Capitalism, can it work?

Ford also did it so the worker could buy his cars, and they did. He said so. It was all part of the same ball of wax.

If you see something in that link that says it is inherently impossible, point it out.

__________________
It reminds me of a toilet paper on the trees
- Paula

No, it wasn't. The fact that he said both things does not make them both the same idea, or even make them both true. The idea that cutting costs is a good business idea is a completely separate claim from the idea that there is some special benefit in giving workers enough to buy your product. Those are two distinct ideas. One makes sense, the other does not.

Two paragraphs after the first quote, where it specifically mentions Hazlett's book as being a "systematic dismantling of this silly notion."

HENRY FORD: Why I Favor Five Days' Work With Six Days' Pay

From Wikisource

J
HENRY FORD: Why I Favor Five Days' Work With Six Days' Pay
by Samuel CrowtherAn article appearing in the World's Work, written by Samuel Crowther who later helped write Ford's autobiography My Life and Work.
HENRY FORD: Why I Favor Five Days' Work With Six Days' Pay Samuel Crowther



The automobile manufacturer in this authorized interview tells Mr. Crowther why he reduced the working week in Ford plants all over the world to forty hours with no cut in payJ UST twelve years ago, Henry Ford made an announcement which, for the moment, turned industry upside down and brought workmen by the tens of thousands storming for jobs. His announcement was that thereafter the minimum wage in his industries would be five dollars for a day of eight hours. At that time a good wage was two dollars and a half for a day of ten hours. Now he makes another announcement far more important than the one which then went round the world.
"We have," he said, "decided upon and at once put into effect through all the branches of our industries the five day week. Hereafter there will be no more work with us on Saturdays and Sundays. These will be free days, but the men, according to merit, will receive the same pay equivalent as for a full six day week. A day will continue to be eight hours, with no overtime.
"For the present this will not apply to the railroad, and of course it cannot apply to watchmen or the men on certain jobs where the processes must be continuous. Some of these men will have to work Saturdays and Sundays, but they constitute less than one per cent. of our working force, and each of them will have two consecutive days off some time during the week. In short, we have changed our calendar and now count a week as five days or forty hours.
"The actual work week of the factories as distinguished from the work week of the men will also be cut to five days. For of course an eight hour man day is not the same as an eight hour factory day. In order to make the full use of our plants we shall as before work the men in shifts. We found long ago, however, that it does not pay to put men at work, excepting in continuous operations, from midnight until morning. As a part of low cost production -- and only low cost production can pay high wages -- one must have a big investment in machinery and power plants. Expensive tools cannot remain idle. They ought to work twenty-four hours a day, but here the human element comes in, for although many men like to work all night and have part of their day free, they do not work so well and hence it is not economical, or at least that is our experience, to go through the full twenty-four hours. But a modern factory has to work more than eight hours a day. It cannot be idle two thirds of the time, else it will be costly.
"This decision to put into effect the short work week is not sudden. We have been going toward it for three or four years. We have been feeling our way. We have during much of this time operated on a five day basis. But we have paid only for five days and not for six. And whenever a department was especially rushed it went back to six days -- to forty-eight hours. Now we know from our experience in changing from six to five days and back again that we can get at least as great production in five days as we can in six, and we shall probably get a greater, for the pressure will bring better methods. A full week's wage for a short week's work will pay."
"Does this mean," I asked, "that your present minimum wage of six dollars a day will become a fraction over seven dollars a day that is, the minimum for five days' work will still be thirty-six dollars, just as it was for six days?"
"We are now working out the wage schedules," answered Mr. Ford. " We have stopped thinking in terms of a minimum wage. That belongs to yesterday, before we quite knew what paying high wages meant. Now so few people get the minimum wage that we do not bother about it at all. We try to pay a man what he is worth and we are not inclined to keep a man who is not worth more than the minimum wage.
"The country is ready for the five day week. It is bound to come through all industry. In adopting it ourselves, we are putting it into effect in about fifty industries, for we are coal miners, iron miners, lumbermen, and so on. The short week is bound to come, because without it the country will not be able to absorb its production and stay prosperous.
"The harder we crowd business for time, the more efficient it becomes. The more well-paid leisure workmen get, the greater become their wants. These wants soon become needs. Well-managed business pays high wages and sells at low prices. Its workmen have the leisure to enjoy life and the wherewithal with which to finance that enjoyment.
"The industry of this country could not long exist if factories generally went back to the ten hour day, because the people would not have the time to consume the goods produced. For instance, a workman would have little use for an automobile if he had to be in the shops from dawn until dusk. And that would react in countless directions, for the automobile, by enabling people to get about quickly and easily, gives them a chance to find out what is going on in the world-which leads them to a larger life that requires more food, more and better goods, more books, more music -- more of everything. The benefits of travel are not confined to those who can take an expensive foreign trip. There is more to learn in this country than there is abroad.
"Just as the eight hour day opened our way to prosperity, so the five day week will open our way to a still greater prosperity.
"Of course, there is a humanitarian side to the shorter day and the shorter week, but dwelling on that side is likely to get one into trouble, for then leisure may be put before work instead of after work -- where it belongs. Twenty years ago, introducing the eight hour day generally would have made for poverty and not for wealth. Five years ago, introducing the five day week would have had the same result. The hours of labor are regulated by the organization of work and by nothing else. It is the rise of the great corporation with its ability to use power, to use accurately designed machinery, and generally to lessen the wastes in time, material, and human energy that made it possible to bring in the eight hour day. Then, also, there is the saving through accurate workmanship. Unless parts are a made accurately, the benefits of quantity production will be lost-for the parts will not fit together and the economy of making will be lost in the assembling. Further progress along the same lines has made it possible to bring in the five day week. The progression has been a natural one.
"The eight hour day law to-day only confirms what industry had already discovered, If it were otherwise, then the law would make for poverty instead of for wealth. A man cannot be paid a wage in excess of his production. In the old days, before we had management and power, a man had to work through a long day in order to get a bare living. Now the long day would retard both production and consumption. At the present time the fixing by law of a an five day week would be unwise, because industry is not ready for it, but a great part of industry is ready, and within a comparatively short time I believe the practice will be so general in industry that it be made universal,
