The crisis of the eighties is the result of the breakdown of the incredibly successful response to the crisis of the late twenties and thirties.

The economic and social events of the last fifty or so years in the West are so complex that a library of analysis will not even begin to exhaust them. There is, however, one theme that is particularly relevant to grasping the contemporary predicament: the rise, triumph, and decline of "Fordism."

The fact that Leftist historians have named an entire era, usually associated with the victory of their own ideology, after one of their arch foes, the capitalist's capitalist, Henry Ford, suggests a phenomenon that bursts the bounds of conventional categories. Why this homage to an inspired genius and ordinary crank, a man who fought unions with a private army and believed in high wages, a technological revolutionary who hated bankers, Jews, Catholics, fat men, and doctors? Even more to the point, Henry Ford campaigned bitterly against Franklin Roosevelt in 1936. Isn't it absurd to call this political period, which Roosevelt so clearly initiated, after Ford? Not at all. Ford, as I have noted, was the first man of power to recognize the basic principle that was to give coherence to the New Deal- a coherence that Roosevelt himself understood most imperfectly. Even before World War I, he had defined and acted upon his radical principle: that mass production demands mass consumption of a new kind. To be sure, he abominated the way in which FDR eventually put his idea into practice. But even so, his idea and his attitudes not only illuminate an age he did not like but helped to create. They also are essential to understanding how we got to where we are in the 1980s.

Between 1890 and World War I, Western capitalism made a quantum leap. Henry Ford was one of the first to see how dangerous that accomplishment was.

Before 1890, America was in many ways the most capitalist of societies. There was no residue of feudalism to taint the system in the New World. A myriad of small producers used fairly simple tools constantly adapted to the imperatives of supply and demand. If they guessed wrong, they submitted to the summary justice of the market. As a result, there were, between 1800 and 1900, no less than eighteen panics, depressions, recessions, and stock market collapses. From 1873 to 1897, just short of a quarter of a century, the bad years far outnumbered the good.

But then, starting in the 1890s, there was a profound transition. It was organizational, political, social, economic, and technological. Beginning with the railroads and telegraph, and spreading rapidly throughout the society, there was a new type of economic structure: the corporation took over from the entrepreneur. The individual businessman operating in a restricted area with a modest capital gave way to regional, and even national, organizations managed by hired professionals who spent large sums of other people's money.

At the same time- as both cause and effect of that first transformation- technology began to change. Where small numbers of relatively skilled workers had been able to change their output in response to economic ups and downs, there were now larger and larger concentrations of semi- and unskilled workers using huge machines that could turn out only large batches of standardized products. Not so incidentally, this happened during the high-water mark of European immigration when there were malleable new Americans grateful for jobs in grim factories. Native born craftsmen thought that their skills had been devalued by the competition of hordes of hungry aliens; in fact, it was the emergent era of mass production that undercut the artisans.

That shift in the scale and nature of production meant, among many other things, that the old way of regulating the system no longer worked. In that free-market period, an unstable equilibrium was occasionally achieved through constant crises of overand underproduction. It was, Karl Marx remarked wryly, as if the law of gravity proved its validity by the roof falling in on your head. But now there were massive investments in huge plants dedicated to making those standard products. The rigid nature of this technology made the old modes of adapting to supply and demand impossible. And periodic business failure had become too expensive a way to correct imbalances and misallocations.

Now economic crisis threatened centralized, concentrated corporations like United States Steel, and not merely a hundred individual blacksmith shops. The rude discipline of Adam Smith's invisible hand would have been ruinous for such a corporate America with its irrevocable outlays in costly machinery. As Alfred Chandler has documented, one of the distinctive functions of the corporation was to advance the principle of the "visible hand," of the rational control of markets rather than of blind obedience to them.

Henry Ford responded to this challenge more profoundly than anyone else.

Not that Ford invented the new technology. He borrowed the concepts of sheet-metal stamping and electric welding from the producers of bicycles and sewing machines; he took the idea of continuous-process manufacture from cigarette makers and distillers, refiners, and meat packers. But he synthesized the innovations of others as no one else had ever done, mechanizing the very flow of production as well as its individual components. The Model T Factory was the most productive the world had ever known, and the Model T's themselves were the first really cheap durable goods for consumers. So Ford's assembly line, refracted through the tragicomic brilliance of Charlie Chaplin, came to stand for the quintessence of an age.

Were that all he did, