Posted on January 15, 2013 @ 07:58:00 AM by Paul Meagher
The more I read about Henry Ford the more impressed I am with him. He may rank as one of the all-time greatest business innovators and thinkers.
Henry Ford is best known for his innovations in mass-producing automobiles. The complexity of this undertaking required him to introduce a large array of technical, organizational and financial innovations.
Today I learned that the Model T had 4 buttons on the console. One set of buttons was to control whether the engine would run on gas or alcohol. Another set of related buttons would control spark plug calibration for igniting gas or alcohol. When Henry Ford launched the Model T, it was at a time when it was just as easy to supply a city with alcohol from surrounding farms as it was gasoline from longer distances away. Henry knew the marketplace and designed his vehicles accordingly. What is old could become new again if fuel prices continue to go up and our supply of oil dwindles. It would also require some loosening of laws around alcohol production. Conspiracy-minded people might note that it was during Rockefeller's presidency that prohibition was brought in and alcohol-based engines largely phased out. Rockefeller was an oil man. Anyway, the idea of supplying the motive power for engines from local biomass is an appealing idea in many ways and one that Henry Ford envisioned with the Model T.
Henry Ford also had some interesting ideas about the nature of investment that are worth considering:
I have never been able to understand on what theory the original investment of money can be charged against a business. Those men who call themselves financiers say that money is "worth" 6 percent, or 5 percent, or some other percent, and that if a business has one hundred thousand dollars invested in it, the man who made the investment is entitled to charge an interest payment on that money, because, if instead of putting that money into the business he had put it into a savings bank or into certain securities, he could have a certain fixed return. Therefore, they say that a proper charge against the operating expenses of a business is the interest on this money. This idea is at the root of many business failures and most service failures. Money is not worth a particular amount. As money is not worth anything, for it will do nothing of itself. The only use of money is to buy tools to work with or the product of tools. Therefore money is worth what it will help you to produce or buy and no more. If a man thinks that his money will earn 5 percent, or 6 percent, he ought to place it where he can get that return, but money placed in a business is not a charge on the business - or rather, should not be. It ceases to be money and becomes, or should become, an engine of production, and it is therefore worth what it produces - and not a fixed sum according to some scale that has no bearing upon the particular business in which the money has been placed. Any return should come after it has produced, not before.
The engines of production in our ecomony operate on many scales. Many internet businesses need "fast money" to capitalize upon emerging markets and investors in those businesses often expect quick returns on their investment (to the detriment of those businesses?). There is, however, an equally large array of businesses that require "slow money" because they can't quickly ramp up production. Farms, for example, do better if they get "slow money" to acquire the engines of production (literally) and the terms of re-payment are defined relative to when production happens, and not before. Many farm loan boards should arguably operate as slow-money lending facilities rather than fast-money lenders.
It is not yet time to consign Henry Ford to the dust pile of history. His ideas have a surprising longevity that make him worthy of study today.