Answer Me This

by Don Boudreaux on January 5, 2011

in History, Myths and Fallacies, Prices, Work

Here’s a letter to the Washington Post:

Harold Meyerson asserts that 20th-century America was blessed by an “equilibrium among production, wages and purchasing power – the equilibrium that Henry Ford famously recognized when he upped his workers’ pay to an unheard-of $5 a day in 1913 so they could afford to buy the cars they made (“Corporate America, paving a downward economic slide,” Jan. 5).

This popular account of Ford’s pay raise is a myth.  Ford raised wages in order to attract and keep good workers; he was obliged to do so because of competition for labor.*

As for the alleged “equilibrium” that Mr. Meyerson mentions, to understand that it is fanciful requires only that one ask the following question: would Boeing remain solvent if it raised its workers’ wages so that they could afford to buy the commercial airliners they make?

Sincerely,
Donald J. Boudreaux

* See, for example, the outstanding Tim Worstall.

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