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This is ridiculous

Still doubtful? Here’s Forbes columnist Tim Worstall: “Say 240 working days in the year and 14,000 workers and we get a rise in the pay bill of $9 1⁄4 million over the year. A Model T cost between $550 and $450 (depends on which year we’re talking about). 14,000 cars sold at that price gives us $7 3⁄4 million to $6 1⁄4 million in income to the company.

“It should be obvious that paying the workforce an extra $9 million so that they can then buy $7 million’s worth of company production just isn’t a way to increase your profits. It’s a great way to increase your losses though.”

No, that bit’s fine.

Pah, people quoting me being right? Obvious, right?

I’m 60 years old and it still gives me a thrill – yes, a thrill – to be even noted by those who I admire.

Vanity, eh?

8 thoughts on “This is ridiculous”

  1. Human nature mate.
    Congratulate yourself for still being human after 30 odd years of blogging!

  2. The popular explanation of Ford’s pay increase is that Ford wanted to stimulate consumer demand for his Model T. By doubling his workers’ pay, each Ford worker could buy a Model T and, in turn, the profits of Ford Motor Co. would rise.
    Sure, the popular view. But there’s been any number of popular views people have been supposed to have, which have only been the views attributed to them by other ‘more enlightened’* people.
    So the question is: Was this actually originally put forward by someone as a thesis? And who? Or is it something that always gets attributed to someone else.?

    *In their opinion anyway.

  3. “those who I admire.” Whom you admire. I hardly ever say “whom” but it does seem best before a vowel. Euphony, ye know.

    I thought the Ford yarn obviously bogus from the first time I heard it, presumably in my teens. But it’s pleasing to see numbers put to it. Well Done, that man.

  4. I think the origin of Ford’s pay rise went like:
    These people are used to doing diligent work behind a plough, therefore they can do diligent work on a production line.
    Then he found out two things. Some people just weren’t diligent. Some others learnt and became attractive employees of competitors.
    Training 100 men to get 33 good workers, 33 bad workers and 33 who quit was expensive.
    So raise wages to encourage the 33 not to quit.

  5. There may be more to it than just the simple calculation. For example, if Ford needed more workers, and was setting out to coax them to leave other companies. Or, he might have seen every employee in a Model T as a great advert, driving up demand for his product. Advertising works, actually. The questions must be could he sell every car that he could produce, or could he get the employees with the right skills to make his factory as productive as it needed to be to fulfil the demand.

    It’s the simplistic explanation that doesn’t work, a mistake made time after time.

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