Do People Matter?

by Burt on May 23, 2012

Not according to some critics of free enterprise. Keynesian economist Robert Thomas once said, “Individual entrepreneurs, whether alone or as archetypes, don’t matter!” Thomas elaborated, “And indeed if they don’t matter, the reason, I suggest, is that the supply of entrepreneurs throughout American history, combined with the institutions that permitted–indeed fostered–intense competition, was sufficiently elastic to reduce the importance of any particular individual.”

In other words, if Henry Ford hadn’t come along and popularized the automobile, someone else right behind him would have done so in roughly the same way. Entrepreneurs are not particularly valuable, according to Robert Thomas. Without Ford, another mechanic would have “put a car in every garage.” Ford was merely in the right place at the right time.

If you believe that, then it logically follows that tax rates should be high. Why reward an entrepreneur for doing something now that someone else will do just as well very soon? In this view, government should be actively involved; bureaucrats can easily substitute for entrepreneurs, and the reward will go to the state, which can redistribute it perhaps more equally.

But let’s examine history to tell the real story. In 1900, Henry Ford headed one of more than fifty firms making cars–and most of those firms were making cars that ran on steam or electricity. Furthermore, these cars were so expensive, Woodrow Wilson called them “the new symbol of wealth’s arrogance.” Only Ford, toiling away in his rented garage, believed gas-powered cars could be made into the future of travel. Ford invented the Model T and then experimented with assembly-line production. On the way, in contrast to all other carmakers, Ford decided to cut prices on his cars and hope people would buy more of them. “You will notice,” Ford said, “the reduction of price comes first.” In 1908, he sold Model Ts for $850 each, and cut that to $600 by 1913–and annual sales jumped from 18,000 to 168,000. Ford observed, “Every time I reduce the charge for our car by one dollar, I get a thousand new buyers.” By 1920, half the cars on the road were Model Ts.

Entrepreneurs do matter! Ford was a unique success and helped the U.S. dominate the world in jobs and industry in the 1900s. Yes, he was eccentric: Ford sometimes wore a soybean suit, he refused to eat chickens because they ate bugs, and he never ate sugar because he believed the crystals would cut open his stomach. But he knew how to make and sell cars, and he paid his workers almost twice the prevailing rate in American industry.

What was Ford’s advice? In 1926, he wrote My Life and Work, and in that book he stated, “Our help does not come from Washington, but from ourselves. The government is a servant and never should be anything but a servant.” Ford knew that people do matter, and turning loose their creativity is the health of a free society.

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House of Eratosthenes
May 23, 2012 at 10:07 am

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