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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
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.
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
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
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
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
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
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
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