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common sense among them was very high indeed, but it is impossible to

assemble fifty men equally endowed with common sense. They erred at

times--one always hears about the errors. It was expected that in order

to receive the bonus married men should live with and take proper care

of their families. We had to break up the evil custom among many of the

foreign workers of taking in boarders--of regarding their homes as

something to make money out of rather than as a place to live in. Boys

under eighteen received a bonus if they supported the next of kin.

Single men who lived wholesomely shared. The best evidence that the plan

was essentially beneficial is the record. When the plan went into

effect, 60 per cent. of the workers immediately qualified to share; at

the end of six months 78 per cent. were sharing, and at the end of one

year 87 per cent. Within a year and one half only a fraction of one per

cent. failed to share.

 

The large wage had other results. In 1914, when the first plan went into

effect, we had 14,000 employees and it had been necessary to hire at the

rate of about 53,000 a year in order to keep a constant force of 14,000.

In 1915 we had to hire only 6,508 men and the majority of these new men

were taken on because of the growth of the business. With the old

turnover of labour and our present force we should have to hire at the

rate of nearly 200,000 men a year--which would be pretty nearly an

impossible proposition. Even with the minimum of instruction that is

required to master almost any job in our place, we cannot take on a new

staff each morning, or each week, or each month; for, although a man may

qualify for acceptable work at an acceptable rate of speed within two or

three days, he will be able to do more after a year's experience than he

did at the beginning. The matter of labour turnover has not since

bothered us; it is rather hard to give exact figures because when we are

not running to capacity, we rotate some of the men in order to

distribute the work among greatest number. This makes it hard to

distinguish between the voluntary and involuntary exits. To-day we keep

no figures; we now think so little of our turnover that we do not bother

to keep records. As far as we know the turnover is somewhere between 3

per cent. and 6 per cent. a month.

 

We have made changes in the system, but we have not deviated from this

principle:

 

If you expect a man to give his time and energy, fix his wages so that

he will have no financial worries. It pays. Our profits, after paying

good wages and a bonus--which bonus used to run around ten millions a

year before we changed the system--show that paying good wages is the

most profitable way of doing business.

 

There were objections to the bonus-on-conduct method of paying wages. It

tended toward paternalism. Paternalism has no place in industry. Welfare

work that consists in prying into employees' private concerns is out of

date. Men need counsel and men need help, oftentimes special help; and

all this ought to be rendered for decency's sake. But the broad workable

plan of investment and participation will do more to solidify industry

and strengthen organization than will any social work on the outside.

 

Without changing the principle we have changed the method of payment.

 

 

CHAPTER IX

 

WHY NOT ALWAYS HAVE GOOD BUSINESS?

 

 

The employer has to live by the year. The workman has to live by the

year. But both of them, as a rule, work by the week. They get an order

or a job when they can and at the price they can. During what is called

a prosperous time, orders and jobs are plentiful. During a "dull" season

they are scarce. Business is always either feasting or fasting and is

always either "good" or "bad." Although there is never a time when

everyone has too much of this world's goods--when everyone is too

comfortable or too happy--there come periods when we have the astounding

spectacle of a world hungry for goods and an industrial machine hungry

for work and the two--the demand and the means of satisfying it--held

apart by a money barrier. Both manufacturing and employment are

in-and-out affairs. Instead of a steady progression we go ahead by fits

and starts--now going too fast, now stopping altogether. When a great

many people want to buy, there is said to be a shortage of goods. When

nobody wants to buy, there is said to be an overproduction of goods. I

know that we have always had a shortage of goods, but I do not believe

we have ever had an overproduction. We may have, at a particular time,

too much of the wrong kind of goods. That is not overproduction--that is

merely headless production. We may also have great stocks of goods at

too high prices. That is not overproduction--it is either bad

manufacturing or bad financing. Is business good or bad according to the

dictates of fate? Must we accept the conditions as inevitable? Business

is good or bad as we make it so. The only reason for growing crops, for

mining, or for manufacturing, is that people may eat, keep warm, have

clothing to wear, and articles to use. There is no other possible

reason, yet that reason is forced into the background and instead we

have operations carried on, not to the end of service, but to the end of

making money--and this because we have evolved a system of money that

instead of being a convenient medium of exchange, is at times a barrier

to exchange. Of this more later.

