Who Built America?

"The welfare state is not really about the welfare of the masses. It is about the egos of the elites." — Thomas Sowell.

Lately there has been much debate over who built America — government or entrepreneurs with vision taking a risk. Last month in one of his numerous campaign speeches President Obama stated:

“If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business, you didn’t build that. Somebody else made that happen.”

Obama’s statement was actually an expansion on what Elizabeth Warren, the Democrat candidate of the U.S. Senate in Andover, Massachusetts in 2011 when she proclaimed:

“I hear all this, you know, ‘Well, this is class warfare, this is whatever.’ No. There is nobody in this country who got rich on his own — nobody. You built a factory out there? Good for you. But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police-forces and fire-forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory — and hire someone to protect against this — because of the work the rest of us did. Now look, you built a factory and it turned into something terrific, or a great idea. God bless — keep a big hunk of it. But part of the underlying social contract is, you take a hunk of that and pay forward for the next kid who comes along.”

This is pure Marxist thinking. The men who built this country did not look to or depend on government to build their enterprises. For starters let’s look at Henry Ford, a person who built an auto empire when there were very few roads or bridges. In fact it was the production of his affordable automobiles that caused the public to demand — and pay for — the roads and bridges needed to drive their automobiles on.

Modern Americans know Henry Ford as the man behind Ford Motor Company, and most would probably credit him with the invention of the modern assembly line. Ford’s contribution to (and effect upon) American manufacturing in general is much more grand and goes beyond the mechanics of assembly. His vision, and the manner in which he approached achieving it, is truly his legacy.

Like most new technologies, automobiles were initially built and sold as dalliances or even appliances for the wealthy. Today, we recognize how so-called early adopters pay more to be the first to have the latest high-tech gadgetry. Things weren’t so different 100 years ago when “horseless carriages” first appeared. However, Ford’s entire approach, from the company’s method of manufacture to the eventual reductions in the price of his products, was part of an overall effort to sell to the masses.

Ford recognized that the ability to sell great quantities would multiply the profits they were capable of generating. His constant quest for manufacturing efficiency would also contribute directly to the bottom line, and this driven desire would rival his engineering acumen. One of the better-known examples of this does not even relate to the assembly-line process as we know it, but rather to Ford’s interest in the materials of which his vehicles were made.

Naturally, Ford relied upon subcontractors to supply some of the components used in his new cars. As part of their contractual agreement, Ford specified the dimensions and even the type of wood to be used in the crates in which these parts were to be shipped. Once the crates arrived at the assembly plant, Ford forbade the use of crowbars to open them. Rather, he insisted they be carefully disassembled.

In those early days of the automobile, wood was a common material used throughout the body, doors, and especially for the running boards. This was particularly evident in the legendary “Woody” station wagons produced from the 1920s through the early 1950s. The wood reclaimed from the shipping crates was reused for this purpose, and in many cases was already sized properly (per Ford’s contracted specifications). Not wanting to waste any wood, what few scrap pieces were left over were then further compressed into usable charcoal “briquettes.” There was a large enough quantity of charcoal being produced that Ford decided to create a business to market it, and thus the Ford Charcoal was born. Today, we know this enterprise as Kingsford Charcoal, named after a Ford relative of who brokered the site selection for Ford’s new charcoal manufacturing plant.

That kind of progressive development in the name of efficiency wasn’t limited to what went out the door at the massive Ford Motor Company factories. The way in which raw materials were supplied to the plant also grew into more efficient and streamlined processes over the years. Rather than relying upon outside suppliers for steel to build his vehicles, Ford built his own foundries at which raw ore could be smelted and forged into various components. Furthermore, Ford eventually purchased the iron ore mines and the ships used to transport the raw materials to the factory. In this way, Ford could absolutely minimize prices and maximize quality, resulting in an unprecedented level of manufacturing excellence on a scale never before seen, worldwide.

Interestingly, and importantly, Ford chose not to simply line his own pockets with the ever-growing profits of his visionary leadership. Rather, he invested heavily in the growth of his own company and his own workforce, while simultaneously lowering the prices on many of the vehicles being produced. In 1909, a new Model “T” Touring car (the most popular model) could be had for $850 ($19,760 in today’s dollars). This was reduced to $490 ($11,226) in 1914, and by 1925 the price had been slashed to $290 ($3,796). Making the cars more affordable had a positive impact on sales, resulting in a significant jump in the quantity of vehicles sold.

With regard to the workforce, we must understand the challenges Ford was facing to fully comprehend the impact of his investment in this vital area. In the early part of the 20th century, a great percentage of the workforce consisted of unskilled immigrants. The typical solution was to break down assembly-line tasks into simple steps, and offer very low pay to several employees to accomplish each of them. The predictable result was that the workers would quickly grow bored of the mindless, repetitive tasks. Many workers would quit, and in 1913 it took the hiring of 963 employees for every 100 positions Ford needed to keep the assembly line working. Considering there were 13,600 employees in the plant at the time, the scope of the issue becomes apparent.

