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take an inventory and clean house. We wanted to open with another big

cut and to have cars on hand to supply the demand. Then the new cars

could be built out of material bought at lower prices. We determined

that we were going to get lower prices.

 

We shut down in December with the intention of opening again in about

two weeks. We found so much to do that actually we did not open for

nearly six weeks. The moment that we shut down the rumours concerning

our financial condition became more and more active. I know that a great

many people hoped that we should have to go out after money--for, were

we seeking money, then we should have to come to terms. We did not ask

for money. We did not want money. We had one offer of money. An officer

of a New York bank called on me with a financial plan which included a

large loan and in which also was an arrangement by which a

representative of the bankers would act as treasurer and take charge of

the finance of the company. Those people meant well enough, I am quite

sure. We did not want to borrow money but it so happened that at the

moment we were without a treasurer. To that extent the bankers had

envisaged our condition correctly. I asked my son Edsel to be treasurer

as well as president of the company. That fixed us up as to a treasurer,

so there was really nothing at all that the bankers could do for us.

 

Then we began our house-cleaning. During the war we had gone into many

kinds of war work and had thus been forced to depart from our principle

of a single product. This had caused many new departments to be added.

The office force had expanded and much of the wastefulness of scattered

production had crept in. War work is rush work and is wasteful work. We

began throwing out everything that did not contribute to the production

of cars.

 

The only immediate payment scheduled was the purely voluntary one of a

seven-million-dollar bonus to our workmen. There was no obligation to

pay, but we wanted to pay on the first of January. That we paid out of

our cash on hand.

 

Throughout the country we have thirty-five branches. These are all

assembling plants, but in twenty-two of them parts are also

manufactured. They had stopped the making of parts but they went on

assembling cars. At the time of shutting down we had practically no cars

in Detroit. We had shipped out all the parts, and during January the

Detroit dealers actually had to go as far a field as Chicago and

Columbus to get cars for local needs. The branches shipped to each

dealer, under his yearly quota, enough cars to cover about a month's

sales. The dealers worked hard on sales. During the latter part of

January we called in a skeleton organization of about ten thousand men,

mostly foremen, sub-foremen, and straw bosses, and we started Highland

Park into production. We collected our foreign accounts and sold our

by-products.

 

Then we were ready for full production. And gradually into full

production we went--on a profitable basis. The house-cleaning swept out

the waste that had both made the prices high and absorbed the profit. We

sold off the useless stuff. Before we had employed fifteen men per car

per day. Afterward we employed nine per car per day. This did not mean

that six out of fifteen men lost their jobs. They only ceased being

unproductive. We made that cut by applying the rule that everything and

everybody must produce or get out.

 

We cut our office forces in halves and offered the office workers better

jobs in the shops. Most of them took the jobs. We abolished every order

blank and every form of statistics that did not directly aid in the

production of a car. We had been collecting tons of statistics because

they were interesting. But statistics will not construct automobiles--so

out they went.

 

We took out 60 per cent. of our telephone extensions. Only a

comparatively few men in any organization need telephones. We formerly

had a foreman for every five men; now we have a foreman for every twenty

men. The other foremen are working on machines.

 

We cut the overhead charge from $146 a car to $93 a car, and when you

realize what this means on more than four thousand cars a day you will

have an idea how, not by economy, not by wage-cutting, but by the

elimination of waste, it is possible to make an "impossible" price. Most

important of all, we found out how to use less money in our business by

speeding up the turnover. And in increasing the turnover rate, one of

the most important factors was the Detroit, Toledo, & Ironton

Railroad--which we purchased. The railroad took a large place in the

scheme of economy. To the road itself I have given another chapter.

 

We discovered, after a little experimenting, that freight service could

be improved sufficiently to reduce the cycle of manufacture from

twenty-two to fourteen days. That is, raw material could be bought,

manufactured, and the finished product put into the hands of the

distributor in (roughly) 33 per cent. less time than before. We had been

carrying an inventory of around $60,000,000 to insure uninterrupted

production. Cutting down the time one third released $20,000,000, or

$1,200,000 a year in interest. Counting the finished inventory, we saved

approximately $8,000,000 more--that is, we were able to release

$28,000,000 in capital and save the interest on that sum.

