That is the primary of a collection of posts that may ask what probably the most pertinent query raised by a distinguished influencer of political financial system might need been, and what the relevance of that query is likely to be at present. There’ll, sooner or later, be an inventory of all posts within the collection on the finish of every entry. The origin of this collection is famous right here. 

In 1914, Henry Ford shocked the enterprise world. He introduced that his manufacturing unit employees can be paid $5 a day — double the going charge. To most employers, this was lunacy. Wages had been seen as a value to be minimised. Ford’s logic was completely different. If employees could not afford the vehicles they made, there would by no means be a mass marketplace for cars. By elevating wages, he wasn’t giving charity; he was creating prospects. He was additionally, admittedly, searching for to cut back union energy.

That single determination did, nevertheless, turn out to be folklore in financial historical past, however not as a result of Ford was a benevolent capitalist. He was hard-headed. He understood a paradox that capitalism itself tries to disregard: labour is each a value within the manufacturing ledger and the muse of demand within the wider financial system. Ignore the second position, and also you collapse the market you rely on. This duality can’t be averted, and but most companies, economists and politicians strive to take action.

This, then, results in the Henry Ford Query, which is: How can prosperity be sustained if labour is handled solely as a value to be lower, reasonably than because the supply of the demand that retains the financial system alive?

1. Wages are greater than a value

Mainstream economics has, for many years, inspired companies and governments alike to see wages solely by way of the lens of competitiveness. Decrease labour prices supposedly imply cheaper merchandise and greater revenue margins, or so the argument runs. Commerce principle treats wages as an “enter” to be decreased to realize a bonus within the international market.

However in the actual financial system, a wage isn’t merely a value. It’s concurrently anyone’s earnings, and the incomes of working individuals combination into the demand on which companies rely. Reduce wages throughout the board, and you aren’t simply “saving prices”; you might be draining the very buying energy that drives gross sales.

Ford understood this, instinctively. If his vehicles had been to turn out to be actually mass-produced, they needed to be mass-consumed. His employees couldn’t stay a pauper class constructing luxuries for the wealthy. They’d to have the ability to purchase the product themselves.

2. The productiveness paradox

Trendy capitalism loves to speak about productiveness. Automation, AI, lean provide chains; all of those promise larger output per employee. In principle, that larger productiveness ought to imply larger wages. In observe, during the last forty years, productiveness and wages have been decoupled.

Output per employee has risen steadily. Wages for almost all have stagnated. The excess has gone to income, dividends, and govt pay. That is the productiveness paradox: we are able to produce extra, however the features are usually not shared.

That decoupling has harmful penalties. Items now exist in abundance, however mass buying energy primarily based on wages has lagged.

The hole has been crammed with family debt. Within the US and UK, low-cost credit score turned the sticking plaster that allowed employees to maintain consuming regardless of stagnant wages. When the credit score system cracked in 2008, the phantasm collapsed.

Ford, greater than a century earlier, had averted that paradox: he aligned productiveness features with wage features, in order that output and demand rose collectively.

3. The fragility of demand

Economists speak about “combination demand” as if it had been an summary. In actuality, demand is the flexibility of extraordinary households to spend on meals, housing, vitality, transport, schooling, and leisure. When these households are squeezed, demand falters.

This fragility is seen in all places:

• Insecure work. Zero-hours contracts and gig labour erode earnings stability.
• Stagnant pay. Median wages within the UK have moved little in actual phrases since 2008.
• Rising prices. Housing, childcare, and vitality swallow disproportionate shares of earnings.

The impact is macroeconomic. Companies make investments after they see demand. When demand weakens, they maintain again. Decrease wages would possibly look good for a person stability sheet, however when each agency squeezes concurrently, the market shrinks. It’s the fallacy of composition utilized to labour.

4. Demand collapse and disaster

Historical past is replete with examples. The Nice Despair was not only a inventory market crash; it was a collapse of demand after years of wage suppression and speculative bubbles.

Put up-2008 austerity in Europe repeated the error: governments lower public wages and spending, deepening recession when demand was already frail.

The lesson is straightforward: demand collapse is the pure end-point of treating labour purely as a value.

Ford’s $5 day was a crude however efficient type of demand insurance coverage.

At present, we’ve got dismantled such insurance coverage. Labour’s bargaining energy is weaker than at any time for the reason that nineteenth century.

The result’s a world financial system held along with non-public debt and speculative bubbles — precarious, brittle, primed for disaster, and that disaster is now turning to anger, as we’re seeing .

5. Distributional justice as macroeconomic stability

Wages are usually not only a equity situation; they’re a stability situation. Economies with stronger wage shares – the place labour takes dwelling a bigger slice of nationwide earnings – are much less crisis-prone. That’s as a result of consumption is extra steady when it rests on wages reasonably than on debt or asset hypothesis.

Each pound in a employee’s pocket has a better propensity to be spent than a pound sitting in a Cayman checking account.

Excessive wage shares preserve demand circulating.

Excessive revenue shares leak into monetary hypothesis, inflating asset bubbles reasonably than sustaining the actual financial system.

Ford grasped that crude precept. At present’s policymakers have forgotten it. Labour’s share of earnings has been falling for many years, and instability has risen in step.

6. What Ford tells us about at present

What does the Ford Query demand of us now?

First, rebuild labour energy. Robust unions and sectoral bargaining are usually not nostalgic relics; they’re stabilisers of demand. They guarantee productiveness features circulate into wages.

Second, ship progressive taxation. Left to itself, capital hoards the excess. Progressive taxation recycles it into public companies and funding, sustaining mass buying energy.

Third, ship public funding in wages. Care, schooling, and inexperienced transition jobs are labour-intensive and wage-sensitive. Public spending in these areas does not simply present companies; it anchors demand.

Fourth, reject the “labour price” fixation. Competitiveness can’t be constructed on perpetual wage suppression. A society of underpaid employees isn’t aggressive; it’s brittle.

Inference

The Henry Ford Query stays unanswered. We’re nonetheless trapped within the contradiction he noticed: if employees are solely prices, who buys the output? Ford’s $5 day was not a present to his staff; it was an act of system upkeep.

The issue is that we’ve got overlooked that lesson. By prioritising shareholder returns and managerial bonuses, we’ve got forgotten that prosperity requires redistribution.

The ensuing paradox is stark: pay extra, and the financial system works; pay much less, and it stalls.

Ford’s perception was brutal however true: you can’t have mass manufacturing with out mass consumption, and you can’t have mass consumption with out truthful wages. That’s the problem trendy capitalism retains attempting to evade.

Earlier posts on this collection

1. The financial questions

Taking additional motion

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