"It is high time to rid ourselves of the notion that leisure for workmen is either 'lost time' or a class privilege.
"Nature fixed the first limits of labor, need the next, man's inhumanity to man had something to do with it for a long time, but now we may say that economic law will finish the job.
"Old-fashioned employers used to object to the number of holidays in this country. They said that people only abused leisure and would be better off without so much of it.
"Only lately a French professor accounted for the increased consumption of alcohol by pointing to the eight hour day, which he denounced as a device which gives workingmen more time to drink.
"It will be generally granted that if men are to drink their families into poverty and themselves into degeneracy, the less spare time they have to devote to it the better. But this does not hold for the United States. We are ready for leisure. The prohibition law, through the greater part of the country, has made it possible for men and their families really to enjoy leisure. A day off is no longer a day drunk. And also a day off is not something so rare that it has to be celebrated.
"This is not to say that leisure may not be dangerous. Everything that is good is also dangerous -- when mishandled. When we put our five dollar minimum wage for an eight hour day into effect some years ago, we had to watch many of our men to see what use they made of their spare time and money. We found a few men taking on extra jobs -- some worked the day shift with us and the night shift in another factory. Some of the men drank their extra pay. Others banked the surplus money and went on-living just as they had lived before. But in a few years all adjusted themselves and we withdrew most of our supervision as unnecessary.
"It is not necessary to bring in sentiment at all in this whole question of leisure for workers. Sentiment has no place in industry. In the olden days those who thought that leisure was harmful usually had an interest in the products of industry. The mill-owner seldom saw the benefit of leisure time for his employees, unless he could work up his emotions. Now we can look at leisure as a cold business fact.
"It is not easy so to look at leisure, for age-old custom viewed leisure as 'lost time' -time taken out of production. It was a suspension of the proper business of the world. The thought about leisure usually went no further than that here were hard-driven working people who should have a little surcease from their labors. The motive was purely humane. There was nothing practical about it. The leisure was a loss -- which a good employer might take from his profits.
"That the Devil finds work for idle hands to do is probably true. But there is a profound difference between leisure and idleness. We must not confound leisure with shiftlessness. Our people are perfectly capable of using to good advantage the time that they have off -- after work. That has already been demonstrated to us by our experiments during the last several years. We find that the men come back after a two day holiday so fresh and keen that they are able to put their minds as well as their hands into their work.
"Perhaps they do not use their spare time to the best advantage. That is not for us to say, provided their work is better than it was when they did not have spare time. We are not of those who claim to be able to tell people how to use their time out of the shops. We have faith that the average man will find his own best way -- even though that way may not exactly fit with the programs of the social reformers. We do know that many of the men have been building houses for themselves, and to meet their demand for good and cheap lumber we have established a lumber yard where they can buy wood from our own forests. The men help each other out in this building and thus are meeting for themselves one of the problems in the high cost of living.
"We think that, given the chance, people will become more and more expert in the effective use of leisure. And we are giving the chance.
"But it is the influence of leisure on consumption which makes the short day and, the short week so necessary. The people who consume the bulk of goods are the people who make them. That is a fact we must never forget -- that is the secret of our prosperity.
"The economic value of leisure has not found its way into the thought of industrial leaders to any great extent. While the old idea of 'lost time' has departed, and it is no longer believed that the reduction of the labor day from twelve hours to eight hours has decreased production, still the positive industrial value -- the dollars and cents value -- of leisure, is not understood.
"The hours of the labor day were increased in Germany under the delusion that thus the production might be increased. It is quite possibly being decreased. With the decrease of the length of the working day in the United States an increase of production has come, because better methods of disposing of men's time have been accompanied by better methods of disposing of their energy. And thus one good thing has brought on another.
"These angles are quite familiar. There is another angle, however, which we must largely reckon with -- the positive industrial value of leisure, because it increases consumption.
"Where people work longest and with least leisure, they buy the fewest goods. No towns were so poor as those of England where the people, from children up, worked fifteen and sixteen hours a day. They were poor because these overworked people soon wore out -- they became less and less valuable as workers. Therefore, they earned less and less and could buy less and less.
"Business is the exchange of goods. Goods are bought only as they meet needs. Needs are filled only as they are felt. They make themselves felt largely in leisure hours. The man who worked fifteen and sixteen hours a day desired only a comer to be in and a hunk of food. He had no time to cultivate new needs. No industry could ever be built up by filling his needs, because he had none but the most primitive.
"Think how restricted business is in those lands where both men and women still work all day long! They have no time to let the needs of their lives be felt. They have no leisure to buy. They do not expand.
"When, in American industry, women were released from the necessity of factory work and became the buyers for the family, business began to expand. The American wife, as household purchasing agent, has both leisure and money, and the first has been just as important as the second in the development of American business.
"The five day week simply carries this thought farther.
"The people with a five day week will consume more goods than the people with a six day week. People who have more leisure must have more clothes. They must have a greater variety of food. They must have more transportation facilities. They naturally must have more service of various kinds.
"This increased consumption will require greater production than we now have. Instead of business being slowed up because the people are 'off work,' it will be speeded up, because the people consume more in their leisure than in their working time. This will lead to more work. And this to more profits. And this to more wages. The result of more leisure will be the exact opposite of what most people might suppose it to be.
"Management must keep pace with this new demand -- and it will. It is the intersection of power and machinery in the hands of management which has made the shorter day and the shorter week possible. That is a fact which it is well not to forget.
"Naturally, services cannot go on the five day basis. Some must be continuous and others are not yet so organized that they can arrange for five days a week. But if the task is set of getting more done in five days than we now do in six, then management will find the way.
"The five day week is not the ultimate, and neither is the eight hour day. It is enough to manage what we are equipped to manage and to let the future take care of itself. It will anyway. That is its habit. But probably the next move will be in the direction of shortening the day rather than the week."

