July 11, 2009
Henry Ford's "Good Idea"
Posted by Gordon Smith

Kevin Leicht:

Henry Ford had a good idea.

In January, 1914 he announced to the world that his workers would be paid five dollars a day. The five-dollar day doubled the average wage for auto workers, produced long lines outside of the factory gates, and helped to create a mass market for the Model T and other consumer durables.

For the next 60 years, this basic formula spread. An entire consumer economy was built on steady middle class jobs that paid slowly rising wages from productivity gains.

When Henry Ford announced the $5 workday, the W$J suspected a motivation other than creating customers for the Model T or improving the quality of workers' lives: Ford was attempting to reduce the company's profits, thus depriving the Dodge brothers, who owned shares of Ford Motor, of the capital they needed to start their own company. As it turned out, Ford couldn't spend the money fast enough, so he simply stopped paying dividends, a move that lead to the famous case of Dodge v. Ford Motor. You can read more about the dispute here.

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