Ford’s solution was multifaceted. A broad array of benefits was created, including incentive bonuses, a medical clinic, and athletic fields and playgrounds for the workers’ families. Still, the challenge of retention persisted, and Ford’s next step was a huge one.

On Jan. 5, 1914, Ford announced all employees would receive a minimum of $5 ($115) pay for eight hours of work. This was more than double the previous $2.38 ($54) offered for a nine-hour shift, and was such a dramatic increase that it attracted workers from all over the nation. The tremendous response not only solved the retention issue, but profits increased as well. Between 1914 and 1916, the company’s profits doubled from $30 million to $60 million. The higher pay rate crossed another threshold, as workers could now afford the new Ford vehicles they manufactured, and many did.

Henry Ford’s contributions to American manufacturing were great, but beyond the obvious mechanics of the mass production assembly line, his visionary approach to maximum efficiency in all areas was just as important. Through a constantly evolving process of improvement, Ford set new standards for manufacturing that still reverberate today. In fact Adolph Hitler was so enamored by Ford’s methods he had his top designer, Ferdinand Porsche, design and build the famous Volkswagen in 1937.

I picked Hendy Ford not for his pleasant personality and tolerance, but for his foundational contribution to making America the leading industrial nation in the world. It was Ford’s production of inexpensive and affordable automobiles that not only provided high-paying employment for thousands of Americans and built the city of Detroit it also generated the demand for Rockefeller’s oil, Carnegie’s steel, and numerous other manufactures that produced the products ancillary to the automobile industry.

When Ford raised the wages of his workers to $5 dollars per day he did not do it for humanitarian or progressive reasons. He did it for his self-interest. He wanted reliable and skilled workers who could read manuals and lived moral lives. In fact he would send his managers to the homes of his workers to make sure they were not using alcohol and were living, to Ford’s standards, honorable and upstanding lives.

All eyes were on the elephant as it ambled across the Eads Bridge. The longest arch bridge in the world at the time, it stretched gracefully across the Mississippi River. The pageantry that accompanied the completion of the spectacular structure was matched with an equal amount of anxiety. Careers and reputations, not to mention lives, were on the line through the construction process. Over budget and months past its deadline, the bridge was among the most massive American construction projects to date. When it officially opened in 1874, less than a decade after the end of the Civil War, the bridge was important both practically and symbolically. The success of such projects could show that the United States was back, and open for business.

The man who provided the steel for the bridge, Andrew Carnegie, was a rising industrialist. His reputation seemed like it might rise or fall on the outcome of the project. With so many people skeptical of such a massive bridge, the “test elephant” was sent across to bring peace of mind to the American public that its structure was sound. The elephant survived the test—and so, too, did Carnegie. He would go on to become one of the nation’s foremost business tycoons having transformed himself from a young Scottish immigrant to a corporate leader and philanthropist whose name still echoes prominently throughout American society today.

By the early 1870s, Carnegie was focused on steel. Although he was not the first steel pioneer, Carnegie was the first to introduce the Bessemer steelmaking process on a large scale in the United States. This process was the critical building block in the mass production of steel, making it possible to create structures on a grand scale. Carnegie also introduced the open-hearth furnace into his mills in the 1890s, making it easier to melt mass amounts of steel.

At the end of the Civil War the nation was in tatters, both financially and psychologically. Both North and South had poured resources into the war effort, draining the economy, not to mention the optimistic spirit, of the nation. The assassination of President Abraham Lincoln in April 1865, just days after the end of the war, dealt another blow to the American psyche. The nation mourned too many of its sons, and now, its president. Given this state of affairs, some would have predicted a deep national decline would follow. How, then, in the course of just a few decades after the war, did the United States become one of the world’s leading economic and political superpowers?

The Men Who Built America, a new series premiering on the History Channel in October, captures the astonishing growth of the United States in the wake of the Civil War, attributing this amazing industrial and national expansion to the prowess and grit of a handful of men: Vanderbilt, Carnegie, Rockefeller, Morgan, Frick, and Ford. Their names resonate throughout our society today, a testimony to the power and reach of the companies they built. Now, for the first time, viewers can see how exactly these men forged a nation from the ashes of Civil War, buoyed by their own determination to compete, take chances, and consolidate power. While their individual stories have been told many times over, this series explores the deep connections between these men, showing the behind-the-scenes deals and unexpected links that united—and, at times, divided—them in their thirst for success.

