialism. A blend of both is the ideal form of government.

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    1. 100% agree with you. Uncontrolled capitalism is the worst think there could be for a nation as great as America!

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  6. It's funny to me that if you say he did what I wrote about above and call it Socialism, people absolutely FREAK OUT! But if you show it to be a sound business decision that made him A LOT of money...more than he probably would have made otherwise...well...that's OK.

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  7. Yes, Henry Ford was many things . . some of them despicable . . but a Socialist he was not.

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  9. It worked because he devised a system to produce many cars; and when lots of people needed them.

    Raising demand is a good way to expand overall wealth. To raise demand you need to raise wages. Did you notice that cutting public services etc just do the contrary? Cutting expenses and closing jobs is what they are doing in Greece, Spain etc, now, it does not work because it contracts demand.

    BTW, the top tax rate of 75% in France only concerns people who earn more than one million euro a year and applies to their gains above the million, not under. Who needs so much money anyway?

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