A lesson from Henry Ford on the minimum wage and economics that the left won't like

The left has been arguing for some time now that Henry Ford increased his employees' wages so that they could buy the cars they built (see the Huffington Post, Daily Beast, etc.). They believe that Ford's doubling of the average employees' wage to $5 per day in 1914, which was followed by a period of tremendous growth, vindicates their argument that raising individual incomes through government fiat by increasing the minimum wage will make Americans wealthier and combat "inequality" without negative effects.

However, a book out last year titled "The Dao of Capital: Austrian Investing in a Distorted World," written by hedge fund manager and ardent free-marketeer Mark Spitznagel, argues that the true lesson of Ford's doubling of wages was not about enabling employees to buy Model T's.

1910 Model T Ford, Salt Lake City, Utah. The photograph is for an advertisement, and taken by Harry Shipler of Shipler Commercial Photographers in 1910. (Image Source: Wikipedia Commons/Harry Shipler)

It was actually about retaining his best workers, something Ford had been struggling with as his motor company experienced heavy turnover, which in turn caused Ford to spend heavily in both time and money on constantly training new employees, the costs of which were being passed on to consumers.

Spitznagel writes:

"In 1913, turnover reached an unbelievable 370 percent, and Ford hired more than 50,000 people to maintain an average labor force of about 13,600. When profits swelled, he paid well for labor, creating an uproar when he doubled the basic wage to $ 5.00 a day, which triggered a virtual stampede of job seekers. Paying higher wages for labor was not altruistic in Ford’s eyes. Moreover, it wasn’t simply that Ford was trying to pay his workers "enough to buy back the product," although he did preach a high-wage doctrine after the stock market crash in 1929. Rather, paying relatively high wages was, for Ford, a matter of smart business. He regarded well-paid skilled workers as important as high-grade material. By paying workers well, he effectively lowered his costs because higher wages reduced turnover and the need for constant training of new hires. (At the time, the newspapers saw Ford’s wage increase as an extraordinary gesture of goodwill.)"

But Ford's wage policies were not just a matter of a business.

According to Spitznagel, Ford's high-wage policies were also a means of expressing his economic and political ideology -- an ideology directly antithetical to that of President Franklin Delano Roosevelt. As Spitznagel writes:

[instory-book ISBN="9781118347034"]

"With his wage policy, Ford also fired a shot across the bow of Roosevelt’s New Deal, which he vehemently opposed, believing that higher wages and less restriction on business, and not higher taxes, would benefit the country. Unlike the other automakers, Ford refused to go along with Roosevelt’s "Blue Eagle" campaign, an insignia for goods manufactured by companies that supported the administration’s economic and wage policies. An enraged Ford blustered, "Hell, that Roosevelt buzzard! I wouldn’t put that on my car!" Rather than embrace the National Recovery Administration (NRA) and the New Deal, which Ford dismissed as "these alphabet schemes," he preached that American businesses should "take hold of their industries and run them with good, sound, American business sense." Ford, perhaps more than any other industrialist opponent of the New Deal, could take such a public stand with confidence: Nobody could accuse him of hiding behind empty rhetoric, since he had voluntarily raised his workers’ wages amid the ravages of the Great Depression. It wasn’t a matter of his personal greed, or indifference to the plight of his employees; Ford really did believe that the Roosevelt Administration was overstepping the proper bounds of the federal government."

Ford's views on FDR's depression economics also would have likely upset folks like Paul Krugman, who argued that the lesson of the New Deal was that President Obama "should be be "bolder" (emphasis Krugman):

"Ford extended his production metaphors to the "economic machinery" of the country, believing it wisest to make improvements when things were going well, rather than waiting for a breakdown, and warned against seeing “depressions as unpreventable epidemics..."As Ford observed, "The seeds of bad times are in the mistakes which we make in the good times. Yet in the good times no one wants to hear of the mistakes we may be making. The policy then is to 'get while the getting is good'." The economic machine breaks , Ford believed, "because of our ignorance of all the natural laws which regulate economic health," our mistaken belief that business 'can run only so long without smashing.'"