Every so often an event takes place that is extraordinary and deserves to be recognized. Ford Motor Company accomplished one of these rare events this past month. In this letter we share with you the words of Henry Ford, the Ford family's patriarch, as a tribute to Ford's recent achievement. You will see from his words that Mr. Ford had an intense commitment to lowering costs for the benefit of his customers, providing a livable wage for his workers and a dedication towards high productivity. One thing he did not care for was "Wall Street" and the "debt and financing" they encouraged. Nor did he care much for the "Professional Reformers" who seek reform at any cost. In our current times of financial engineering and the green revolution his essay "Big Business and the Money Power", originally published in 1926 (Bantam Double Dell Publishing Group, Inc., New York), has a message that is as useful today as it was in 1926. I hope you enjoy it, but first....
The Event - July Auto Sales
As you scan the points below of the July Auto Sales the fact that stands out most is Ford Motor's positive sales in contrast to all of their direct competition. What is even more amazing is that sales were positive year-over year. They have accomplished this, unlike their peers, without taxpayer support or bankruptcy court. Instead, Ford's accomplishments come from the support of their employees, their shareholders, and most importantly the public. Some of you Ford fans may be relishing the idea that this is only natural, as Ford makes a better car. Analysts, and those of you who are fans of the government, may directly relate this achievement to the "cash for clunkers" program. That may be the case, but I am more inclined to believe that it was the perseverance of the Ford family and their employees to adhere to their code of business, that could overcome even the greatest industry decline in its history.
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Big Business and the Money Power
Henry Ford in collaboration with Samuel Crowther
1926 Chapter 3, pp. 26-34, Bantam Doubleday Dell Publishing Group, Inc., New York
Business-that is, the whole material side of life-is threatened by two classes of people who think they are in opposition, but who actually have a common cause-the professional financier and the professional reformer.
Both go about the destruction of business. That is what they have in common. Their ways are not alike. Their motives are not alike. But, given a free hand, either can destroy business very quickly.
There is nothing to be said against the financier-the man who really understands the management of money and its place in life. There is nothing to be said against the reformer who knows what he is about and knows the effect of the changes he desires and who is willing to give the people to be reformed a chance.
But it is very different with the professional financier, who finances for the sake of financing and what he can get out of it in money, without a thought of the welfare of the people. The professional reformer likewise reforms for the sake of reforming and for his own satisfaction, and without a thought of the real menaces. The professional financiers wrecked Germany. The professional reformers wrecked Russia. You can take your choice as to who made the better job of it.
Twenty -five years ago, we heard a great deal about big business. There was really no big business twenty-five years ago. What we had was our first mergers of money. Money is not business. Big money cannot make big business.
It becomes plain, therefore, that to confuse business with the money power is to make one thing of two and to unite elements which naturally oppose each other. A business cannot serve both the public and the money power. As a matter of fact, the money power has always lived more by exploiting or wrecking business than by the service of business. There are signs, however, that this may be on the mend.
Money put into business as a lien on its assets is dead money. When industry operates wholly by the permission of "dead" money, its main purpose becomes the production of payments for the owners of that money. The service of the public has to be secondary. If quality of goods jeopardizes these payments, then service is cut down. This kind of money does not serve business. It seeks to make business serve it.
Money that takes no risks in an industry, but demands its toll whether there be profit or loss, is not live money. It is not whole-heartedly in the business as a part of it; it is a dead weight, and the sooner the business is rid of it, the better. Dead money is not a working partner but an idle charge.
Live money goes into the business to work and to share with the business. It is there to be used. It shares whatever losses there may be. It is asset to the last penny, and never a liability.
Live money in business is usually accompanied by the active labour of the man or men who put it there. Dead money is a sucker-plant.
The principle of the service of business to the people has gone far in the United States, and it will spread through and remake the world. It was not the war, but the seeming impossibility of restoring conditions as they were before the war, that gave men the first inkling of the lesson they are to learn. They would have accepted the war as an accident or as a mistake had they not been made to see that the war was but the symptom of a deeper malady. The old tricks have failed. The old wisdom has proved foolishness. The old motives are ineffective. If losing a false wisdom and finding a new beginning of learning is progress, they we may say that the world has progressed. Its old principles are disproved by experience. Progress is not marked by a definite boundary across which we step, but by an attitude and an atmosphere. Everything false does not vanish at a given moment, and everything true appears.
Some men know and many others feel that business is something more than money-that money is a commodity and not a power.
Any business is as good as finished when it begins to finance. It is sometimes necessary (although always dangerous) to get money for extensions except out of profits, and there may be emergencies when additional cash is required, but this is very different from financing for the sake of financing-using the business to make money through finance instead of through service.