 

On January 1st we had $20,000,000. On April 1st we had $87,300,000, or

$27,300,000 more than we needed to wipe out all our indebtedness. That

is what boring into the business did for us! This amount came to us in

these items:

 

Cash on hand, January $20,000,000

Stock on hand turned into cash, January 1 to April 1 24,700,000

Speeding up transit of goods released 28,000,000

Collected from agents in foreign countries 3,000,000

Sale of by-products 3,700,000

Sale of Liberty Bonds 7,900,000

 

TOTAL $87,300,000

 

Now I have told about all this not in the way of an exploit, but to

point out how a business may find resources within itself instead of

borrowing, and also to start a little thinking as to whether the form of

our money may not put a premium on borrowing and thus give far too great

a place in life to the bankers.

 

We could have borrowed $40,000,000--more had we wanted to. Suppose we

had borrowed, what would have happened? Should we have been better

fitted to go on with our business? Or worse fitted? If we had borrowed

we should not have been under the necessity of finding methods to

cheapen production. Had we been able to obtain the money at 6 per cent.

flat--and we should in commissions and the like have had to pay more

than that--the interest charge alone on a yearly production of 500,000

cars would have amounted to about four dollars a car. Therefore we

should now be without the benefit of better production and loaded with a

heavy debt. Our cars would probably cost about one hundred dollars more

than they do; hence we should have a smaller production, for we could

not have so many buyers; we should employ fewer men, and in short,

should not be able to serve to the utmost. You will note that the

financiers proposed to cure by lending money and not by bettering

methods. They did not suggest putting in an engineer; they wanted to put

in a treasurer.

 

And that is the danger of having bankers in business. They think solely

in terms of money. They think of a factory as making money, not goods.

They want to watch the money, not the efficiency of production. They

cannot comprehend that a business never stands still, it must go forward

or go back. They regard a reduction in prices as a throwing away of

profit instead of as a building of business.

 

Bankers play far too great a part in the conduct of industry. Most

business men will privately admit that fact. They will seldom publicly

admit it because they are afraid of their bankers. It required less

skill to make a fortune dealing in money than dealing in production. The

average successful banker is by no means so intelligent and resourceful

a man as is the average successful business man. Yet the banker through

his control of credit practically controls the average business man.

 

There has been a great reaching out by bankers in the last fifteen or

twenty years--and especially since the war--and the Federal Reserve

System for a time put into their hands an almost limitless supply of

credit. The banker is, as I have noted, by training and because of his

position, totally unsuited to the conduct of industry. If, therefore,

the controllers of credit have lately acquired this very large power, is

it not to be taken as a sign that there is something wrong with the

financial system that gives to finance instead of to service the

predominant power in industry? It was not the industrial acumen of the

bankers that brought them into the management of industry. Everyone will

admit that. They were pushed there, willy-nilly, by the system itself.

Therefore, I personally want to discover whether we are operating under

the best financial system.

 

Now, let me say at once that my objection to bankers has nothing to do

with personalities. I am not against bankers as such. We stand very much

in need of thoughtful men, skilled in finance. The world cannot go on

without banking facilities. We have to have money. We have to have

credit. Otherwise the fruits of production could not be exchanged. We

have to have capital. Without it there could be no production. But

whether we have based our banking and our credit on the right foundation

is quite another matter.

 

It is no part of my thought to attack our financial system. I am not in

the position of one who has been beaten by the system and wants revenge.

It does not make the least difference to me personally what bankers do

because we have been able to manage our affairs without outside

financial aid. My inquiry is prompted by no personal motive whatsoever.

I only want to know whether the greatest good is being rendered to the

greatest number.

 

No financial system is good which favors one class of producers over

another. We want to discover whether it is not possible to take away

power which is not based on wealth creation. Any sort of class

legislation is pernicious. I think that the country's production has

become so changed in its methods that gold is not the best medium with

which it may be measured, and that the gold standard as a control of

credit gives, as it is now (and I believe inevitably) administered,

class advantage. The ultimate check on credit is the amount of gold in

the country, regardless of the amount of wealth in the country.

