Ed Wallace

Populism as an Economic Theory

By Ed Wallace

“Automobilists are a picture of arrogance and wealth, with all its independence and carelessness. Nothing has spread socialist feeling in this country more than the automobile.” — Woodrow Wilson, 1906

All of the national, and often international, discussions lately seem focused on the new era of populism, or conversely, how socialism is the most certain road to the destruction of our economic society. Of course, nothing more humorously illustrates our national cognitive dissonance than people over 65 screaming that democratic socialism has overtaken the nation to its detriment, while at the same time enjoying the benefits of Social Security and Medicare. They’re now two of America’s most beloved government programs, but generations ago they too were decried as socialistic.

Populism, on the other hand — originally the belief in regular people’s power and that the government and economy should work in their favor — may be vastly overrated as a political theory, but as an economic theory it’s close to sheer genius.

Certainly during the 1890s populism as a political art form was turning alarming to the then-entrenched powers. Compounding that movement by the masses for greater equality was the fact that the Financial Panic of 1893 was one of the worst downturns in our economic history. Still, while William Jennings Bryan, the Democratic and populist candidate, spoke at the 1896 Democratic convention on July 8, 1896, Henry Ford had tested his first automobile on the streets of Detroit just weeks before and was already in the process of selling his very first car, the Quadricycle, to Joseph Ainsley for $200.

Now, to those living in that period, what Ford had created that summer had no impact whatsoever on the country and probably not much on those in Detroit either. But Bryan’s speech, calling for the free coinage of silver to help America’s rural and indebted populations, seemed to be everything the ordinary person wanted; and his speech and the debate over populism still resonate today.

Both men had a vision to improve the lives of those living in rural America. Bryan believed government should favor the average person, which got a great deal of play after 30 years of the Gilded Age and smack in the middle of that major depression. Ford, on the other hand, had always hated his farming background, even though his father was much more prosperous and influential in his community than Henry ever let on. In Ford’s mind building an affordable and durable car, the kind of vehicle that America’s rutted roads couldn’t easily destroy, would allow those in rural areas to travel more freely and give them easier access to markets, for both purchasing and delivering their goods. Ford believed truly affordable mobility would set people free. In time Ford tried to remake the tractor industry in America, too; Fordson Tractors went through many changes, but was finally sold to Fiat in 1991, with the agreement that the name “Ford” would be removed from those products by 2000.

The Middle Class as National Adrenaline

Now, fast forward 19 years. Jennings had not become president and the existing economic scheme had held fast under President William McKinley, meaning Bryan’s vision of populism for the masses had in fact mostly failed. Only now he was resigning as our Secretary of State after many disagreements with President Woodrow Wilson over our involvement in the Great War.

Henry Ford and the Ford Motor Company, by contrast, had already advanced all consumer manufacturing with the moving assembly line and the introduction of the $5 day in January of 1914. Ford was forced into almost doubling workers’ pay; his moving assembly line was so brutal to the average worker that turnover at his factory was almost 400 percent in 1913, and with that turnover rate there was no way the moving assembly line would ever reach its maximum potential. So wages were split in two: $2.34 for a nine-hour workday and, if you stayed for an entire year, you received the same amount as your annual bonus. And that change galvanized production and affected pricing unbelievably.

When the Model T was first introduced in 1908 it had a price of $895, or more than twice the annual income of the average American — and just a bit more than the average wage of a teacher or government worker in America’s largest cities. But by 1915 the price of the Model T had fallen to just $390 for the base Runabout; that had the effect of increasing production in a four-year period from 68,773 Model Ts to over 300,000.

As Ford had envisioned, his car had a huge impact on rural America, increasing the migration of individuals from their rural lifestyles into the big city. His doubling of wages was slammed by every business publication in America, even called communist in nature. But when we today look at his wages per hour, the historical record becomes a bit more shocking. Ford was paying his unskilled workers only 26 cents an hour before and 52 cents an hour after the raise. And, because of that huge wage increase, combined with the Model T’s massive price fall, in 1915 Ford’s factory workforce became the first unskilled factory laborers in America to be able to afford that consumer durable goods that they built themselves. It was the spark that created the modern middle class.

It was the real economic turning point for everyone in the country. So much so that, when Detroit demanded and got a dual-tier wage system for UAW factory workers in 2007, my statement, “This means that for the first time since before the First World War, we will have workers building vehicles they can no longer afford to buy,” was quoted on ABC’s radio network for days. That statement was neither hyperbole nor factually incorrect.

Who’s the Real Populist?

Back to the debate over populism and who is a populist. Again, by 1915 Jennings is out of government and his vision of populism — freely coined silver, to help raise agricultural prices and help ease debt — etched into our historical record. Yet the real populist was also American’s super-capitalist, Henry Ford, and the term “populist” doesn’t seem to still be attached to his persona. True, he was an autocrat, but his vision of uplifting everyone into becoming a bigger player in the country’s economic success was second to none until the personal computer age came along under Steve Jobs and Bill Gates.

More important, you can see the effect of real populists just by looking out your front window. Because workers made more money thanks to Ford, while prices of large consumer goods fell by more than 50 percent, again because of Ford, the public started demanding a government that did things for them, like build roads, so we could enjoy our motorized toys. Then those roads allowed long-distance trucking, which freed us from the railroads and their rates — which the public had basically not trusted for the previous 50 years. As pointed out in a previous column, Kingsford charcoal briquettes were a byproduct of Ford’s manufacturing system. So, by the time most had a two-day weekend, we could cook in our backyards.

Of course, the modern version of building roads and highways across America in the second great populist age is in the form of high-speed Internet connections for our personal computers. Believe it or not, in the earliest days some of our computer visionaries believed that tying all of our PCs or Macs together online would allow the real truth to emerge and empower the public. (Remember, these were the idealistic kids of the Vietnam era.) OK, they missed that one; instead it gave us the Information Superhighway, we got the Misinformation Superhighway, and Internet trolls.

The fact of the matter is that we actually love populism; there’s no debate there whatsoever. OK, there is a debate, it’s just horribly misguided. Worse, the populists that we study in history are always the politicians, when in fact the real populists, who empowered every ordinary person and lifted up people’s lives, were capitalists with a vision. True, it was a business model for them, but one that would wildly succeed only if the promises made to their potential buying public exceeded their expectations — and were kept.

It’s fair to say that for most people, the average life today is better than it was two or more generations ago. But only in some instances is our collective betterment thanks to big name elected officials — all of whom profess to be on the side of the little guy.

Still, great things have happened. In 1896 Bryan ran for the presidency under the populist wing of the Democratic Party, while Henry Ford built his first car and sold it for $200. At the time everyone watched and debated what Bryan was trying to sell the nation, while no one even knew Ford had sold his first car.

Years later Ford was talking with his former secretary’s son about attending college, and Ford dismissed higher education as not necessary for a successful life. The young man argued that it was needed to succeed, “in modern times.” Ford snapped back, “Don’t lecture me about modern times, I invented them.”

He was right.

Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism, bestowed by the Anderson School of Business at UCLA, and hosts the top-rated talk show, Wheels, 8:00 to 1:00 Saturdays on 570 KLIF AM. Email: edwallace570@gmail.com