Companies
can pay more when believe they can achieve a sustainable increase revenue to
cover the cost of the pay raises. This creates an increase in the number of
products they sell. Productivity is
measured by the increase in this “throughput” of products.
When
Henry Ford developed his assembly line, he knew he could cut the time it took
to produce a car. He also knew that he
could cut the price of the car to increase sales. He also knew that the car would contribute to
increasing family business productivity and that many consumers would buy the
truck version of the Model T to make deliveries of their produce faster. Many
families bought the truck to go into the delivery business. He also knew that
families with an average income would buy the Model T to increase their
mobility for lots of reasons
He also
knew that his increase in throughput would allow him to double the wage rate of
his assembly workers from $2.50 a day to $5.00 a day, so his workers could
actually afford to buy a car. So, in 1913, he introduced the Model T priced at
$525 each. Assembly-line
production allowed the price of the touring car version to be lowered
from $850 in 1908 to
less than $300 in
1925.
In 1912,
Ford produced 68,773 Model T Runabouts for $590
In 1913, Ford produced 170,211
and sold them for $525.
In 1914,
Ford produced 202,667 and sold them for $440.
In 1915,
Ford produced 308,162 and sold them for $390.
Ford’s
actions prompted all other manufacturers to adopt assembly lines to follow his
lead. This kicked off the US economy and focused manufacturers on “process”.
Wages
rose, consumers had more money and the middle class was born. This was a unique
time in US history. Over a period of 20 years, the US consumer experienced a
leap in their standard of living. The US consumer was getting electricity,
automobiles, telephones, radios, washing machines, refrigerators, kitchen
appliances, inside plumbing, sanitary sewers and clean water. US consumers got
paved roads and moved to the suburbs.
The
automobile encouraged travel and families enjoyed the novelty. Cities began to
pave their streets. Movie theaters and restaurants began to appear on city
streets and families traveled further distances. Family vacations by car became
more prevalent. Family farmers went to town more often. Family businesses were
created and family incomes rose.
Credit
for this standard of living leap goes to the inventors who created the
inventions and the industrialists who turned them into beneficial, useful
products. The credit for kick-starting the creation of the US middle class goes
to Henry Ford.
His “laws
of economics” related to throughput has been the economic model ever since he
introduced it and verified it by lowering prices to increase sales. He knew the
“law of supply and demand”. We saw it with the price reductions in personal
computers and flat screen TVs.
Norb
Leahy, Dunwoody GA Tea Party Leader
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