 

I am not prepared to dogmatize on the subject of money or credit. As far

as money and credit are concerned, no one as yet knows enough about them

to dogmatize. The whole question will have to be settled as all other

questions of real importance have to be settled, and that is by

cautious, well-founded experiment. And I am not inclined to go beyond

cautious experiments. We have to proceed step by step and very

carefully. The question is not political, it is economic, and I am

perfectly certain that helping the people to think on the question is

wholly advantageous. They will not act without adequate knowledge, and

thus cause disaster, if a sincere effort is made to provide them with

knowledge. The money question has first place in multitudes of minds of

all degrees or power. But a glance at most of the cure-all systems shows

how contradictory they are. The majority of them make the assumption of

honesty among mankind, to begin with, and that, of course, is a prime

defect. Even our present system would work splendidly if all men were

honest. As a matter of fact, the whole money question is 95 per cent.

human nature; and your successful system must check human nature, not

depend upon it.

 

The people are thinking about the money question; and if the money

masters have any information which they think the people ought to have

to prevent them going astray, now is the time to give it. The days are

fast slipping away when the fear of credit curtailment will avail, or

when wordy slogans will affright. The people are naturally conservative.

They are more conservative than the financiers. Those who believe that

the people are so easily led that they would permit printing presses to

run off money like milk tickets do not understand them. It is the innate

conservation of the people that has kept our money good in spite of the

fantastic tricks which the financiers play--and which they cover up with

high technical terms.

 

The people are on the side of sound money. They are so unalterably on

the side of sound money that it is a serious question how they would

regard the system under which they live, if they once knew what the

initiated can do with it.

 

The present money system is not going to be changed by speech-making or

political sensationalism or economic experiment. It is going to change

under the pressure of conditions--conditions that we cannot control and

pressure that we cannot control. These conditions are now with us; that

pressure is now upon us.

 

The people must be helped to think naturally about money. They must be

told what it is, and what makes it money, and what are the possible

tricks of the present system which put nations and peoples under control

of the few.

 

Money, after all, is extremely simple. It is a part of our

transportation system. It is a simple and direct method of conveying

goods from one person to another. Money is in itself most admirable. It

is essential. It is not intrinsically evil. It is one of the most useful

devices in social life. And when it does what it was intended to do, it

is all help and no hindrance.

 

But money should always be money. A foot is always twelve inches, but

when is a dollar a dollar? If ton weights changed in the coal yard, and

peck measures changed in the grocery, and yard sticks were to-day 42

inches and to-morrow 33 inches (by some occult process called

"exchange") the people would mighty soon remedy that. When a dollar is

not always a dollar, when the 100-cent dollar becomes the 65-cent

dollar, and then the 50-cent dollar, and then the 47-cent dollar, as the

good old American gold and silver dollars did, what is the use of

yelling about "cheap money," "depreciated money"? A dollar that stays

100 cents is as necessary as a pound that stays 16 ounces and a yard

that stays 36 inches.

 

The bankers who do straight banking should regard themselves as

naturally the first men to probe and understand our monetary

system--instead of being content with the mastery of local banking-house

methods; and if they would deprive the gamblers in bank balances of the

name of "banker" and oust them once for all from the place of influence

which that name gives them, banking would be restored and established as

the public service it ought to be, and the iniquities of the present

monetary system and financial devices would be lifted from the shoulders

of the people.

 

There is an "if" here, of course. But it is not insurmountable. Affairs

are coming to a jam as it is, and if those who possess technical

facility do not engage to remedy the case, those who lack that facility

may attempt it. Nothing is more foolish than for any class to assume

that progress is an attack upon it. Progress is only a call made upon it

to lend its experience for the general advancement. It is only those who

are unwise who will attempt to obstruct progress and thereby become its

victims. All of us are here together, all of us must go forward

together; it is perfectly silly for any man or class to take umbrage at

the stirring of progress. If financiers feel that progress is only the

restlessness of weak-minded persons, if they regard all suggestions of

betterment as a personal slap, then they are taking the part which

proves more than anything else could their unfitness to continue in

their leadership.