What Carnegie and other industrial leaders shared was an unceasing drive for success. Throughout the series, viewers hear from contemporary business leaders like Jack Welch, Donald Trump, Mark Cuban, Steve Wynn, and Russell Simmons. These modern-day corporate pioneers and philanthropists shed light on how their counterparts from an earlier era were able to achieve so much in a relatively short period of time. As Steve Wynn, chairman and CEO of Wynn Resorts, says, “These were very determined, high-strung focused men who had the capacity to be brutal competitors, swash-buckling entrepreneurs, and then turn around and be soft as butter, as generous as you can imagine anyone being.”

The Men Who Built America shows the interlocking ties between the nation’s industries. While Vanderbilt and Rockefeller had focused on transportation and oil, Andrew Carnegie (below) set his sights on building American infrastructure through steel. A Scottish immigrant whose family had settled in Allegheny, Penn., in the 1840s, Carnegie landed under the wing of Tom Scott, the superintendent of the Pennsylvania Railroad Company. Carnegie rose rapidly through the ranks and started investing in companies ranging from the Keystone Bridge Company to the Union Iron Mills. Carnegie, like other American industrialists, had quickly learned how to grow capital through investment.

In addition to challenges presented by workers, the American economy was also subject to instability in the midst of rapid expansion. One of the most severe depressions in U.S. history, known as the Panic of 1893, emerged as the result of unstable railroad financing and bank failures. A financier named John Pierpont (J.P.) Morgan, son of banker Junius Morgan, was ready to take his place on the national stage. J.P. Morgan helped restore the U.S. government’s gold reserves in exchange for a 30-year bond deal, helping alleviate the economic chaos unleashed by the 1893 depression. Morgan, of course, went on to become one of the titans of American banking and finance.

One of the fascinating angles explored in The Men Who Built America is the cases in which American business titans chose unity over division, working together to expand their enterprises. In the aftermath of the Homestead Strike, Carnegie had put a young engineer who had been a plant superintendent in charge of repairing relationships between workers and managers at Homestead. Charles Schwab excelled at the position, and Carnegie promoted him to president of the Carnegie Steel Company in 1897 at the age of 35. Just a few years later, in 1901, Schwab and J.P. Morgan united to form the United States Steel Corporation, otherwise known as U.S. Steel.

Perhaps President Obama and Elizabeth Warren should take a few hours out of their campaigning schedule and watch this series on the History Channel — they just might learn something about how this nation became the industrial leader of the world.

While not being angels these men all had one thing in common — they wanted to build industrial empires and accumulate great wealth. Yes, they were fierce competitors who would not take no for an answer, but anyone who has run a business, small or large knows that you must beat the competition in order to succeed. And when you succeed the people who work for you succeed.

The success of the Fords, Rockefellers, Carnegies, and Morgans provided the jobs for millions of Americans who could achieve the highest standard of living in the world with the highest percentage of people owning their own homes. These are the people who paid the taxes, fees, and tolls that built the roads, bridges, dams, and schools that Obama and Warren believe are responsible for our success.

The Myth Of The Volt

“…every individual necessarily labors to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.” — Adam Smith

The system in which the invisible hand is most often assumed to work is the free market. Adam Smith assumed that consumers choose for the lowest price, and that entrepreneurs choose for the highest rate of profit. He asserted that by thus making their excess or insufficient demand known through market prices, consumers "directed" entrepreneurs' investment money to the most profitable industry. Remember that this is the industry producing the goods most highly valued by consumers, so in general economic well-being is increased.

One extremely positive aspect of a market-based economy is that it forces people to think about what other people want. Smith saw this as a large part of what was good about the invisible hand mechanism. He identified two ways to obtain the help and co-operation of other people, upon which we all depend constantly. The first way is to appeal to the benevolence and goodwill of others. To do this a person must often act in a servile and fawning way, which Smith found repulsive, and he claimed it generally meets with very limited success. The second way is to appeal instead to other people's self-interest. In one of his most famous quotes:

“ Man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favor, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me what I want, and you shall have this which you want, is the meaning of every such offer; and it is the manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love.”

For Smith, to propose an exchange is to attempt to show another that what you can do, or what you have, can be of use to the other. When you carry out the exchange, it means the other person recognizes that what you can do or that what you have is of value. This is why so much of a person's self-esteem is bound up in their job — a well-paid job is supposed to be a sign that others value your contribution and find it worth exchanging their own resources for.

Last week President Obama gave appeared at a campaign rally at the GM plant in Detroit where he praised the bailout and the wonders of the Chevy Volt, GM’s electric car. He claimed that after he left the White House in 2017 he would buy a Volt.

The next day GM announced it was closing the Volt line and laying-off 1,400 UAW workers. You see the $42,000 Volt is just not selling, at least to the general market.

General Motors reported Chevy Volt sales of 1,529 for the month of December. The still unimpressive number is an improvement over previous months, but the gains were mostly driven by fleet sales. According to GM, 992 of the Volts sold were to retail customers while 537 went to fleet purchasers.