 

We suffer frequent periods of so-called bad luck only because we manage

so badly. If we had a vast crop failure, I can imagine the country going

hungry, but I cannot conceive how it is that we tolerate hunger and

poverty, when they grow solely out of bad management, and especially out

of the bad management that is implicit in an unreasoned financial

structure. Of course the war upset affairs in this country. It upset the

whole world. There would have been no war had management been better.

But the war alone is not to blame. The war showed up a great number of

the defects of the financial system, but more than anything else it

showed how insecure is business supported only by a money foundation. I

do not know whether bad business is the result of bad financial methods

or whether the wrong motive in business created bad financial methods,

but I do know that, while it would be wholly undesirable to try to

overturn the present financial system, it is wholly desirable to reshape

business on the basis of service. Then a better financial system will

have to come. The present system will drop out because it will have no

reason for being. The process will have to be a gradual one.

 

The start toward the stabilization of his own affairs may be made by any

one. One cannot achieve perfect results acting alone, but as the example

begins to sink in there will be followers, and thus in the course of

time we can hope to put inflated business and its fellow, depressed

business, into a class with small-pox--that is, into the class of

preventable diseases. It is perfectly possible, with the reorganization

of business and finance that is bound to come about, to take the ill

effect of seasons, if not the seasons, out of industry, and also the

periodic depressions. Farming is already in process of reorganization.

When industry and farming are fully reorganized they will be

complementary; they belong together, not apart. As an indication, take

our valve plant. We established it eighteen miles out in the country so

that the workers could also be farmers. By the use of machinery farming

need not consume more than a fraction of the time it now consumes; the

time nature requires to produce is much larger than that required for

the human contribution of seeding, cultivating, and harvesting; in many

industries where the parts are not bulky it does not make much

difference where they are made. By the aid of water power they can well

be made out in farming country. Thus we can, to a much larger degree

than is commonly known, have farmer-industrialists who both farm and

work under the most scientific and healthful conditions. That

arrangement will care for some seasonal industries; others can arrange a

succession of products according to the seasons and the equipment, and

still others can, with more careful management, iron out their seasons.

A complete study of any specific problem will show the way.

 

The periodic depressions are more serious because they seem so vast as

to be uncontrollable. Until the whole reorganization is brought about,

they cannot be wholly controlled, but each man in business can easily do

something for himself and while benefiting his own organization in a

very material way, also help others. The Ford production has not

reflected good times or bad times; it has kept right on regardless of

conditions excepting from 1917 to 1919, when the factory was turned over

to war work. The year 1912-1913 was supposed to be a dull one; although

now some call it "normal"; we all but doubled our sales; 1913-1914 was

dull; we increased our sales by more than a third. The year 1920-1921 is

supposed to have been one of the most depressed in history; we sold a

million and a quarter cars, or about five times as many as in

1913-1914--the "normal year." There is no particular secret in it. It

is, as is everything else in our business, the inevitable result of the

application of a principle which can be applied to any business.

 

We now have a minimum wage of six dollars a day paid without

reservation. The people are sufficiently used to high wages to make

supervision unnecessary. The minimum wage is paid just as soon as a

worker has qualified in his production--which is a matter that depends

upon his own desire to work. We have put our estimate of profits into

the wage and are now paying higher wages than during the boom times

after the war. But we are, as always, paying them on the basis of work.

And that the men do work is evidenced by the fact that although six

dollars a day is the minimum wage, about 60 per cent. of the workers

receive above the minimum. The six dollars is not a flat but a minimum

wage.

 

Consider first the fundamentals of prosperity. Progress is not made by

pulling off a series of stunts. Each step has to be regulated. A man

cannot expect to progress without thinking. Take prosperity. A truly

prosperous time is when the largest number of people are getting all

they can legitimately eat and wear, and are in every sense of the word

comfortable. It is the degree of the comfort of the people at large--not

the size of the manufacturer's bank balance--that evidences prosperity.

