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Although there is much talk of the dangers of overproduction, the fear is not that the supply of goods will be too great. The real fear is that the supply of profits and wages may be disturbed.

The workman fears that if more is produced than the public will buy he will be unemployed until the public catches up with the oversupply. The employer fears that unsold goods will stagnate and that he may have to sell them at a loss. We are all of us both buyers and sellers. When we are buyers we do not worry lest well-made goods be offered to us too cheaply. We are glad to find the bargains. First-class goods and commodities can always be sold—at a price. It would seem that overproduction is not quite what it pretends to be—it is not a curse to everyone.

It may be possible to have an actual overproduction—a condition in which first-class goods are not bought because everyone already has a supply of them. But it is always a relative condition and not at all to be confused with oversupply. Overproduction is always with reference to a ready market but oversupply is to be considered with reference to the ability of the people to consume the product if they had the money to buy. That is, we think of overproduction when selling becomes slow, whereas only complete fulfilment of need could make us think of oversupply. The condition of oversupply has not as yet obtained in this country. Of what commodity has every citizen yet had enough? What has been called overproduction is thus not overproduction at all. The country has had stocks of unsold goods when the power to buy them has been absent. But both the need and the desire to buy are always present. I am assuming, of course, that the unsold goods are of a design and a quality to meet the needs and the desires of the people.

At all times, but especially at the end of a boom, the market contains goods that remain unsold not because of overproduction but because there exists no reason why anyone should buy them—whatever their past usefulness, they no longer fill a need. Their owners may make a great noise about business being bad, but the fact is that the goods are so badly designed and produced as to make it poorer business to sell them than to junk them. Business sometimes seems slow only because the public sense of values and design is moving faster than the inventive resources of some manufacturers. In a very real sense it is the personnel of business that is slow and not the public, Most manufacturers know that, all other considerations aside, it does not pay to put out poor stuff. It may be sold for a while, but at some point—the point where public knowledge and taste take a step ahead—the buying will stop and the manufacturer will have on hand unsaleable goods. If the channels of business were never clogged with goods that have no excuse for being, a recurrent cause of business depression would be removed.

If, however, first-class goods that do meet needs cannot be sold in ever-increasing quantities, then the trouble narrows down to an insufficiency of buying power. This may be due to the price of the article being too high or—more commonly—to the price of too many articles being too high. It may not be possible for the manufacturer greatly to lower his prices at that moment, although if he be progressive he will always be able to make some price reductions, but if the public is to be given all possible benefit, the business of price reductions must begin with the price of materials, continue through the cost of manufacture, and be completed in decreased costs of distribution. The manufacturer often sees how swiftly the economies in manufacturing are swallowed up in wasteful distribution and this distribution may not be within the control of the manufacturer. There is no point in economizing in manufacturing if at the same time the suppliers and distributors charge all that the traffic will bear. This is merely to emphasize the fact that the task of putting business on better foundations depends on every department of business and not alone on the manufacturer. Nothing can be cheap when any part of a commodity is dear. The only point where we cannot consider cheapness in the sense of price reductions is in human labor. Labor costs must be kept down but the only infallible way of doing this is by keeping wages up.

In general it can be laid down as a principle that prices to the consumer can always be cut, and in an emergency it may pay to cut the prices to below the line of profit. The increased business will in the course of time create larger profits. We have a number of times cut our prices below what we believed to be the cost of production, and the immediate benefits have been of two kinds. The larger volume of business resulting has not been the most valuable of the benefits. That which has most profited us has been the effect which this arbitrary cutting of costs has had on our organization—that is, on all of us. It has always made us more alert and more resourceful. I find it is more profitable to give more attention to the producing organization than to the selling market. We pay comparatively little attention to what is called "the sales end of the business." We believe that the sales are largely determined by the ability and progressiveness of the manufacturing organization. Therefore it is not without experience that I say prices can always be cut, and with great benefit to both maker and user.

The lowering of prices may sometimes of itself be enough to bring articles within the range of buying power. But buying power is not a constant figure. Lowering prices is only one way of increasing it. It must be increased absolutely as well as relatively, else the market for things will not be constantly expanding. Therefore it is not enough only to lower prices. Industry must also aim at continuously providing out of its operations a larger and larger income for everyone connected with it. This brings up for review in a very fundamental manner the whole subject of industrial management and finance.

