From Richie (via Chris):

When Henry Ford built his car plant he realised that unless the product he made was cheap enough for the workers to buy then there was no point in building it: there was no market to supply. This was the basis of Fordism.

Nope. The main element of Fordism is mass production of standardised products and scientific management of that process. The high wages were added later and not for the reasons Richie gives.

The high wages typically associated with Fordism were efficiency wages, wages paid to ensure people continued to work hard even though they were being managed intensively and told exactly how to do a boring repetitive job by annoying people with clipboards. Always with the clipboards.

After introducing the production line Ford was annoyed that his very profitable company was suffering because of high labour turnover and worried because this high turnover was damaging productivity. He was not worried that his potential market was not big enough.

The US economy was the richest country in the world, growing strongly and still attracting lots of migrants, his market was secure and he was always bloodymindedly sure that meant the US would need cars, lots of cars.

He decided to do the sensible thing and offer more money to his workers. That this enabled his workers to afford to buy one of his cars was incidental to the logic behind the move, although it made for good propaganda.

He didn't do this to increase the size of his market, but because people tend to work harder for more money. Don't take it from me though, a lowly blogger, try Larry Summers and Daniel Raff:

Ford's decision to increase wages dramatically is most plausibly portrayed as the consequence of labor problems of the kind stressed by efficiency wage theorists. The structure of the five-dollar day program is consistent with the predictions of efficiency wage theories. There is vivid evidence that the five-dollar day resulted in substantial queues for Ford jobs. Finally, significant increases in productivity and profits at Ford accompanied the introduction of the five-dollar day.

 Moral of the story: don't go valorising old capitalisms.

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Filed under: Economics, History, Chris Dillow, Daniel Raff, Efficiency Wages, Ford, Fordism, Larry Summers, Richard Murphy, USA