The function of the manufacturer is to contribute to this comfort. He is

an instrument of society and he can serve society only as he manages his

enterprises so as to turn over to the public an increasingly better

product at an ever-decreasing price, and at the same time to pay to all

those who have a hand in his business an ever-increasing wage, based

upon the work they do. In this way and in this way alone can a

manufacturer or any one in business justify his existence.

 

We are not much concerned with the statistics and the theories of the

economists on the recurring cycles of prosperity and depression. They

call the periods when prices are high "prosperous." A really prosperous

period is not to be judged on the prices that manufacturers are quoting

for articles.

 

We are not concerned with combinations of words. If the prices of goods

are above the incomes of the people, then get the prices down to the

incomes. Ordinarily, business is conceived as starting with a

manufacturing process and ending with a consumer. If that consumer does

not want to buy what the manufacturer has to sell him and has not the

money to buy it, then the manufacturer blames the consumer and says that

business is bad, and thus, hitching the cart before the horse, he goes

on his way lamenting. Isn't that nonsense?

 

Does the manufacturer exist for the consumer or does the consumer exist

for the manufacturer? If the consumer will not--says he cannot--buy what

the manufacturer has to offer, is that the fault of the manufacturer or

the consumer? Or is nobody at fault? If nobody is at fault then the

manufacturer must go out of business.

 

But what business ever started with the manufacturer and ended with the

consumer? Where does the money to make the wheels go round come from?

From the consumer, of course. And success in manufacture is based solely

upon an ability to serve that consumer to his liking. He may be served

by quality or he may be served by price. He is best served by the

highest quality at the lowest price, and any man who can give to the

consumer the highest quality at the lowest price is bound to be a leader

in business, whatever the kind of an article he makes. There is no

getting away from this.

 

Then why flounder around waiting for good business? Get the costs down

by better management. Get the prices down to the buying power.

 

Cutting wages is the easiest and most slovenly way to handle the

situation, not to speak of its being an inhuman way. It is, in effect,

throwing upon labour the incompetency of the managers of the business.

If we only knew it, every depression is a challenge to every

manufacturer to put more brains into his business--to overcome by

management what other people try to overcome by wage reduction. To

tamper with wages before all else is changed, is to evade the real

issue. And if the real issue is tackled first, no reduction of wages may

be necessary. That has been my experience. The immediate practical point

is that, in the process of adjustment, someone will have to take a loss.

And who can take a loss except those who have something which they can

afford to lose? But the expression, "take a loss," is rather misleading.

Really no loss is taken at all. It is only a giving up of a certain part

of the past profits in order to gain more in the future. I was talking

not long since with a hardware merchant in a small town. He said:

 

"I expect to take a loss of $10,000 on my stock. But of course, you

know, it isn't really like losing that much. We hardware men have had

pretty good times. Most of my stock was bought at high prices, but I

have already sold several stocks and had the benefit of them. Besides,

the ten thousand dollars which I say I will lose are not the same kind

of dollars that I used to have. They are, in a way, speculative dollars.

They are not the good dollars that bought 100 cents' worth. So, though

my loss may sound big, it is not big. And at the same time I am making

it possible for the people in my town to go on building their houses

without being discouraged by the size of the hardware item."

 

He is a wise merchant. He would rather take less profit and keep

business moving than keep his stock at high prices and bar the progress

of his community. A man like that is an asset to a town. He has a clear

head. He is better able to swing the adjustment through his inventory

than through cutting down the wages of his delivery men--through cutting

down their ability to buy.

 

He did not sit around holding on to his prices and waiting for something

to turn up. He realized what seems to have been quite generally

forgotten--that it is part of proprietorship every now and again to lose

money. We had to take our loss.

 

Our sales eventually fell off as all other sales fell off. We had a

large inventory and, taking the materials and parts in that inventory at

their cost price, we could not turn out a car at a price lower than we

were asking, but that was a price which on the turn of business was

higher than people could or wanted to pay. We closed down to get our

bearings. We were faced with making a cut of $17,000,000 in the

inventory or taking a much larger loss than that by not doing business.

