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Is it possible that this country is losing its business bearings? There is talk of high wages being a burden, of raising prices to cover increased costs of production due to low demand, of curtailing output by agreement in order to prevent the country being flooded with goods, and even of passing laws to cure unemployment.

If wages are at all generally cut, if prices are raised and if production is rationed by agreement so that all the manufacturers in each branch of industry may have a certain amount of business regardless of whether or not they deserve it, then we might as well close the book of American progress. For business will have confessed its inability to provide leaders who can lead toward a greater and more widely diffused prosperity that will abolish poverty.

That would be a sad ending to our national progress. It is, however, an inevitable ending if the business of the country refuses to recognize its responsibility and hopes by catchwords and slogans to achieve that which can be attained only by hard, unremitting thought and hard, unremitting work.

Good business, which in turn means general prosperity and employment, is not something which comes about by chance. It is a result of the skill with which business in general is managed and business in general is only the sum of the activities of the business units. Through all the years that I have been in business I have never yet found our business bad as a result of any outside force. It has always been due to some defect in our own company, and whenever we located and repaired that defect our business became good again regardless of what anyone else might be doing. And it will always be found that this country has nationally bad business when business men are drifting, and that business is good when men take hold of their own affairs, put leadership into them, and push forward in spite of obstacles. Only disaster can result when the fundamental principles of business are disregarded and what looks like the easiest way is taken. These fundamentals, as I see them, are:

(1) To make an ever increasingly large quantity of goods of the best possible quality, to make them in the best and most economical fashion, and to force them out on the market.

(2) To strive always for higher quality and lower prices as well as lower costs.

(3) To raise wages gradually but continuously—and never to cut them.

(4) To get the goods to the consumer in the most economical manner so that the benefits of low cost production may reach him.

These fundamentals are all summed up in the single word "service" but that word is so often used just to cover cheap and easy gestures involving no thought or work, that it is necessary to point out that service, to be anything at all, must be the basic policy of a business and must carry through its every action. The service starts with discovering what people need and then supplying that need according to the principles that have just been given. One must keep ahead of the needs of the people and not sit around simply filling what is called a demand. That is what I mean by leadership. When leadership slackens, then business slackens and the business begins to run the managers instead of the managers running the business.

Whenever the leaders of business find the public buying eagerly, the tendency is to settle back on the job and let well enough alone. There was formerly a tendency in such times to raise prices in the hope of getting in all possible amounts of money while the going was good. In consequence, in what were called times of good business, the effort was not to keep business good but to get money quickly, and since raising prices always seems to be the quickest way of getting money, the prices were raised and raised until they went above the level of the buying power, and then all at once the buying would stop and, instead of good business, we had bad business. Fortunately, most men have now learned the fallacy of trying to make money by raising prices, and we had little or no price raising in the period of our business history that terminated in the stock market panic of October and November of 1929.

At the beginning of the period of speculation, the business of the country was running along very nicely and evenly, with the sole expectation of gaining profit through work, which in the end is the only way that any profit can be gained. Men kept trying for lower prices and higher wages—that is, to establish sound and enduring business.

Then, as the opportunities for making money in the stock market appeared, more and more the attention of many of the men who had been leading business and many of the men who had been helping them and many of the men who had been working for them became diverted to speculation. It reminded me of the farmers when the city was expanding and real estate agents were subdividing outlying fields. The farmers kept one eye on the lookout for a real estate agent and the other on the plow. It was very bad for farming. One eye on business and the other on the stock market proved very bad for business.

The proper conduct of a business requires every ounce of leadership that it is possible to exert. There can be no let up and no attention to anything else. But inevitably this attention to the stock market drew attention away from business and dulled the edge of the urge always to advance. Customers were too easy to get and to keep, and business in general, instead of trying to make better products, sought to attain a greater volume of products and not to bother much with price reductions or wage increases. Everything was going so smoothly that there seemed no reason for undue disturbance or alarm. The true occasion for alarm was deeply hid. It consisted in the complete stoppage of improvement in quality of goods and in methods of manufacture, which in turn causes a stoppage in the increasing values of the purchasing money. There is bound to come a time when things are offered for sale at so much more than they are worth that the public will hesitate to buy them, and then will stop buying altogether and may even fall into a panic about what it has bought. I do not know anything at all about stocks.

But I do know that the manufacturing of stocks can be carried on in much the same way as the manufacture of articles, and their prices can be run up in the same way as commodity prices and with the same eventual result. Shoddy stocks can be made to sell at high prices.

The lesson that should be apparent from all this is that in the end everybody is the loser and no one the gainer by speculating in things already made whether those things be commodities or whether they be paper shares in corporations. Prosperity and progress are in things yet to be made. Another lesson is that nothing can be taken for granted in business. If a business be allowed to run on as it is, just because the output is being bought, and no attempt is made to improve either the output or its method of making or to lower prices, then one day it will be discovered that there are no buyers. Every business, if it expects to be prosperous, has to keep ahead of the public. It cannot simply travel along.