Originally Posted by will.15
If you see something in that link that says it is inherently impossible, point it out.

Two paragraphs after the first quote, where it specifically mentions Hazlett's book as being a "systematic dismantling of this silly notion."

That isn't what I asked you. I asked what he actually said that dismantles "this silly notion" that Henry Ford believed. And right off the bat looking at his opening comments he sounds like an ideologue with an axe to grind, saying the concept has been perverted by the Marxists. Well, Henry Ford sure as hell wasn't a Marxist, and instead of arguing how the concept has been perverted, why doesn't he actually discuss what Ford did?

When I start hearing the word Marxist being tossed about describing non Marxists (auto union leaders) I can't take an author that seriously.

You know what, even though I have considered my philosophical viewpoints more in line with Socialist doctrine, especially when it comes to healthcare for citizens and workers having a voice, at my age I'm just tired of the rhetoric on both sides. Don't get me wrong, I'm not promoting apathy in one's society, but for practically every argument or upheld belief on one side, there's a refutation on the other. The way I see it, in both systems there is unfairness and concentration of power (in the case of Capitalism wealth) is always a possibility.

__________________


...uh the post is up there...

What, you want me to summarize it for you? He shows that the idea is just another version of the purchasing power argument, and then dismantles the purchasing power argument by looking at the unconsidered secondary effects of reduced purchasing power elsewhere. He shows that these changes inevitably effect marginal producers. He shows that the mere idea of "buying back the product" is based on the erroneous assumption that labor costs make up the majority of the cost of the product. And on and on.

It is a thorough, comprehensive argument. It cannot be reduced to a sentence or two. If it is, you'll naturally question part of it, at which time I'd point you to another part of it, and so on until you just end up reading the thing anyway. It isn't long, and it was specifically written for the layman. That's why I linked to it.

He wrote an entire book designed to expose economic fallacies. That's the axe he's grinding. He didn't discuss Henry Ford because he was exposing the fallacies in general, not any specific instance of their use. That wouldn't be nearly as useful or applicable as tearing them out by the root.

Tell me why the ideas are wrong, not how you'd blithely categorize the speaker after taking in a grand total of six sentences.

Well, first off, he's not describing auto union leaders, he's describing anyone who invokes purchasing power arguments of this type. And he's not calling them Marxists, he's saying that both they and Marxists distort economics in the same way (he specifically calls them "unconscious disciples," emphasis on the first word). And he wrote it first in the 1940s, and revised it in the 1970s, when Marxism wasn't the ideological joke it has since become, but an ideology that still needed to be publicly rebuked.

Any more cheap excuses about why you apparently don't have to know what it says in order to say it's wrong? Because so far you're long on excuses and short on arguments.