So there was no choice at all.

 

That is always the choice that a man in business has. He can take the

direct loss on his books and go ahead and do business or he can stop

doing business and take the loss of idleness. The loss of not doing

business is commonly a loss greater than the actual money involved, for

during the period of idleness fear will consume initiative and, if the

shutdown is long enough, there will be no energy left over to start up

with again.

 

There is no use waiting around for business to improve. If a

manufacturer wants to perform his function, he must get his price down

to what people will pay. There is always, no matter what the condition,

a price that people can and will pay for a necessity, and always, if the

will is there, that price can be met.

 

It cannot be met by lowering quality or by shortsighted economy, which

results only in a dissatisfied working force. It cannot be met by

fussing or buzzing around. It can be met only by increasing the

efficiency of production and, viewed in this fashion, each business

depression, so-called, ought to be regarded as a challenge to the brains

of the business community. Concentrating on prices instead of on service

is a sure indication of the kind of business man who can give no

justification for his existence as a proprietor.

 

This is only another way of saying that sales should be made on the

natural basis of real value, which is the cost of transmuting human

energy into articles of trade and commerce. But that simple formula is

not considered business-like. It is not complex enough. We have

"business" which takes the most honest of all human activities and makes

them subject to the speculative shrewdness of men who can produce false

shortages of food and other commodities, and thus excite in society

anxiety of demand. We have false stimulation and then false numbness.

 

Economic justice is being constantly and quite often innocently

violated. You may say that it is the economic condition which makes

mankind what it is; or you may say that it is mankind that makes the

economic condition what it is. You will find many claiming that it is

the economic system which makes men what they are. They blame our

industrial system for all the faults which we behold in mankind

generally. And you will find other men who say that man creates his own

conditions; that if the economic, industrial, or social system is bad,

it is but a reflection of what man himself is. What is wrong in our

industrial system is a reflection of what is wrong in man himself.

Manufacturers hesitate to admit that the mistakes of the present

industrial methods are, in part at least, their own mistakes,

systematized and extended. But take the question outside of a man's

immediate concerns, and he sees the point readily enough.

 

No doubt, with a less faulty human nature a less faulty social system

would have grown up. Or, if human nature were worse than it is, a worse

system would have grown up--though probably a worse system would not

have lasted as long as the present one has. But few will claim that

mankind deliberately set out to create a faulty social system. Granting

without reserve that all faults of the social system are in man himself,

it does not follow that he deliberately organized his imperfections and

established them. We shall have to charge a great deal up to ignorance.

We shall have to charge a great deal up to innocence.

 

Take the beginnings of our present industrial system. There was no

indication of how it would grow. Every new advance was hailed with joy.

No one ever thought of "capital" and "labour" as hostile interests. No

one ever dreamed that the very fact of success would bring insidious

dangers with it. And yet with growth every imperfection latent in the

system came out. A man's business grew to such proportions that he had

to have more helpers than he knew by their first names; but that fact

was not regretted; it was rather hailed with joy. And yet it has since

led to an impersonal system wherein the workman has become something

less than a person--a mere part of the system. No one believes, of

course, that this dehumanizing process was deliberately invented. It

just grew. It was latent in the whole early system, but no one saw it

and no one could foresee it. Only prodigious and unheard-of development

could bring it to light.

 

Take the industrial idea; what is it? The true industrial idea is not to

make money. The industrial idea is to express a serviceable idea, to

duplicate a useful idea, by as many thousands as there are people who

need it.

 

To produce, produce; to get a system that will reduce production to a

fine art; to put production on such a basis as will provide means for

expansion and the building of still more shops, the production of still

more thousands of useful things--that is the real industrial idea. The

negation of the industrial idea is the effort to make a profit out of

speculation instead of out of work. There are short-sighted men who

cannot see that business is bigger than any one man's interests.

