“There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible.” Henry Ford
On January 5, 1914, Henry Ford introduced a minimum wage of $5 per day and Profit Sharing at his factories. In all, some $10,000,000 in profit was distributed to 26,000 employees, or, an average of nearly $400 per employee. Considering that the average wage in 1914 was approximately $592, that’s a hell of a bonus. But the minimum wage actually doubled the average wage, sending it from $2.32 per day to $5.
The rest is history, or is it?
Why did Henry Ford make this change, and what impact did it have on the local economy, as well as the national economy? One of the reasons Ford decided to increase wages substantially was an effort to reduce the high rate of turnover his plants were experiencing. But another, less obvious and more mythical, but not less important reason, was to create a new market for the very product his employees were making. If his workers wages increased, they might be able to afford to buy what they make, increasing the local economy substantially.
Republicans would say “poppycock” to this idea, and would cite rising inflation as a reason to keep wages artificially low. They believe that when wages are increased, inflation increases, and thus, the economy is hurt. But what if we had an actual historical example of a major, national increase in wages to guide us by? Does such a moment exist? Take a look at the following average wages:
Wages grew by 5% from 1912 to 1914, but by nearly 13% from 1914 to 1916. What impact did this have on the national economy? In short, it revived the American economy from a state of deep recession to that of a booming growth, and Fordism was born. But let’s not forget the facts. Henry Ford was called a socialist for paying his workers higher wages. Sound familiar?
It should, especially if we recall what happens every time we try to raise the minimum wage in America. The Republican argument is that rising wages is bad for the economy, because it causes inflation. 2/3 of our economy is consumer driven; in other words, the more consumers there are that are buying goods, the more the economy flows. Historically, when the “masses” have more money to spend, America produces more. Republicans argue that rising wages are a direct cause of inflation, and thus, a direct cause of economic retraction.
Our moment in time, where wages were significantly increased across America during a time of recession shows one result; the recession ended, economic growth ensued, and consumerism was born. There is a myth surrounding Ford’s decision to increase wages; one that claims he foresaw what raising the wages would mean. It isn’t true that he foresaw his wage increase allowing his workers to become his best customers, but he certainly capitalized on it once it started occurring. So did every other business in America. After the two World Wars, Fordism built the American Middle Class, the envy of the world. Certainly there were times of recession, but none so deep as the Great Depression, where America was still weaning itself from the idea of an Upper Class driving the economy, as well as the current Great Recession, where yet again we find Republicans claiming that the American economy is a Supply side economy rather than a consumer driven one.
It’s hard to believe that we keep making the same mistakes. It’s unfathomable that America would listen to a group of stodgy old men and women time after time whose sole purpose in life is to put money into the hands of the wealthy so that their economy will thrive. Our economy is not recovering, unless you look at just one aspect of it. Wall Street is booming, and the top 1%, as well as the top 10% are doing quite well. Take a gander at the chart that follows:
average salary, 1916…………….$708/year
This chart shows that something disturbing was happening even before the Great Recession. It’s even worse nowadays. But in 2007, 87.8% of all wealth in the United States of America was owned by the top 10%, while only 12.2% was owned by the bottom 90%. Of Financial Securities, 98.5% is owned by the top 10%, while the bottom 90% owns just 1.5%. The next time you hear a Republican say that wealthy people pay too much in taxes, show them this chart, and ask them how it’s too much, when they own 90% of America? In my book, if you own 90%, you should pay 90% of all taxes. Is there a problem with my math?
A further check into statistics shows that only 1.6% of Americans will ever receive an inheritance larger than $100,000. 1.6%! Sort of shows the so-called “death-tax” in a new light, doesn’t it? Realistically, only 1.6% of Americans are affected by it, yet Republicans make it a major issue in every election. Why? Ask Paul Ryan. Ask John Boehner. Maybe they know. I don’t.
The point is, Henry Ford’s instant increase of wages, and his sharing of his wealth with his employees sparked an economic growth for an entire nation during a time of deep economic retraction; a direct and lasting contradiction of Republican principles. The economy is not now, nor has it ever been driven by the supply side. History proves this, and Henry Ford proved it, even as his peers called him a socialist. He became a Billionaire, not by hoarding more of his money, but by paying more. He grew his wealth by growing that of his employees.
America needs to re-learn this lesson quickly. If we don’t, you can expect a Depression that will make the 1930’s variety look like an economic boom. The question is, what are you going to do about this? Ω