I looked him up and, surprise, surprise he is described as a libertarain who Ron Paul and Ayn Rand praised.

I am not a fan of libertarianism or Marxism.

But I will try to figure out what the hell his point is.

Well, I looked at it and my impression is the same as the first time I looked. He is generalizing to make an ideological point, not addressing the actual impact of what Ford did. He is talking about if higher wages were implemented across the board, that is what the purchasing power argument is. That is not the same thing, despite his claims, as raising wages so workers can buy the products they make. He is not going to discuss what Ford did because none of the bad things he described happened. He is trying to refute something that was described in a different context by Keynesians. More modern discussions apply it to a critique of the living wage. Like I said before, I wasn't talking about the living wage. The larger context is Ford figured out a way to make his product cheaper for consumers by not reducing wages, which is what Andrew Carnegie had done, and was the usual method. He thought in terms that his own workers were potential customers. He wanted to reduce his manufacturing costs, decrease hours and the workday, and increase wages, so they can afford to buy his cars and have the leisure time to use his cars. Did he just do it without making efforts to make it economically viable? Of course not. But he did it. He thought outside the box and thought of his workers as something other than something to exploit. Other manufacturers of the time would ruthlessly employ draconian wage cuts during economic downturns. They were anti Fords. But after Ford that thought process faded along with government imposed laws that eliminated the worst exceesses from unrestrained capitalism.

"Looked at it"? Does that mean you read it, or just skimmed a bit more?

The actual impact of what Ford did is that he cut costs by reducing turnover. The fact that many of his employees could buy his cars is nice, but incidental; it is not something which justifies his decision in and of itself. Even a rough application of a reductio ad absurdum should show this to be the case.

There is no magic line between the specific and the general here; Hazlett's description of process is directly applicable Ford's actions. Though even if you persist in denying this, there is absolutely no reason why your denial should be so repetitively empty. It is potentially reasonable to say that a general argument may not apply to a specific example for some special reason, but you haven't provided that reason. You haven't explained why Ford's decision was exempt from these principles. I say this is because it clearly isn't. Not even close. But if you want to say otherwise, you have to explain why. And I daresay that will involve both reading and understanding the argument first.

No, that is not what he's saying, and no, that is not the purchasing power argument. In fact, he's nearly saying the opposite: that it is precisely because these wages are not higher across the board that they do not produce an increase in purchasing power. It increases purchasing power in one area by lowering it in another.

Determined how? The whole point of the argument--and, indeed, of Hazlett's entire book--is that bad economics stems from exactly what you're doing right now: failing to consider counterfactuals. That is the essential mistake of all "purchasing power" arguments.

For example, earlier in the book he mentions the "broken window theory," wherein it is suggested (somehow with a straight face) that a broken window brings about economic growth because it creates business for the glazier. But what this fails to note is that the money spent fixing the window is not extra money, it is money that would have otherwise been spent on something else, and thus no new demand is actually created. This is the same argument as "Buy Back the Product." Paying your workers more in wages does not create new demand, it merely shifts demand from one group to another. Try running through the alternatives and it becomes obvious. If the wage hike is done instead of lowering the product's price, you lose the difference in sales. If it's done instead of saving the profits, there is less incentive to expand and correspondingly increase employment (this is a flaw common to almost all union arguments, by the way; they favor existing workers at the expense of prospective additions to their workforce). And so on.

There is no version of this idea that escapes this fallacy. The arguments of this kind are all describing the shifting of resources as if they were a creation of resources.

There is also, Hazlett points out, nothing magical about the line of salary that allows you to buy the product you're working on. That's an arbitrary baseline. It treats labor costs as the majority of product costs (when they usually aren't). It makes for good rhetoric, because it's catchy and symmetrical, but there's literally no reason why working on a product should translates into making enough to buy it. There are too many other variables. You may work on an assembly line wherein 10 people make a car each day, or wherein 20 people make a yacht each month. Whether or not your labor will buy back the product depends on how quickly they are made, what you're making, how efficiently you make it, and what other costs exist in terms of material, etc. There is literally nothing supporting the idea that any particular job simply ought to make you enough to buy the product, or that any economic benefit is achieved by making this so. Or do you think people who build million-dollar jets must also make million-dollary salaries, and people who make cheap cheeseburgers should only make a few dollars an hour?

Think of all the glossed-over assumptions in the claim, too! Enough to afford it under what size family, or level of spending? Enough to afford it given how many hours of work? There are so many presuppositions inherent in the idea, and so many absurd examples where it clearly does not apply, that the idea can only seem reasonable if you studiously avoid examining it at all.

Great. But the living wage is an extremely similar argument: it posits an "ought" value on labor divorced from the actual value it products, and makes its argument based on the erroneous suggest that it creates more purchasing power.

He did, and it worked because it was economically viable. It cut costs and increased the average quality of his workers. That's why it was smart and effective; not because of the imaginary, arbitrary concept that having enough to buy back the product represents some special economic sweet spot that produces more revenue or makes the business more sustainable.

