The most surprising feature of business as it was conducted was the large attention given to finance and the small attention to service. That seemed to me to be reversing the natural process, which is that the money should come as the result of work and not before the work. The second feature was the general indifference to better methods of manufacture as long as whatever was done got by and took the money. In other words, an article apparently was not built with reference to how greatly it would serve the public but with reference solely to how much money could be had for it--and that without any particular care whether the customer was satisfied. To sell him was enough. A dissatisfied customer was regarded not as a man whose trust had been violated, but either as a nuisance or as a possible source of more money in fixing up the work which ought to have been done correctly in the first place. For instance, in automobiles there was not much concern as to what happened to the car once it had been sold. How much gasoline is used per miles was of no great moment; how much service it actually gave did not matter; and if it broke down and had to have parts replaced, then that was just hard luck for the owner. It was considered good business to sell parts at the highest possible price on the theory that, since the man had already bought the car, he simply had to have the part and would be willing to pay for it.Henry Ford, 1922: My Life and Work.
The automobile business was not on what I would call an honest basis, to say nothing of being, from a manufacturing standpoint, on a scientific basis, but it was no worse than business in general. That was the period, it may be remembered, in which many corporations were being floated and financed. The bankers, who before then had confined themselves to the railroads, got into industry. My idea was then and still is that if a man did his work well, the price he would get for that work--the profits and all financial matters--would care for themselves and that a business ought to start small and build itself up out of its earnings. If there are no earnings, then that is a signal to the owner that he is wasting his time and does not belong in that business. I have never found it necessary to change those ideas, but I discovered that this simple formula of doing good work and getting paid for it was supposed to be slow for modern business. The plan at that time most in favor was to start off with the largest possible capitalization and then sell all the stock and all the bonds that could be sold. Whatever money happened to be left over after all the stock and bond-selling expenses and promoters, charges and all that, went grudgingly into the foundation of the business. A good business was not one that did good work and earned a fair profit. A good business was one that would give the opportunity for the floating of a large amount of stocks and bonds at high prices. It was the stocks and bonds, not the work, that mattered. I could not see how a new business or an old business could be expected to be able to charge into its product a great big bond interest and then sell the product at a fair price. I have never been able to see that.
I have never been able to understand on what theory the original investment of money can be charged against a business. Those men in business who call themselves financiers say that money is "worth" 6 percent, or 5 percent, or some other percent, and that if a business has one hundred thousand dollars invested in it, the man who made the investment is entitled to charge an interest payment on the money, because, if instead of putting that money into the business he had put it into a savings bank or other certain securities, he could have a certain fixed return. Therefore, they say that a proper charge against the operating expenses of a business is the interest on this money. This idea is at the root of many business failures and most service failures. Money is not worth a particular amount. As money it is not worth anything, for it will do nothing of itself. The only use of money is to buy tools to work with or the product of tools. Therefore money is worth what it will help you produce or buy and no more. If a many thinks that his money will earn 5 percent, or 6 percent, he ought to place it where he can get that return, but money placed in a business is not a charge on the business--or, rather, should not be. It ceases to be money and becomes, or should become, an engine of production, and it is therefore worth what it produces--and not a sum according to some scale that has no bearing upon the particular business in which the money has been placed. Any return should come after it has produced, not before.
Businessmen believed that you could do anything by "financing" it. If it did not go through on the first financing, then the idea was to "refinance." The process of "refinancing" was simply the game of sending good money after bad. In the majority of cases the need of refinancing arises from bad management, and the effect of refinancing is simply to pay the poor managers to keep up their bad management a little longer. It is merely a postponement of the day of judgement. This makeshift of refinancing is a device of speculative financiers. Their money is no good them unless they can connect it up with a place where real work is being done, and that they cannot do unless, somehow, that place is poorly managed. Thus, the speculative financiers delude themselves that they are putting their money out to use. They are not; they are putting it out to waste.
Thursday, June 19, 2008
Son of Same As It Ever Was
Posted by Rmj at 9:30 AM