David R. Henderson  

Henry Ford versus Henry Royce

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Last weekend, I was at a conference in Ogden, Utah co-sponsored by Liberty Fund and the Charles Koch Foundation. One of my favorite readings for the conference is the Introduction to the book How the West Grew Rich by Nathan Rosenberg and L.E. Birdzell, Jr. and one of the passages I had forgotten was this:

It is an oddity of Western economic growth that, while it made some individuals extremely rich, it benefited the life-style of the very rich much less than it benefited the life-style of the less well-off. The reason is to be found in the nature of the innovations that the West most conspicuously rewarded. Innovations that reduced the cost of producing goods did not appreciably change the life-style of people who were abundantly able to pay pre-innovation prices, and the most lucrative new products were those with a market among the many, rather than among the few. Thus the first textile factories produced fabrics of inferior quality, which the rich did not want, and a century later, the great automobile fortune was Henry Ford's, not Henry Royce's.

And later in the paragraph:
It is much easier to think of innovations which benefited only the less well-off than it is to think of innovations which have benefited only the rich.

I would have altered this last slightly. Almost every innovation I can think of benefited the less well-off a lot, percentage-wise, and the rich a little, percentage-wise, but not zero.


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COMMENTS (6 to date)
Matt Moore writes:

I always enjoy playing Don B's game of 'what products billionaires and I both use'. Advil, latest iPhone, GPS navigation, Facebook, email, antibiotics and vaccines. All identical for eveyone.

Swami writes:

One of the best books ever!

Jon Murphy writes:

When you look at those who are insanely wealthy (or even those just sanely wealthy), they're the ones who make goods for the common man. Very few only sell products for just the super rich

From Capitalism, Socialism and Democracy;

The capitalist engine is first and last an engine of mass production which unavoidably also means production for the masses. . . . It is the cheap cloth, the cheap cotton and rayon fabric, boots, motorcars and so on that are the typical achievements of capitalist production, and not as a rule improvements that would mean much to the rich man. Queen Elizabeth [I] owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within reach of factory girls.

ThaomasH writes:

This looks like another version of Rockefeller's real income played out over a longer time period which I'd find slightly amusing instead of slightly annoying if I did not sense that behind this P1 there was lurking a big Quod non Erat Demostrandum, that on today's margin, there is no intervention in the economy that can improve the real incomes of poorer people in the long run.

LD Bottorff writes:

Tap water! Although our local water suppliers are often run by the government, or given monopoly status by the government, the marketplace provides the constant improvement in the supplies (pipes, machinery, chemicals) that make our water supply more cost effective.
The disaster in Flint and the shortages in California should not distract us from the fact that most of the country enjoys good quality tap water, and both the wealthy and the poor usually get their water from the same source.

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