It must be settled in our minds, first, that this thing which is generally spoken of as overproduction has never as yet actually occurred. The occasional stagnations in the free flow of goods from producers to consumers seem to have no connection whatsoever with the quantity of goods produced. Instead of fearing genuine overproduction we should welcome the day when it may be possible, for then everyone will be supplied with all of the goods and services he needs or wants. From the beginning of time there has been a striving for goods. There has never been a period when people in general did not want more and more goods—although there have been periods when people definitely gave up the hope ever of getting them and accepted poverty as an inevitable fact. Some of them were even persuaded that poverty was a virtue instead of a social disease. We must candidly agree with the moralists who contend that mankind does not exist only to possess material objects, but it is most certainly true that, until society from top to bottom is satiated with goods, we shall scarcely have the opportunity really to discover what life is about. Therefore we can look forward to the day of actual overproduction as the day of emancipation from enslaving materialistic anxiety. Unfortunately there is no prospect of that day coming soon. The people as a whole have not as yet suffered from plenty.

Of the three elements which alone or in combination cause the stagnation which is so wrongly spoken of as overproduction, two are within the control of business itself, while the third is largely within its control. Quality and price are affairs of design, engineering, and management while the increasing of buying power is, for that portion of the nation's income which results from industry, an affair of design, engineering, management, and finance.

Since a surplus of unsold goods is never due to factories having actually produced too much, it is not surprising that the superficial view that depressions are due to over-production invariably leads to adopting measures to relieve the situation, which in fact only makes conditions worse. The patient is given a drastic treatment for a disease he has not.

In the older days of medicine the doctor, after making his diagnosis, invariably let out some of the patient's life blood. The patient was supposed to get stronger by being made weaker. Our business doctoring is still in that stage.

The prescriptions, whatever they pretend to be, all get wound to raising prices, cutting down production, and decreasing the buying power of wages both directly and indirectly. A very fashionable prescription aims at cutting down the production until it exactly fits the demand. It is an interesting thought but it proceeds upon the fallacy that production depends upon demand. The opposite is the truth for business. Demand depends upon production and so if the production drops the demand will drop and therefore under this proposed scheme production and demand will go hand in hand to oblivion. This, however, is not very serious, for an industry that would consent to have the amount of its business fixed by rule is headed for oblivion anyway. Many territorial arrangements between sections of an industry fall under the same head. Sometimes these arrangements are disguised as mergers. A merger of corporations may be distinctly beneficial in bringing together a number of units that belong together, but it is more usual for weak than for strong corporations to merge. No lamp posts have been provided for weak or overstimulated business to cling to and so they are apt to cling to one another. The embrace is called a merger.

However, the reorganizing of so many industries to meet the conditions of to-day—even though the reorganizations do not meet the conditions—is at least a recognition that the need for reorganizing exists and that we have passed the peak of a certain phase of industry. The recognition of that fact is the first step toward a more thorough reorganization which will insure steady progression and make impossible the recurrence of such orgies as have from time to time taken place in the stock market.

The changes which are now coming about are, as has been indicated, very comprehensive. They involve more of a change in our mental attitude toward things than in the things themselves. We need a new view of the business unit, of its profits, of employment, and of thrift. Essentially we must get rid of the notion that we are the servants of business and proceed to put business in its proper place as our servant. This means that all along the line we shall have to cease serving things and make things serve us. We need a higher and more wholesome thrift in which things will be valued only for the service they render and only so long as they render it. We have to get rid of that miserly attitude which is born of fear and which results in hoarding instead of using. This applies to our business organization as well as to our personal affairs. A change has already come about and we might as well realize it. The change need not of itself bother anyone. It is the natural order. The pessimist who sees things going to pieces is not deluded; he is correctly reporting what he actually sees. The optimist who sees things soaring to perfection is an equally good reporter—he sees what he says he sees. But neither sees the whole picture.

Their reports of what they see are true, but they are not comprehensive. Certain established customs, methods, processes, institutions, and traditions are undoubtedly going to pieces, and irrecoverably. This irrecoverability strikes fear in many people. They want yesterday to come back. But yesterday is not coming back. The old era is dead and is being buried bit by bit.

It is the collapse of many dominant methods and institutions that alarms people. That need not alarm anyone. The evolution is perfectly natural.