The danger point of any business is not when it needs money, but when it becomes successful enough to be financed-to be foundation for a great pile of stocks and bonds. The public is gullible and may easily be taken advantage of. For instance, a certain amount of the stock of Ford Motor Company of Canada is on the market. It could be bought for $485 a share. Some exploiters bought up a few shares, and against each share issued one hundred of what they called "bankers' shares" at $10 each. That is, they sold for $1,000 what they had bought for $485, and the strange part is that the public fell into the trap and freely paid two dollars for something which they could have bought themselves for a dollar! That shows how easy it is to turn a successful business into a financial tool.
Thus, it is just when an industry becomes most widely useful that its strongest testing comes. The money power will point the way of large stock issues, of profits made out of paper instead of production, of easy gains by mixing water with true worth. This is a temptation to which many concerns succumb under the delusion that it is business. It is not business at all, but only a method of slow suicide. Think if you can, of a single great industry operating today that was deliberately created and fostered by the money power. Every big business began lowly, grew because it filled a want, and if it attracted the attention of the money power at all, it was only after growth had been attained. A business which can bring itself to the point where it attracts the attention of money should be able to continue on its own feet without being financed.
Another rock on which business breaks is debt. Debt is nowadays an industry. Luring people into debt is an industry. The advantages of debt have become almost a philosophy. Possibly it is true that many people, if not most, would bestir themselves very little were it not for the pressure of debt obligations. If so, they are not free men and will not work from free motives. The debt motive is, basically, a slave motive.
When business goes into debt it owes a divided allegiance. The scavengers of finance, when they wish to put a business out of running or secure it for themselves, always begin with the debt method. Once on that road, the business has two masters to serve, the public and the speculative financier. It will scrimp the one to serve the other, and the public will be hurt, for debt leaves no choice of allegiance.
Business had freed itself from domineering finance by keeping within itself its earnings. Business that exists to feed profits to people who are not engaged, and never will be engaged in it, stands on a false basis. This is being so well understood that it has become a part of the creed of commerce that the service of business is wholly to the public and that the profits of business are due, first, to the business itself as a serviceable instrument of humanity, and then to the people whose labour and contributions of energy make the business a going concern.
But neither business nor finance has power to compel to the public to buy here or buy there. The record of financiers in business affairs is full of disaster. If finance had the far-flung power that alarmist's say it has, America, like Europe, would be filled with ragged peasants.
But here the service of business always has controlled and always will control....
The true course of business is to follow the fortunes and pursue the service of those who had faith in it from the beginning-the public. If there is any saving in manufacturing cost, let it go to the public. If there is any increase in profits, let it be shared with the public in lowered prices. If there is any improvement in the commodity, let it be made without question, for whatever the capital cost, it was first the public that supplied the capital. That is the true course for good business to steer, and it is good business, for there is no better partnership a business can enter than a partnership of service with the people. It is far safer, far more durable and more profitable than partnership with a money power.
The best defence (sic) any people can have against their control by mere money is a business system that is strong and healthy through rendering wholesome service to the community.
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Afterthoughts
When we look back over the wreckage of the past couple of years, not only the wreckage of our own country but that of the world, caused by the inordinate amount of debt assumed to supplement our spending habits-- As we look at the creation of product by the money machines with one goal in mind, to lure people to buy a house that they could never afford, thus creating a new group of slaves indebted to the mortgages-- As we look at huge bonuses paid to bankers based only on the profits earned from financing for the sake of what they could get out of it in money, without a thought of the welfare of the people-- As we look at the multitude of individual investors who were gullible enough to freely pay two dollars for something worth a dollar because they believed in a rating system built on the principal of "you scratch my back and I'll scratch yours"-- As we look back at the individual investors who believed the investment schemes promoted by financier Alan Sanford and the broker Bernie Madoff had to be OK because they believed in the governments promises and supervision, while the same government promises and supervision were being paid for by the same financier's and brokers-- As we look back at the explosion of debt issued by our Government on a promise that it is for the benefit of all yet it turns each of us into the slave of foreign lenders, and could ultimately turn our children into slaves to their parents-- As we look back at all of these problems, we must also look forward and encourage our elected officials to take steps towards regulations guided by this simple idea put forth by Mr. Ford. "There is no better partnership a business can enter than a partnership of service with people. It is far safer, far more durable and more profitable than partnership with a money power."
Until next time,
Kendall J. Anderson, CFA
*This letter is not a recommendation to buy or sell shares of Ford Motor Company. On the date of this letter, Anderson Griggs & Company, Inc., Kendall Anderson, Justin Anderson or any employee of Anderson Griggs & Company, Inc. did not own shares of Ford Motor Company. This is subject to change without notice.
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