Irving Fisher, Henry Ford, the thirties and now

August 4, 2010

Irving Fisher, Henry Ford the thirties & now

Irving Fisher the great Yale economist and monetary theorist wrote a number of books in his career. In 1930 after the great crash Macmillan published The Stock Market Crash and After in which Fisher analyzed the crash, the events leading to it and his prognosis for the future. He ended the book with the unfortunate sentence ''For the immediate future, at least, the outlook is bright.'' I have an original 1930 edition in my library and I have been re-reading the book this past summer week, a refuge from the thunderstorms and sultry heat.

Fisher lost a fortune in the crash and he was very wrong about the following years. But despite this, his book is full of interesting insights about the state of opinion and economic theory in the 1920s and in the months immediately following the crash. For example, he points out and has the quotes to back it up that President Hoover acted promptly to rally business to the side of accelerating business investment and avoiding unnecessary layoffs.He also called on the Fed to dramatically lower interest rates by flooding the country with liquidity.He also lobbied leading employers not to reduce wages in order to protect purchasing power. He was also in favour of ''prudent expansion" in public works investments. Much like President Obama he called a conference of the leading bankers and business men to discuss co-ordinating their programs of investments in order to ''assure employment and to remove the fear of unemployment."

Alas, despite these sensible efforts the actual investments were insufficient and fear, layoffs and falling wages came to dominate the economy.

The industrialist Henry Ford who had some very reactionary impulses and apparently anti-semitic beliefs nevertheless believed that workers' wages should not be cut. Instead he called for them to increase. He believed he said in ''increasing the purchasing power of our principle customers- the American people...this may be done in two ways; first by putting additional value into goods or reducing prices to the level of actual values, and second starting a movement to increase the general wage level.
Nearly everything in this country is too high priced. the only thing that should be high priced in this country is the man who works. wages must not come down, they must not even stay on their present level; they must go up." "

It is impossible to read Fisher's work and not draw comparisons between then and now. In the current circumstances where globalization is still dominant how many employers would stand with Ford in favour of higher wages? Everywhere the mantra is lower costs and outsource labour to achieve lower costs. At the same time, informed by history President Obama courageously backed and the Congress wisely passed a major stimulus bill. But it might not have been large enough. Like the 1930s the price trend is downwards. Herbert Hoover meant well and was generally progressive but his reputation was ruined by the depression. I am sure that President Obama
is going to be viewed far more positively.

Nevertheless, it is time for new investments,a second substantial stimulus, a critical re-examination of globalization and a push for a global minimum wage .My recent explorations of the retail markets in search of a new fridge has made clear that employers, both retail and manufacturing, are holding back on hiring when they should be doing the opposite. This needs to be changed in order to permit a better recovery from an employment point of view.