 

If the present faulty system is more profitable to a financier than a

more perfect system would be, and if that financier values his few

remaining years of personal profits more highly than he would value the

honour of making a contribution to the life of the world by helping to

erect a better system, then there is no way of preventing a clash of

interests. But it is fair to say to the selfish financial interests

that, if their fight is waged to perpetuate a system just because it

profits them, then their fight is already lost. Why should finance fear?

The world will still be here. Men will do business with one another.

There will be money and there will be need of masters of the mechanism

of money. Nothing is going to depart but the knots and tangles. There

will be some readjustments, of course. Banks will no longer be the

masters of industry. They will be the servants of industry. Business

will control money instead of money controlling business. The ruinous

interest system will be greatly modified. Banking will not be a risk,

but a service. Banks will begin to do much more for the people than they

do now, and instead of being the most expensive businesses in the world

to manage, and the most highly profitable in the matter of dividends,

they will become less costly, and the profits of their operation will go

to the community which they serve.

 

Two facts of the old order are fundamental. First: that within the

nation itself the tendency of financial control is toward its largest

centralized banking institutions--either a government bank or a closely

allied group of private financiers. There is always in every nation a

definite control of credit by private or semi-public interests. Second:

in the world as a whole the same centralizing tendency is operative. An

American credit is under control of New York interests, as before the

war world credit was controlled in London--the British pound sterling

was the standard of exchange for the world's trade.

 

Two methods of reform are open to us, one beginning at the bottom and

one beginning at the top. The latter is the more orderly way, the former

is being tried in Russia. If our reform should begin at the top it will

require a social vision and an altruistic fervour of a sincerity and

intensity which is wholly inconsistent with selfish shrewdness.

 

The wealth of the world neither consists in nor is adequately

represented by the money of the world. Gold itself is not a valuable

commodity. It is no more wealth than hat checks are hats. But it can be

so manipulated, as the sign of wealth, as to give its owners or

controllers the whip-hand over the credit which producers of real wealth

require. Dealing in money, the commodity of exchange, is a very

lucrative business. When money itself becomes an article of commerce to

be bought and sold before real wealth can be moved or exchanged, the

usurers and speculators are thereby permitted to lay a tax on

production. The hold which controllers of money are able to maintain on

productive forces is seen to be more powerful when it is remembered

that, although money is supposed to represent the real wealth of the

world, there is always much more wealth than there is money, and real

wealth is often compelled to wait upon money, thus leading to that most

paradoxical situation--a world filled with wealth but suffering want.

 

These facts are not merely fiscal, to be cast into figures and left

there. They are instinct with human destiny and they bleed. The poverty

of the world is seldom caused by lack of goods but by a "money

stringency." Commercial competition between nations, which leads to

international rivalry and ill-will, which in their turn breed wars--

these are some of the human significations of these facts. Thus poverty

and war, two great preventable evils, grow on a single stem.

 

Let us see if a beginning toward a better method cannot be made.

 

 

CHAPTER XIII

 

WHY BE POOR?

 

 

Poverty springs from a number of sources, the more important of which

are controllable. So does special privilege. I think it is entirely

feasible to abolish both poverty and special privilege--and there can be

no question but that their abolition is desirable. Both are unnatural,

but it is work, not law, to which we must look for results.

 

By poverty I mean the lack of reasonably sufficient food, housing, and

clothing for an individual or a family. There will have to be

differences in the grades of sustenance. Men are not equal in mentality

or in physique. Any plan which starts with the assumption that men are

or ought to be equal is unnatural and therefore unworkable. There can be

no feasible or desirable process of leveling down. Such a course only

promotes poverty by making it universal instead of exceptional. Forcing

the efficient producer to become inefficient does not make the

inefficient producer more efficient. Poverty can be done away with only

by plenty, and we have now gone far enough along in the science of

production to be able to see, as a natural development, the day when

production and distribution will be so scientific that all may have

according to ability and industry.