One of the great changes that have come about has to do with the increasingly large number of men who are no longer working exclusively for money. To-day none of the real leaders is working for money. All of them have sore money than they can use, and they continue to earn money in large amounts as a part of the machinery of Monetary supply for the whole of society. All so-called private fortunes are nothing less than public reserves. I have noticed that those who work exclusively for money and for a time earn it do not retain it unless they continue the use of it for the public. The desire for mere money has a way of defeating itself—a very sure way. It is quite the same with a business and particularly so wider the new order of things. If the main objective of any business is the earning of a fixed dividend, then that business is surely doomed. Profits must come as an incident to doing the job well or they will not come at all. There is nothing fixed about any business and it has to be prepared at any time to change its product and methods if manufacturing. A unit of industry, a business—call it anything—is only slightly a collection of buildings and machinery. An estimate of the value of any business based on the property or facilities it owns is practically worthless. No one would think of paying carpenters according to the kind of tool chests they had. The man with a good set of tools ought to do better work than the man with a poor set and therefore command a higher wage. But that would have to be demonstrated; it could not be taken for granted.

A factory is only a tool, and its value lies in its production. This production is based on the power and the methods that the managers have put behind it. In many respects the factory itself is a greater thing than its product. If the product is a machine of any sort useful to the public, that is the thing admired; but the really admirable object is the machine that makes the machine: the factory organization and equipment that make the thing which the public buys. The factory is a potency which may be turned to many uses besides that for which the public knows it best. Power, the knowledge of power, the use of power, and not merely the specific product of power in which for the moment we happen to be interested—that is what an industrial establishment signifies.

A manufacturing company is only as good as its product, and unless that product be constantly improved it will not constantly draw the public to its buying. That is elementary, but often this fundamental seems to be neglected, for not otherwise could so many companies be judged for financial purposes solely on their past records. A record of success presupposes that some valuable experience has been gained. But if the company loses its active management—the men who made its success—then that company, no matter how much property it has, must make its way all over again unless the new managers are able to avail themselves of the former experience. This is frequently shown in an old company which under a new management goes in for quantity production, not to meet demands as they are created, but just to produce a great quantity of goods to force on the market. Under these circumstances quality is always neglected. The neglect may not be—probably is not—intentional, but if the emphasis of the management is upon volume then the men all the way down the line will feel it, inspection will be put aside if it interferes with output records, and of course the quality will go down.

The only things of any great intrinsic value in our group of industries, for instance, are the materials and supplies of a general nature which are on hand awaiting fabrication to our special ends, and these we keep down 10 a minimum. As for the buildings and machinery, they must be valued in dollars according to the meaningless methods of accounting that are required by law. Actually are worth only what we can do with them. Our is not the mere material fabric: it is twenty-five rears of time, twenty-five years of experience, built into management and method and machinery. The greatest elements of a machine or a shop are those you do not see—the invisible essence of time and devotion, and slowly acquired wisdom that has gone into it. It is our business as managers to design a shop that will make the product, and, since every day we should learn something about how to better our product or the manner of its making, both product and the shop are constantly changing.

Our policy—which we have found no reason to amend—has been to regard ourselves as charged with discovering the best way of doing everything and to hold every process employed in our manufacturing as purely experimental. Several years ago I said:

"We know from the changes that have already been brought about that far greater changes are to come, and that therefore we are not performing a single operation as well as it ought to be performed. We do not make changes for the sake of making them, but we never fail to make a change once it is demonstrated that the new way is better than the old way. We hold it our duty to permit nothing to stand in the way of progress—in the way of giving better service with all that follows in wages and prices."

This policy keeps one continuously balancing the merits of improvements both in methods of making and in design. This, of course, includes materials, for in no direction has there been greater progress than in the working out of new and stronger steels and composite metals. Some changes are forced by the shortage of materials, and some by the unreasonably high prices imposed by the material suppliers, but the majority are the results of experience. The first question to answer concerning any suggested change is:

Will it result in better service? Service runs in many directions. Among them may be listed:

(1) Lower costs. This is a service to wages, profits, and prices, and thus to more business.

(2) Strength and durability. These serve everyone.

(3) Appearance. This is a factor of rising importance.

After examining a suggestion from the end of service, one has then to go into the cost of making the change as compared with the economy to be effected. One has to take the long view and estimate in the light of experience whether the change will increase volume.

It has been our policy since 1908 to have a single base model with a few variations based on accommodation to various needs, and make improvements on that model from time to time, but without abandoning the fundamental conception of the model. That was our contribution toward checking obsolescence in the hands of the owner.

