More books have been written about auto pioneer Henry Ford than any other person in the car business. Though he had critics, the judgment of history is that he put the world on wheels with his famous Model T. But less well known is the fierce independent streak that led him to wage a lone and heroic battle for the right to run his own business. It was a struggle against the kind of people who think they should have the power to determine what’s best for the rest of us. They were private businessmen, but they were also smug social planners who counted on the assistance of the state.
One of the persistent delusions nourished by social planners everywhere is that elitists in high places can divine who will be the winners and losers in any developing industry. Sometimes called “industrial policy, ” this was touted as the secret of Japan’s economic success until that country’s fortunes went sour in recent years. Whether done by government officials or private firms with policing powers, any such planning is a bad idea.
But we don’t have to go to present-day Japan for proof of such failure.
At the very beginning of the American auto industry, a group of carmakers made a blatant attempt to establish an industrial policy for their own benefit. In the guise of protecting the public from “unreliable upstarts” and “fly-by-nights, ” they formed the Association of Licensed Automobile Manufacturers (ALAM) in 1903. The industry was in its infancy, but there were already complaints about some of the crude entrepreneurs who were entering the field. The 11 car manufacturers who formed the ALAM promised to tidy things up a bit.
Their weapon was the 1895 Selden patent, and their claim was that it covered all gasoline-powered vehicles. By controlling this patent they asserted the right to decide who should be allowed to build and sell cars. Carmakers who didn’t join the ALAM and pay royalties on each car sold could be sued and possibly forced out of business.
Like many such groups, it professed to be combining for the public’s own good. As one of the members said of the ALAM, “It will not try to shut out reputable and established manufacturers who build a reliable vehicle; it will license all such, but it will license no unreliable upstarts. In this way the association will protect the public and be a boon to all purchasers of gasoline automobiles.” Another auto manufacturer stated: “Those already licensed can more than supply the demand.”
With this form of industrial policy established, the ALAM was now positioned to choose the winners and losers for the future auto industry. And one of the first applicants to be refused a license was a known loser, Henry Ford. At 40, he was broke and appeared to be all washed up. His fledgling Ford Motor Company, formed on June 16, 1903, showed many signs of being the kind of “unreliable upstart” the ALAM sought to exclude from business. It was poorly financed, and paid-in capital of $28, 000 had been nearly exhausted in its first month of operation. Ford himself had headed one failed automobile company and was eased out of another before persuading some investors to back him for a third try. Any rational observer would have called it a high-risk venture. So when he applied to the ALAM for a license, he was turned down on the grounds that he was only “an assembler, ” not a true manufacturer.
The rejection was the organization’s way of telling Ford that he had no right to be in business. But after he was turned down a second time, he moved ahead to build and sell his own cars without a license. So the ALAM reacted by attacking him in newspaper advertising and then filing lawsuits, apparently in the hope of forcing him to quit.
But Ford and the free market for automobiles had other plans. At a time when most cars being built were expensive rich men’s toys, he wanted to build low-priced vehicles for average-income people, making the car a “necessity rather than a luxury.” It worked, and far from failing, Ford built and sold 1, 700 cars profitably in his first 15 months of business. This was only a beginning, and in little more than ten years he would be building 300, 000 vehicles yearly, more than half of all the motor-vehicle production in the United States. Along the way, he gathered the resources and support he needed to carry on his battle with the ALAM and the Selden patent.
It was not an easy victory, however, and the struggle went on from 1903 until 1911. At some point early in the fight, Ford probably could have negotiated a peace treaty with the ALAM, but that would have violated his principles. The definitive book on the Selden case is William Greenleaf’s Monopoly on Wheels. As Greenleaf wrote, “‘What is the greatest thing in the world—your greatest ambition?’ Ford was once asked. ‘To be free—a free man, ’ he shot back. . . . Ford knew that he could not be free so long as the Selden patent clouded the destiny he had marked out for himself.”
The shameless arrogance of the ALAM had also aroused his ire. By rebuffing him, Greenleaf noted, the ALAM had disparaged Ford’s ability as a designer and builder of automobiles. Greenleaf added, “By the time the Selden challenge arose, Ford had devoted almost a decade of thought and labor to planning and building motor cars. He jealously prized as a hard-won creation the automobile which bore his name. That car, like those of other automobile manufacturers, owed nothing to the teachings of the Selden patent.” Ford himself pointed out that the car was the product of his own brain and no man on earth was entitled to any “rake-off “ from that particular car.
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