Ford's decision cut costs. I do not know or care what his motivation was. We can guess at that, and your interpretation on that front may be as good as mine. I'm only interested in the actual economic effects of the decisions, and the processes by which they produce one result or another. Your continued return to talking about his motivations is either a stubborn refusal to address the argument being presented to you, or else a repeated misunderstanding about what the argument is.

I mentioned buy back the product strictly in the context of Ford. i didn't try to apply it to a sweeping general principle encompassing the living wage.

And Ford lowered the price of the car and raised wages. So, again, you are not talking ABOUT WHAT HE ACCOMPLISHED. I already said he figured out how to make raising wages viable. He didn't just want to make it possible for his workers to buy cars, he wanted to lower the cost so more Americans can buy his cars. It wasn't either/or. He had to make his cars cheaper so his workers could afford the cars even with the increased wages. Can you do that today? Probably not. But this entire discussion was about government intervention that started during the progressive era. It wasn't about some libertarian economist thirty years later with a mad-on for Marxist union leaders.

And I think that broken window example is a load of crap. Maybe the money to fix the window came out of savings in the bank so it would not have been spent directly on something else. Economists and their explanations can be completely silly. Even if it was spent somewhere else, two hundred dollars to, say, fix the window, would not have the same economic impact if it was spent on thirty different things. Or if it was blown playing slot machines.

WHAT HE ACCOMPLISHED is realizing that he could raise wages and it would benefit him anyway. It was brilliant and we both think it's great. But it wasn't based on those wages being enough to "Buy Back the Product." That principle has no relation to the accomplishment. That's what I've been saying this entire time, though you keep equating it with the general wisdom of the decision, as if they were the same thing. They are not. THAT something was good and WHY it was good are separate questions.

Which makes it kind of odd that we're talking about something that made business sense completely on its own, without any government intervention required. We can go back to talking about the nature of competition if you like; there are plenty of questions about that I'd still like to pose to you. But you suggested we drop the subject, as I recall.

Someone railing against Marxists today might have a "mad-on," but as I said, this was written in a different time. Anyway, the book is about economic fallacies that have recurred through time. It is specifically written to get at the core erroneous assumptions of fallacies that rear their head in slightly different forms, but are based on the same fallacy. And it does a very good job of it. To complain that it isn't about any one specific example is to misunderstand what it's actually doing. It's not supposed to be about a specific example, nor does it have to be. And insofar as you think some specific example is not subject to its (very clear) reasoning, there is no reason why you should not be able to explain why. The fact that you seem intent on dismissing it in such vague ways makes me think there is no such exception, or at least none that you can detect.

Of course it would have; banks loan out their money, and what comes out of the bank at one point cannot come out of the bank to be spent on something else at another. So either you're shifting purchasing power between parties, or shifting it between time.

Literally the ONLY way to begin to get around Hazlett's arguments about total purchasing power is to posit people who take their profits and remove them from circulation, IE: stuff them in a mattress. And even that doesn't work in the end for the same reason detailed above: because they would reenter circulation when the hoarders died. So in order for this to make any sense, you have to posit rich hoarders who bequeath their wealth to more hoarders, on and on, forever.

I can point you to a section of the book that goes through these causes and effects systematically, too, by the way. It's a bulletproof argument, and it's kind of amazing that you're willing to speak with such faux confidence about something you clearly haven't thought very much about.

Why?

So what's the guy who owns the casino spend it on? Think beyond first causes.

The money blown at the casino is not going to have the same economic impact as two hundred spent fixing a window.

The question doesn't even make sense. Of course he took the ACTIONS he said he did, but that doesn't mean its success came from the reasons stated. It worked because it cut costs and gave him a labor advantage, not because of some magic line of demarcation that goes into effect when you can "buy back the product." That's completely arbitrary and, as I pointed out with many (unanswered) questions, not even a consistently defined standard, anyway.

A dozen posts into this discussion, apparently I have to remind you what the argument is: the argument is that the "Enough to Buy Back the Product" principle doesn't make sense. That's it. You're failing to make a distinction between the validity of the action and the validity of one of the reasons given for it. I'm positive I've said this before.

And he whooped them for it. Thus, bad business practices were punished and good ones rewarded. How about that?

Okay, this literally proves that you're not following the argument. In Ford's case, there was no policy to criticize. The policy was fine. The rhetoric, the stated reason (and only one of them, it should be noted) was not. Hazlett's argument condemns the "Buy Back the Product" justification, not the action. I'm not sure why this is so hard to understand.

Your distinction between the specific and the general here is completely made-up. Hazlett's argument is that the concept is inherently flawed, in all cases; it encompasses Ford's situation and lots of others, too. The specific context doesn't change the argument at all. And if you want to keep insisting that it does, you have to explain why. You can't.

By saying this you've already conceded the point, which is that no new purchasing power is created. No new employment is inherently added. That was the argument. QED.