If the nation's recent experience will have taught the lesson that no money is to be made except out of service, then it will have been worth all that it cost. The country needed some such education on a large scale as a step toward that kind of business which elevates the whole country and not just a few people. We may have been helped toward the view that goods and services are seldom luxuries, that it is nonsense to talk about people being better off with less, and that the only real luxury is a retired business man. For a part of the troubles which are said to be due to overproduction are really due to the habit of thought that a man has a station in life, and that too much in the way of goods and services may not be good for him—that he must be guarded against extravagance not by education but by withholding goods and money from him. There may be a personal nobility in poverty but it is a class distinction that we can do without.

Undoubtedly there are defects in the money system which sometimes prevent the free flow of goods and services, but we do not as yet seem to know enough to put our fingers on what exactly are the defects. We do know that periods arrive in which people in general, although their needs keep constantly increasing, have not the money to buy that which will satisfy their needs. There is no logical reason why, with ample facilities for production and an always increasing desire for consumption, there should at any time be one of these periods in which the desires cannot be fulfilled and the production utilized simply through lack of money. In fact, is it proper ever to say "lack of money"? Is it not fundamentally lack of something else? Money is like any other kind of machinery—it can be improved and is being improved constantly. But along with the machinery must come an instructed people that can properly operate it. Money, as we often say here, is like coal out in the big coal pile at the back of the shops. But what kind of management is it that fails to replenish it? The country has just had a clear lesson that money is a by product of industry. When we give our entire attention to its sources—that is, to industry—there is no lack of money. The money market or the stock market did not cause the recent experience of business. It was men's neglect of business that upset the stock market. Business is the source of supply and surplus. Even a stock market cannot afford to neglect it.

No one has yet been born who can manage both to manipulate the market for its stock and also to do business in such a way that it will be profitable. The two do not and cannot mix. We have had acutely brought home to us what it means to have a considerable portion of the country take its mind off doing business and engage in a career of speculating in stocks.

The immediate cure for depression, and by depression I mean a period when men are out of work and not able to improve their standards of living, is told in one word, "quantity" quantities of goods pushed out into the world.

But it is not enough simply to manufacture goods. There is a great deal more to the process than that. There is no service in simply setting up a machine or a plant and letting it turn out goods. The service extends into every detail of the design, the making, the wages paid, and the selling price. None of these can ever be taken as right—they can only represent the best efforts of the moment. That is why quantity production demands so much more leadership than did the old production. Anyone who sets up a big plant to manufacture a product and then takes for granted that no further changes in design or materials or methods of making are necessary will in a curiously short space of time discover an overproduction and then the owners will start talking about the market being saturated.

A market is never saturated with a good product, but it is very quickly saturated with a bad one, and no matter dollars. It may be in added quality—that is, in giving more for the money. The very best reductions are those which comprehend both price and quality. A price reduction which is gained by reducing quality is not really a price reduction at all, and the public reacts in no uncertain way. There is no quicker or surer way of destroying confidence in a business than to make a price reduction which represents the giving of less and not of more value than before.

However, the reducing of prices solely to increase sales is not a sound business policy, for then the attention may shift from manufacturing to selling. Sales are primarily the result of good manufacturing and not of persuading people to buy. There is no difference between decreasing prices in order to gain sales and maintaining prices just because people seem willing to pay them. If prices are used as baits for buyers, to be raised or lowered as the buyers feel about it, it is in effect a handing over of the control of the business to the buyers to do with as they like. That is a very real control and it is exercised in very drastic fashion. This country has seen it exercised time and again.

The policy of constantly reducing prices has really more to do with management than with sales and should be considered from the manufacturing point of view and not with primary regard to the ideas of the sales end of the business.

If a price be maintained merely because there is apparently no sales reason for reducing it, what is the effect on the management? Does it constantly press to reduce costs so that the maintained price would translate into a constantly enlarging profit account? That is exactly what does not happen. The maintenance of the price eventually puts the management to sleep. There is a tendency to let well enough alone, and well enough never can be left alone. Nothing can remain static. Things are either moving forward or moving backward. If a management lets well enough alone for six months or a year, the business will inevitably get out of its control little items of waste will creep in, bigger items will follow them, and in the end costs will be so high that the profits will vanish. There is no way of keeping a management always at its work unless the economies which it effects are carried over into lower prices and higher wages. For then each advance is marked by a lower price peg. Once a peg is put in, the management must continue to do at least as well as it has ever done. Usually it must do much better. That is why there is more than sales to be considered in a price lowering policy.

