William Anderson of the Mises Institute argues against David Batstone and David Chandler writing in Sojourners. The topic: Henry Ford's $5 a day minimum wage--in 1913--which I have previously calculatd, comes out to about $10 an hour in 2003 dollars. The latter write:
Nearly a century ago, Henry Ford planned for his employees to be his best customers. Challenging the conventional wisdom that the best way to maximize profits was to tailor your product to the wealthiest segment of society, Ford decided to market his black Model T as "America's Everyman car."For Ford, mass production went hand-in-hand with mass consumption. He established a simple benchmark for worker compensation: His workers should be able to buy the product they were making. Ford promised a $5-a-day minimum wage for all his workers�twice the prevailing automobile industry average.
In economic parlance, Ford decided to pay an "efficiency wage," that is, a wage that substantially raises the employee's opportunity cost of quitting or losing a job. Payment of such a wage makes sense only when it results in substantial cost-cutting elsewhere, and in Ford's situation, that was exactly the case. The company's costs associated with turnover and training had become overwhelming, so by increasing pay and cutting working hours, Ford was able to realize substantial savings that were greater than the added amount of daily wages he was paying.To put it another way, Ford was not engaging in an act of humanitarian charity, and, as Folsom has pointed out, that view came from Ford himself. The idea that his decision to raise wages somehow "helped lay the foundation for a rising middle class in America," as Batstone and Chandler claim is ludicrous, but entirely understandable when one fails to realize that living standards within a society rise only when productivity increases.
UPDATE: Our vulgar-idiot-of-the-day award goes to a commenter on this version of the Marxist article. I won't reprint the comment here, click on the link if you're interested.
Posted by Kevin on January, 14 2005 at 11:55 AM
