I believe it was Henry Ford who famously said that “workers
should be paid enough so that they could buy what they make”. This is actually
quite a profound statement. It certainly applies today when retailers and manufactures
of consumer goods are complaining that people are not spending money. And
economists are lamenting the fact that the “economy” is not growing fast enough
to reduce the rate of unemployment.
In business circles today wages are a bone of contention.
The unhealthy imbalance between the highest paid and the lowest paid is causing
concern worldwide. There is a widespread push to increase the minimum wage to a
more reasonable level; fast food companies in the USA are being pressured to
increase minimum rates of pay. This is being resisted by business and industry
leaders as “unaffordable and unreasonable” (we hear the same argument in
Australia).
Economists speak about the “economy” of a country as if it
were some disembodied entity. They forget that the “economy” is made up of
people – alive, breathing, hungry people. Economists develop "statistical models" that use a mythical "rational consumer" to test their theories. There is no such animal as a "rational consumer" - it doesn't exist!!
Now, as I understand what Henry Ford was getting at is that
if retailers and manufactures of consumer goods want people to spend money and
buy what they are trying to sell they (the people), rather obviously, have to
have money to do so. Right?
But, if the economy is skewed (as it is in many countries,
including the USA and Australia) with 5% very rich; with the, previously, large
middle “class” shrinking in numbers because of the economic down turn and
manufacturing moving “off shore”; with the current “minimum wage” kept low (at
possibly a level arrived at many years ago) – where is the purchasing power
going to come from?
Who will buy the goods and what with? The wealthy don’t buy
expensive items and consumer goods every day. Sure they buy food, but what they
buy does not compensate for the reduced purchasing power of the rest of the
population. In any country.
So to carry on with Henry Ford – pay those who are at work
enough to buy what they make and Bingo, money starts to circulate. People start
buying, factories are re-opened to start manufacturing again – more employment –
more money – more items purchased. The housing industry picks up – more consumer
goods – more money – more items purchased.
The problems are created by people who “hoard” money; people
who want more than they need. This creates a “blockage” which reduces the
amount of money in circulation. The less money in the economy, the more the “hoarders”
resist spending and the more they try to hold on to what they have, at any cost.
Employers reduce staff numbers or reduce wages and so the cycle starts all over
again!
Henry Ford was right! And don’t believe the economists.
Economists read statistics not the mood in the streets!