If you are stating that some forms of spending create more growth than others, that is quite true. But the onus is then on the person making the "purchasing power" argument to demonstrate that it is being put to some superior use. It's not enough to simply talk of some vague "demand" or "purchasing power." Purchasing power is not created by the broken window, nor by raising wages. In both cases, it is merely shifted.

And it will have a positive impact on the economy later, instead. So no purchasing power can be said to have been created. Again, QED.

Except the money almost never sits in a mattress, and when it does that simply means it is spent at another time. It is both extremely rare and only a temporary phenomena even when it does happen. Suppose it sits in a mattress now, but comes out later and benefits some other business then. How do you know which is more beneficial? You have no way of determining that.

Also, does the above mean that the broken window argument is only occasionally refuted by the incredible situation where a business is about to go under and is miraculously saved by a single order?

If it's a load of nonsense, then it doesn't say much about your understanding of economics that you can't refute it.

I'm not sure what you think is accomplished by this sort of bluster, but to me it just looks like rhetorical overcompensation. Especially when it's about some concept you literally just learned about and don't appear to have thoroughly considered.

This paragraph is a straight-up mess. Nothing is an "existing" theory until someone creates it. Nor was it created to "debunk itself" (what does that even mean, and what on earth are you basing it on?). It was raised, as far as I can tell, in response to arguments in the midst of World War II that it was good for the economy that factories were being destroyed, because it would cause us to build new ones. Not only was such silliness seriously claimed at the time, but variations of it persist to this day.

Hazlett, it turns out, really did quite a good job in identifying the fallacies most likely to recur. Which you'd know if you weren't avoiding the book as if it were going to give you brain cancer.

Again, you reply to the question by just repeating your statement. Why won't it? Hell, what if the casino manager spends it fixing a window, too? Statements like this make it pretty plain that you're not tracing the implications of your claims out at all.

Well, I guess I am thinking a guy fixing windows has a more positive impact on society than a guy who preys on people with gambling addiction

This makes zero sense. You keep talking as if either I or Hazlett have made some sort of prediction that Ford's actions contradict. I don't know where you think you saw this, but show it to me. But make sure you read the next quote, because you're still all muddled about the claims being made.

Nope. The reduction is relative to what it would otherwise be, as I already explained. This should be pretty obvious, too. If you're able to raise wages $3/hour, you can raise them $3/hour or raise them $2/hour and put the remaining $1/hour into benefits. In the latter case, both benefits AND salary go up, but the salary rises less than it would have because of the rise in benefits.

Of course you can raise wages AND benefits, or wages AND standards. You can do that by applying some of the profits to each thing. You just can't apply the profits to one thing without taking them from something else. Either some other form of employee compensation, or the ability to expand, or the price of the product, or some mix.

Basically, what I'm saying is the equivalent of "hey, if you put that book in the box, you'll have less room for those records." And you're saying "nah-uh, look, I can put the book in and still put some records in! Therefore the book takes up no space!"

I'm not even trying to be funny. This silly analogy is literally what's happening in this part of the discussion.

His actions made sense, sure. Some of his reasons didn't.

I didn't; Hazlett did. And I've shown you the proof, and you refuse to even read it, let alone explain why it's wrong. So yeah, will: if you refuse to read the proof, then it's just like it hasn't been proven. Amazing.

Then I'm doing a really bad job of it, seeing as how I keep agreeing that it did.

I'm amazed that you could write this sentence, given how often I've had to correct you on this point. Here it is again: OF COURSE HIS DECISION WORKED. THE ARGUMENT IS ABOUT WHY IT WORKED. Do I need to say it in another language? Because I've said this like three times, and you keep acting as if this is about whether or not his decision was a good one.

No, it doesn't. This is probably the fifth time you've said Hazlett's argument says something that it doesn't say. It does not say, at any point, that rising wages must inevitably be reflected in the price of the car. Not remotely. Where do you get off making claims about it when you haven't read it, anyway?

What're you talking about? Hazlett didn't invent the "Enough to Buy Back the Product" fallacy. You've just spent a dozen posts pointing out that Henry Ford invoked it decades before Hazlett's book was even written, for goodness' sake.

Unless he thought he had to raise them to that amount to retain employees as effectively as possible. Or he was simply wrong: he was right to raise wages in general, but raised them higher than is necessary based on an economic fallacy. There's nothing particularly amazing about this possibility, especially in light of the fact that the "buy back the product" principle is absolute nonsense.

Related to the above, let me ask you something: you keep harping on the fact that Ford listed this as one of his reasons. Are you under the impression that, if he lists several reasons for doing something, it MUST be true that they're valid? Because as ridiculous as that claim is, it's the only reason I can think of that you would keep talking about this. Is your entire argument based on the idea that Ford simply MUST be right about every reason he listed?

Not if they cut costs.

Yeah, you just keep repeating this, and I keep pointing out to you that it doesn't have to. He shows that the idea is fundamentally wrong. It makes no sense.