The policy strikes at the very heart of management. If one keeps the price always as high as one can, there is no margin for an increase when fair treatment of the product and the public requires an increased price. The public will meet an increase in a product that has dealt squarely with it before. But it is only when one lowers prices without regard to whether or not the public is willing to pay a higher price that the public maintains a confidence which not only results in steady buying but which permits an advance in prices if conditions should make such an advance necessary. One cannot use a margin and also have it. The public will know from experience that the advance is being made only because it cannot be helped, and therefore it will not resent the advance and no goodwill will be lost. It is better to have a good margin for a necessary increase than for an enforced drop. A product that has been priced at what the traffic will bear cannot get help from the public in an emergency, and it often cannot get help in itself, because such a policy softens the muscles of management—it has had too much easy living. Thus the pressing for better methods has always with us brought so many unlocked for economies that profits simply cannot be avoided. Our problem has always been to keep profits down and not up. There can be no other result from the price decreasing policy and the constant challenge to management which it involves.

These fundamentals are not peculiar to the automobile industry and they apply to any business, large or small. They are universal. If they were adopted, a flood of properly made goods would flow through every nook and cranny of the country, drive out high prices, produce employment everywhere at good wages, and make poverty impossible. The getting of these goods into consumption is the problem of business leadership.

The question is not simply to have people buy more goods but to have them buy more of the goods which will benefit them. We use the word "buy" because that is the only method that we know of distributing goods. We must use money.

The limits of production will be reached when everyone has all the goods he needs or can use to increase his comfort in living. And since every improvement in goods or the methods of making creates a new need, the day when we can actually have overproduction is far distant.

Take our theories of what is extravagance and what is economy. In the business world it is considered wasteful for a manufacturer to retain a machine that will satisfactorily do work, if another machine appears which will do the work better or more cheaply. American industry never hesitates to scrap a machine the moment that a better one can be had. That is considered as economy in business. But our old notions of economy, which in business we have shaken off, still hold in the home affairs of the individual. It is considered economical to retain a thing in the home until it is worn out—regardless of the wear and tear that it may involve on the human beings concerned. That is not economy at all but extravagance. We progress as we conserve human energy—as we get more for the expenditure of the same effort. That principle in a true national economy has to be carried over into the life of the home. Our homes and our ways of living are still too much influenced by the Old World standards.

In our younger days we knew men who wore their coats until they were green and threadbare and these men were called thrifty. It was a thrift that hindered progress. There was no exchange, no circulation of services, no life in such an attitude. Goods are made to be used. There can be no other reason for their existence. Use is the power that keeps the wheels of life moving.

But how are the people going to find the money to buy these goods? That again is the business of management—of leadership. If we wait upon demand, we shall wait forever. Demand does not create, it is created. If we begin a large production of goods and make the wages high enough, then a supply of buying power will be spread through the country which will absorb the goods—provided they are properly made and properly priced. And the flow of exchange, which is the blood of society, will be resumed. There is only one way—and the way of production is the beginning of it.

If we should achieve what is called a stabilization of industry, making just what is asked for and no more, the power to buy the goods would fall off—for enough purchasing power to buy would not be distributed. The ideal of stabilization is a pretty one, but it stabilizes the wrong kind of condition. It stabilizes the kind of condition the country wants to be rid of. It would result in certain stagnation, for there would be no pressure towards bettering goods or methods and we should begin to sag.

The purpose of industry is to produce goods that serve people. It is no part of the purpose of industry to support people, and if we start into industry from the angle of making it support a certain number of wage earners, then we destroy the purpose of industry and therefore make it incapable of supporting people. In other words, production exists to create goods which will serve people.

If, however, high wages are not paid and there is no pressure towards ever higher wages as production increases, then the output will not be absorbed and there will be no reason for producing it. Thus, although industry does not primarily exist to pay high wages, it cannot exist in any large serving capacity unless it does pay high wages.

The approach, however, is important. If we imagine that industry exists to support people, then the more men that it employs the better. In this view an employer who took on two hundred men at two dollars a day would be better serving the public than one who took on fifty men at eight dollars a day. That sort of program is often urged as in the interests of society: employ more men, they say, even if you have to pay them smaller wages.

It is, on the contrary, directly against the true interests of society and makes for poverty. The man at two dollars a day will have no surplus spending power at all and he will not be a factor in the market. The man at eight dollars a day will have a spending power and in the use of that power he will be bound to create work so that the other men will eventually have well paid employment. There can be no greater fallacy than thinking that employing large numbers of low priced men is humane or helps the country. It is only helping to make poverty universal by paying low wages and keeping men on, regardless of the demands of the highest production.

The task of industrial leadership is not to find jobs for as many men as possible but to find high priced jobs for as many men as possible, and the start has to be with a few high priced men. For not otherwise can the low costs be attained which will increase consumption and make more high priced jobs necessary. Production calls out man power; production is not called out by man power.

We are traveling a road that no one has ever traveled. The way is not easy. Many well meaning people have held out that there is another road and the going is much easier. They point to the road of regulated prices, state aid, and the sanctifying of things as they are. They do not know that the end of that road is a very hard one.

There can be no substitute either temporarily or permanently for work and leadership.

It may be that the road we are on is not worth traveling. But that point should be decided before we take the other road. For we know that the other road leads back to universal poverty.