Business is a process of give and take, live and let live. It is

cooperation among many forces and interests. Whenever you find a man who

believes that business is a river whose beneficial flow ought to stop as

soon as it reaches him you find a man who thinks he can keep business

alive by stopping its circulation. He would produce wealth by this

stopping of the production of wealth.

 

The principles of service cannot fail to cure bad business. Which leads

us into the practical application of the principles of service and

finance.

 

 

CHAPTER X

 

HOW CHEAPLY CAN THINGS BE MADE?

 

 

No one will deny that if prices are sufficiently low, buyers will always

be found, no matter what are supposed to be the business conditions.

That is one of the elemental facts of business. Sometimes raw materials

will not move, no matter how low the price. We have seen something of

that during the last year, but that is because the manufacturers and the

distributors were trying to dispose of high-cost stocks before making

new engagements. The markets were stagnant, but not "saturated" with

goods. What is called a "saturated" market is only one in which the

prices are above the purchasing power.

 

Unduly high prices are always a sign of unsound business, because they

are always due to some abnormal condition. A healthy patient has a

normal temperature; a healthy market has normal prices. High prices come

about commonly by reason of speculation following the report of a

shortage. Although there is never a shortage in everything, a shortage

in just a few important commodities, or even in one, serves to start

speculation. Or again, goods may not be short at all. An inflation of

currency or credit will cause a quick bulge in apparent buying power and

the consequent opportunity to speculate. There may be a combination of

actual shortages and a currency inflation--as frequently happens during

war. But in any condition of unduly high prices, no matter what the real

cause, the people pay the high prices because they think there is going

to be a shortage. They may buy bread ahead of their own needs, so as not

to be left later in the lurch, or they may buy in the hope of reselling

at a profit. When there was talk of a sugar shortage, housewives who had

never in their lives bought more than ten pounds of sugar at once tried

to get stocks of one hundred or two hundred pounds, and while they were

doing this, speculators were buying sugar to store in warehouses. Nearly

all our war shortages were caused by speculation or buying ahead of

need.

 

No matter how short the supply of an article is supposed to be, no

matter if the Government takes control and seizes every ounce of that

article, a man who is willing to pay the money can always get whatever

supply he is willing to pay for. No one ever knows actually how great or

how small is the national stock of any commodity. The very best figures

are not more than guesses; estimates of the world's stock of a commodity

are still wilder. We may think we know how much of a commodity is

produced on a certain day or in a certain month, but that does not tell

us how much will be produced the next day or the next month. Likewise we

do not know how much is consumed. By spending a great deal of money we

might, in the course of time, get at fairly accurate figures on how much

of a particular commodity was consumed over a period, but by the time

those figures were compiled they would be utterly useless except for

historical purposes, because in the next period the consumption might be

double or half as much. People do not stay put. That is the trouble with

all the framers of Socialistic and Communistic, and of all other plans

for the ideal regulation of society. They all presume that people will

stay put. The reactionary has the same idea. He insists that everyone

ought to stay put. Nobody does, and for that I am thankful.

 

Consumption varies according to the price and the quality, and nobody

knows or can figure out what future consumption will amount to, because

every time a price is lowered a new stratum of buying power is reached.

Everyone knows that, but many refuse to recognize it by their acts. When

a storekeeper buys goods at a wrong price and finds they will not move,

he reduces the price by degrees until they do move. If he is wise,

instead of nibbling at the price and encouraging in his customers the

hope of even lower prices, he takes a great big bite out of the price

and gets the stuff out of his place. Everyone takes a loss on some

proposition of sales. The common hope is that after the loss there may

be a big profit to make up for the loss. That is usually a delusion. The

profit out of which the loss has to be taken must be found in the

business preceding the cut. Any one who was foolish enough to regard the

high profits of the boom period as permanent profits got into financial

trouble when the drop came. However, there is a belief, and a very

strong one, that business consists of a series of profits and losses,

and good business is one in which the profits exceed the losses.

Therefore some men reason that the best price to sell at is the highest

price which may be had. That is supposed to be good business practice.

Is it? We have not found it so.

 

We have found in buying materials that it is not worth while to buy for