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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
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
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
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
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
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
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.
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
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