On January 5, 1914, Henry Ford announced that he was paying workers on his famously productive Model T assembly line in Highland Park, Michigan, $5 per eight-hour day. Â That was almost three times what the typical factory employee earned at the time. Â In light of this audacious move, some lauded Ford as a friend of the American worker; others called him a madman or a socialist, or both. Â The Wall Street Journal termed his action “an economic crime.” Â Ford thought it a cunning business move, and history proved him right.The higher wage turned Ford’s autoworkers into customers who eventually could afford to plunk down $575 for a Model T. Â Their purchases in effect returned some of those $5 paychecks to Ford, and helped finance even higher productivity in the future. Â Ford was neither a madman nor a socialist, but a smart capitalist whose profits more than doubled from $25 million in 1914 to $57 million two years later.
Ford understood the basic economic bargain that lay at the heart of a modern, highly productive society. Â Workers are also consumers. Â Their earnings are continuously recycled to buy the goods and services other workers produce. Â But if earnings are inadequate and this basic bargain is broken, an economy produces more goods and services than its people are capable of purchasing. Â This can lead to the vicious cycle Marriner Eccles witnessed after the Great Crash of 1929 and that the United State began to experience in 2008. Â (Global trade complicates this bargain but doesn’t negate it, as I will discuss later.)
Ok, the quote above is from Chapter 3 (page 28) of Robert Riechâ€™s new bookÂ Aftershock. Â Let me ask you. Â Was Ford a socialist, madman, or smart capitalist? Â The title of this chapter is “The Basic Bargain.” Â What do you think of Reich’s definition of what happens when the bargain is broken? Â Was Henry’s lavish spending on workers a contributing factor to the Depression?