 

The extreme Socialists went wide of the mark in their reasoning that

industry would inevitably crush the worker. Modern industry is gradually

lifting the worker and the world. We only need to know more about

planning and methods. The best results can and will be brought about by

individual initiative and ingenuity--by intelligent individual

leadership. The government, because it is essentially negative, cannot

give positive aid to any really constructive programme. It can give

negative aid--by removing obstructions to progress and by ceasing to be

a burden upon the community.

 

The underlying causes of poverty, as I can see them, are essentially due

to the bad adjustment between production and distribution, in both

industry and agriculture--between the source of power and its

application. The wastes due to lack of adjustment are stupendous. All of

these wastes must fall before intelligent leadership consecrated to

service. So long as leadership thinks more of money than it does of

service, the wastes will continue. Waste is prevented by far-sighted not

by short-sighted men. Short-sighted men think first of money. They

cannot see waste. They think of service as altruistic instead of as the

most practical thing in the world. They cannot get far enough away from

the little things to see the big things--to see the biggest thing of

all, which is that opportunist production from a purely money standpoint

is the least profitable.

 

Service can be based upon altruism, but that sort of service is not

usually the best. The sentimental trips up the practical.

 

It is not that the industrial enterprises are unable fairly to

distribute a share of the wealth which they create. It is simply that

the waste is so great that there is not a sufficient share for everyone

engaged, notwithstanding the fact that the product is usually sold at so

high a price as to restrict its fullest consumption.

 

Take some of the wastes. Take the wastes of power. The Mississippi

Valley is without coal. Through its centre pour many millions of

potential horsepower--the Mississippi River. But if the people by its

banks want power or heat they buy coal that has been hauled hundreds of

miles and consequently has to be sold at far above its worth as heat or

power. Or if they cannot afford to buy this expensive coal, they go out

and cut down trees, thereby depriving themselves of one of the great

conservers of water power. Until recently they never thought of the

power at hand which, at next to nothing beyond the initial cost, could

heat, light, cook, and work for the huge population which that valley is

destined to support.

 

The cure of poverty is not in personal economy but in better production.

The "thrift" and "economy" ideas have been overworked. The word

"economy" represents a fear. The great and tragic fact of waste is

impressed on a mind by some circumstance, usually of a most

materialistic kind. There comes a violent reaction against

extravagance--the mind catches hold of the idea of "economy." But it

only flies from a greater to a lesser evil; it does not make the full

journey from error to truth.

 

Economy is the rule of half-alive minds. There can be no doubt that it

is better than waste; neither can there be any doubt that it is not as

good as use. People who pride themselves on their economy take it as a

virtue. But what is more pitiable than a poor, pinched mind spending the

rich days and years clutching a few bits of metal? What can be fine

about paring the necessities of life to the very quick? We all know

"economical people" who seem to be niggardly even about the amount of

air they breathe and the amount of appreciation they will allow

themselves to give to anything. They shrivel--body and soul. Economy is

waste: it is waste of the juices of life, the sap of living. For there

are two kinds of waste--that of the prodigal who throws his substance

away in riotous living, and that of the sluggard who allows his

substance to rot from non-use. The rigid economizer is in danger of

being classed with the sluggard. Extravagance is usually a reaction from

suppression of expenditure. Economy is likely to be a reaction from

extravagance.

 

Everything was given us to use. There is no evil from which we suffer

that did not come about through misuse. The worst sin we can commit

against the things of our common life is to misuse them. "Misuse" is the

wider term. We like to say "waste," but waste is only one phase of

misuse. All waste is misuse; all misuse is waste.

 

It is possible even to overemphasize the saving habit. It is proper and

desirable that everyone have a margin; it is really wasteful not to have

one--if you can have one. But it can be overdone. We teach children to

save their money. As an attempt to counteract thoughtless and selfish

expenditure, that has a value. But it is not positive; it does not lead

the child out into the safe and useful avenues of self-expression or

self-expenditure. To teach a child to invest and use is better than to