The trouble with mass production—and the phrase "mass production" is quite misleading—is that it tends to become rigid and keeps on producing regardless of the market. It has been supposed that our company was an exponent of mass production. That has never been true, and I have often explained why it was not true. We have merely made a great many automobiles using the methods which we found most economical. The product has always ruled the methods of making. This is another way of saying that the needs of the public have ruled.

Rigid machine production of the kind known as mass production quickly comes to an end, for it violates the first principle of large-scale production—which is that the makers must constantly improve the design and quality of the goods turned out. That is the inexorable law of production and it has been proved time and again. Only a few of the standard articles of twenty years ago are the standard articles of to-day. Why? Those earlier articles became standard only because they always met the needs of the people. They were bought because they could always be depended upon to be first-class, but they were first-class only because they were constantly improved—although possibly the improvements were seldom mentioned. But if, after the reputation of the articles had become assured, and those who had built the reputation rested, or were followed by men who were content to take the product as they found it and depend on the fine reputation, then dry rot set in and the product steadily slipped back and another product took its place. No product ever remains standard. It has to be kept standard.

It is true that mass production frequently piles up great stocks of goods which cannot be sold and this leads to the belief that mass production results in overproduction. Inflexible mass production does start to pile up goods the moment the goods cease to suit the buyer or are too high in price, but this is not the fault of the production methods. It is the fault of the managers in thinking that one design or one method can for long continue. Indeed, if mass production were what it is supposed to be, there would be some cause for alarm—but only among the mass producers. For they would lose by it. It is the large producers who constantly change methods and designs; it is the small producers who cannot change. Among the peasants of Europe or the coolies of the Far East life is standardized. For endless generations they have been doing the same things the same way. Machine production in this country has diversified our life, has given a wider choice of articles than was ever before thought possible—and also it has provided the means wherewith the people may buy them. We standardize only on essential conveniences.

Standardization, instead of making for sameness, has introduced unheard-of variety into our life. It is surprising that this has not been generally perceived.

All of this involves quite a fundamental change in corporate finance. A company must do more than keep its plant and equipment in repair. It must continually be changing them to meet changes in design, materials, and methods of making—not a single item of equipment can be regarded as permanent. Not even the site can be taken as fixed. We abandoned our Highland Park plant—which was in its day the largest automobile plant in the world—and moved to the River Rouge plant because in the new plant there could be less handling of materials and consequently a saving. We frequently scrap whole divisions of our business—and as a routine affair. And then one has to be prepared against the day when a complete change may be necessary and an entirely new plant constructed to make a new product. We have gone through all of this.

In these days a plant, no matter how much it costs, is worth only its value as scrap metal, for a complete change in methods may require, almost any day, that it be reduced to scrap. Hence a business is not really solvent unless it has a reserve in money which will permit it to make any needed changes at once and out of its own money. A business is financially unsafe if it has to borrow money to meet the needs of progress. For it cannot pay off the loan out of profits and at the same time provide a new reserve against more changes in the future without charging more for its product than it should charge. It cannot, if necessary, go for a time on the no-profit basis just to step up trade. A reserve in money is just as necessary as are the tools of production, but at the same time a business is under the obligation of paying out as much as possible of the money that it receives or else it will not distribute a sufficient purchasing power to make possible the buying of its product. That is an important part of the process of keeping up a constantly increasing flow of goods.

The maintaining of too large a reserve tends to withdraw too much purchasing power from the public, while maintaining too small a reserve endangers the continuance of the business. In our case we for years maintained a large reserve because we knew that some day we should have to make sweeping changes.

Now that we have made one complete change and know about what it cost, we have decided to keep a sufficient cash balance on hand and then endeavor so to fix our prices and our wages that our income and outgo will balance. This does not mean that our business will be managed as a kind of charity—it would not last long as a charity. No one will be paid for other than work. But what is the point of taking profits if one does not want them? The wages of the workmen are more important to the country than the dividends to stockholders. There is nothing at all to do with profits except to put them back into industry, and this is true whether or not the profits stay in the company as surplus or are distributed as wages or dividends. The business of maintaining life is the only proper use of money.

What has this to do with overproduction? Everything. For that which is called overproduction comes about in part from unreasoned production and in part from not paying attention to the building of buying power. And no attention can be given either to reasoning production in terms of needs or to building buying power, unless the finances of the corporation are handled in a broad industrial way instead of in a narrow financial way.