So let me get this straight: you refuse to read it, and you can't show me any specific flaw in its reasoning, but you somehow judge it to have "totally failed"?

Hold it right there. If the money maintained the existing workforce, than that means the workforce would have to be reduced without the money, no?

As far as I can tell, you're trying--though you haven't said it properly, I don't think--to posit some kind of "break point," some amount at which a job is saved whereas, in some other case, a little extra profit is made instead. But this is flawed reasoning (and guess what? Hazlett explains why, not that there's any chance you'd read it).

Not equal how? It's certainly equal in total economic output, at least so far as we can tell in a vague hypothetical. What if the five jobs are at McDonald's, and the one is a lifelong manufacturing job with benefits?



If you say it's at best a wash, then the argument has already been conceded: there is no benefit, and arguments made that insinuate a benefit are invalid. Again, QED.

There is, however, a second tier on top of that, which is that a wash is the best outcome you can hope for, because of the more familiar argument that private decisions are more efficient. If Mike is made richer and Bob poorer, and this happens because Mike is in a voting bloc that politicians are favoring with mandates and special treatment, then it's usually pretty safe to assume that Mike is not more deserving of the wealth or more likely to use it efficiently, but simply has people in power on his side. If he were actually more efficient, it would not be necessary to intervene on his behalf.


God, this is so ignorant. The first "so what" is that, again, you've conceded the argument: no purchasing power is created. The arguments based on creating purchasing power are therefore refuted. Game over.

The second "so what" is that there is literally no reason to believe this economic activity is more valuable now than later. Seriously, none. See below for more.


Again, why is the future inherently less valuable? Why is it better to activity now than then? You literally have no way of defending this idea.

And again, I would remind you that even if you could somehow demonstrate this, this only applies to the literally hoarded money, which is virtually non-existent. Most money is merely saved and therefore lent out again. So even this arbitrary prioritizing of the present barely applies in any real-world scenarios.

Yeah, again, in almost no cases is it actually hoarded and only beneficial later, let alone a "couple decades later" (which is some time period you appear to have just made up). Moreover, the fact that people may not sufficiently care about the future is not an argument, it's just an unfortunate fact. It's also kind of confused, because in the "real world" people only care if their decisions to purchase now or purchase later make sense for them, not what kind of economic output they render for the economy as a whole. So the "in the real world" perspective does you no favors here.

At this point the argument for purchasing power has completely collapsed. It's based first on the assumption that money is hoarded (almost always false), and THEN based on the assumption that you can sufficiently know the future to conclude that money is better spent on economic activity now rather than then.

That's not an "order," but nevermind, because you didn't answer my question: are you saying that the broken window argument is only refuted by the ludicrously rare situation in which a single order is the difference between staying in business and going under? Yes or no?


What's simplistic? The fallacy or the refutation? Please speak more precisely.

If you're saying the refutation is simplistic, I'd say it's merely simple, and that this is precisely its strength. It certainly isn't an invented fallacy: people actually did argue that bombing factories can be good, because we have to rebuild them. People TODAY argue that natural disasters can lead to economic growth. Hazlett didn't invent it. And many less obviously ridiculous arguments persist that rest on the same underlying assumptions about demand and purchasing power. That's why Hazlett addresses it. He shows a very clearly silly example, and then shows how a much more ostensibly respected idea shares the same presuppositions.


What's silly is that anyone ever believed it. And it's sillier still that people think it's silly, but then go off and make an argument about purchasing power, which is almost identical.

I have no idea what you're saying here. What was a mess? The fallacy, or the refutation of it? You need to stop saying "it" so much, because it's not always clear what you're referring to.

I think that, too. I'm simply pointing out what follows through the principles you've laid out. According to you, it can be a good thing because that guy's business might (by some one in a million chance) be saved by that one order. If this is true (and actually, you know, happens more than one every several years), why would it not follow that even gambling would be a good thing if it led to the same outcome?

Allow me to potentially streamline the discussion a bit, because there's a crazy amount of really bizarre confusion present right now:

1) The idea that Ford's idea "worked" does not contradict anything. The question is why it worked. It worked because it cut costs, reduced turnover, etc. It did not work because some special economic benefit is derived from the arbitrary baseline of "buying back the product." That's the idea Hazlett is refuting. If you invoke the success of Ford's actions as some kind of refutation, it means that you simply do not understand what's being argued.

2) All costs come from somewhere. Salary instead of benefits. Benefits instead of salary. Safety instead of benefits. Even when you go to the employer side, it takes from something else: fewer profits, which means less expansion, less incentive for investment, etc. Most people misunderstand profits and think it simply means less money for some rich person who doesn't need it, but this, too, is a fallacy. In fact--whaddya' know--Hazlett wrote about this, too: The Function of Profits.

3) The "buy back the product" idea is a claim about economic theory that exists independent of any specific invocation of it. Therefore, it can be refuted the same way.

4) Related to #3: if you can't explain the flaw in an argument, then the argument stands. If you want to contend that Ford's example refutes the argument, or is exempt from it, you need to specifically explain how. If you can't, then again, the argument stands. It's that simple.

There's more, but these are the key points, put as succinctly as possible.

What's simplistic? The fallacy or the refutation? Please speak more precisely.

There is no refutation to the broken window. The original 1850 fallacy is the same argument with the same conclusion, but in its original form presented in an even more rigged way, with variables like the business fixing the windows is hiring someone to break them. Well, obviously that is not a good thing, and it makes the fallacy as presented nonsensical. Why not use a more credible example and refute that? It is like arguing instead with a burning house or a disaster. Why not instead the leaky faucet fallacy? Those are good for plumbers. But if you have to hire the plumber which keeps him in business, it may mean you have to wait a little longer to put a down payment on that car. So frigging what? Hey, I have a fallacy for you. A slum landlord refuses to fix his buildings. So Superman tears them down and the government builds new housing. So everybody is happy except where the hell do the people live in the meantime? That was actually an early Superman story in the thirties. They left out the part where the people must have been homeless before the new housing got built.

I looked at it again and the reason it is so stupid is it is a contorted analogy. The boy hired to break the window represents government. It is really to criticize government spending, like stimulus spending. That is the problem I have with this nonsense. Just say what you want plainly. if you want to criticize government spending to stimulate the economy, talk about that, not broken windows and little boys hired to break them. I don't know any business that operates that way except maybe the Mafia. But it does remind me of my father's theory a manager at work would deliberately create crisis that hurt the company's profits so he could solve the problem and get credit. I never could figure out if he was right or if he just didn't like the guy and saw a sinister motivation where none existed. It was a helluva theory though and he took forever to explain it to me before he made clear what his point was. I like it better than little boys hired to break windows.

And this criticism of the broken windows parable is spot on:

It has been argued that the 'parable', while intuitive, does not correspond to actual evidence.

That seems to be Hazlett all over. He doesn't present facts or statistics or case histories. He makes logic arguments, but skews the argument by rigging the presentation.

The entire argument is so frigging what? Because it is rigged.

Another way of looking at it, the business repairing windows is helped by there being a market for what he does. It is good for him. If everybody had unbreakable windows he would be out of business. If we don't know where the money would have been spent elsewhere, we can't judge if going to fix a window was a better or worse consequence for the economy. Maybe the money would have gone to buy a lamp from China ordered diredtly there and shipped through the mail, and so wouldn't have benefitted his country's economy in the least, except the post office. Or progress really isn't the good thing we all think it is. How about the horseless carriage fallacy? The automobile transformed America. But it put blacksmiths out of business and decreased the sale of horses and dropped the demand for hay. Money spent buying a car could have been spent on a nice vacation in Florida where the family usually went and thus hurt the resort business there. So what? Everything has consequences, but the consequences have to be evaluated. What creates the greater good? We all know for every action there is a reaction. We need a fallacy to explain that? The BW concept assumes a decision to spend money one way has an equal negative consequence for the way the money otherwise would have been spent. And that is nonsense. It is not simply an equal shifitng of resources. Money spent one way could have either a more negative or beneficial impact on the economy if it was spent differently. That is the problem with these sweeping generalizations. It is a facile argument.

Let me make this real clear because you don't seem to be getting it. When I say the "parable of the broken window" is silly, I am not talking about something Hazlett is refuting. The original essay is saying the same thing Hazlett is. He is just presenting the argument a little more tightly without all the stupidity in the original. He cleaned it up a little because it is so dumb. The original argument is making the same exact point Hazlett is making, but it throws in everything but the kitchen sink to do it. It creates a lopsided doomsday scenario to make its point. Hazlett is not refuting the broken window argument introduced in 1850. He is trying to argue it better, but the original author was making the same point.

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I am going to repeat this so there is no confusion, Buy back the product didn't start with the Keynesians. It started with Ford. They borrowed it from him. Refuting their analysis and or explanation for it isn't refuting Ford. And that is what Hazlett does, arguing about their conclusions of it. But the key part of Hazlett's argument is the same as the nutty broken window, it results in shifting of resources. Ford by doubling wages twice as much as the going rate for that type of work is creating the same problem Hazlett is criticizing buy back the product for. The problem for Hazlett isn't simply the motive, it is also what he does. Paying twice as much in wages as everyone else also shifts resources and has an economic impact.

For every action there is a reaction, but not necessarily an adverse reaction. it could be neutral, more positive, or negative. But broken window assumes if Mike gets richer, Pete gets pooer by the same amount. By this logic, there is no motive to have government do anything related to the economy and that would include free trade agreements.

The author of this link gets one thing wrong, when he says the broken window argument isn't a critiicism of goverment spending in itself. That is exactly what it was even in its original form, But otherwise he shows how the entire reasoning is simplistic.

http://www.economistsdoitwithmodels....ndows-edition/