GM says the fleet sales were to corporate buyers and not to rental companies. The number of Volts sold to townships receiving federal grants remains unknown. The corporate sales claim makes sense as crony company, General Electric, starts to make good on its promise to buy thousands of Volts. Of course, GE benefits by selling charging stations for the vehicles.

Another interesting statistic on Volt sales can be derived from the inventory figures and number of Chevy dealerships with available Volts. GM now claims that 2,600 dealerships across the nation have Volts for sale. Given the 992 figure for Volts sold to retail customers, we come up with an average of approximately one third of a vehicle sold by each dealership per month. It is ludicrous for GM to continue to tout Volt sales figures as a success given the fact that about two thirds of dealerships offering Volts were unable to sell even one during the month! With supply now well over 4,000 units, lack of inventory can no longer be blamed for the dismal sales figures.

It remains to be seen what type of tricks the Obama Administration and GM might have up their sleeves when it comes to fluffing Chevy Volt sales figures. Both the Administration and GM have staked a lot of credibility on the vehicle claiming that it was to be a game changer for GM as well as a "moon shot." Considering that taxpayers are subsidizing vehicles like the Volt to the tune of billions of dollars, it is understandable that critics of the vehicle want to know the truth about the projected high demand for the car that has yet to materialize. GM is sticking to its guns claiming that 60,000 Volts will be sold in 2012 after having missed 2011 sales goals by a wide margin. They have not, however, said who will be buying them.

Anyone who has observed the hype revolving around the Chevy Volt since the time preceding its rollout to now should question the credibility of sources that proclaim the vehicle a success despite evidence that indicates otherwise. A further instance of suspicious support for the Volt was evidenced when Consumer Reports (CR) recommended the vehicle, which is based on the Chevy Cruze platform, only to report that the Cruze expected reliability is well below average. In fact, the Cruze was rated the worst value for small cars by CR. And while the recommended rating for the Volt had been highly publicized, there are few internet articles referencing the worst rating for the Cruze.

How can CR recommend the Volt based on reliability expectations when such a limited number of Volts have been sold and they have such a negative opinion on a vehicle with the same platform? And why has CR changed their opinion since the time they originally proclaimed that the Volt "didn't seem to make a lot of sense?" In addition, CR has displayed a double standard regarding how it responded to battery safety issues for the Volt (CR stated the public had to adapt to a new technology) compared to how it responded to Toyota's unintended acceleration investigation when it pulled the recommended rating from Toyotas.

Speaking of suspicious activity, an interesting statistic was revealed on GM's sales conference call. Government purchases of GM vehicles rose 32% from last year. This represents yet another conflict as the Obama Administration has a vested interest in GM's success as it spends more taxpayer dollars to help support the company as 2012 elections near.

For those Volt apologists who want to celebrate the insignificant sales growth of the car, have at it. The wealthy retail purchasers of the Volt can afford the high price tag of the vehicle. The country, however, no longer can. The $7,500 tax subsidy that goes to wealthy buyers should be ended. If this car and others like the Fisker and Tesla offerings which cost close to $100,000 each are as popular as advocates say they are, taxpayers should not have to give buyers $7,500 to drive sales. And if they are not popular, then all the more reason to stop bilking taxpayers out of billions of dollars to enrich crony corporations under the guise of green initiatives.

The Chevy Volt was just given the European car of the year award at the Geneva auto show. So what. No one in the U.S. is buying the car. The market is rejecting this government sponsored vehicle. On the other hand truck and SUV sales are up. No matter how Obama touts this “green car” the people are not buying it even with gasoline at $5.00 per gallon. This is just another way of the government masterminds coercing the people to buy something they do not want.

Lake Tahoe Trip — Day Four

You know more of a road by having traveled it than by all the conjectures and descriptions in the world. — William Hazlitt

May 15, 2011 and we awoke to an inch of show on the ground. The weather man was right and the snow did come. What a surprise for the middle of May! When I went out my car was completely covered in snow.

Snow or not we headed out for Reno and the Hurrahs’ Auto Museum. The drive over U.S. 50 took us through some great scenery with the pines covered in snow against a blue sky. Fortunately there was no ice on the road and chains were not required.

Hurrahs’ Auto Museum contains one of the finest and largest collections of antique automobiles in the world. The collection of cars ranges from the beginning of the 20^th century up to the mid 1970s. There are four galleries representing different eras and the galleries are connected by simulated street scenes depicting the 30s, 40, and 50s. There are even TV sets from the 50s playing shows like Dragnet with the appropriate commercials. It’s really a great place to spend a few hours if you ever get to Reno.

On the drive back to our hotel it began snowing again and it was sticking. We now have about three inches around our hotel room and I hope there is no more snow tonight as we would like to leave early in the morning.

Snow or not we had a great time in Lake Tahoe.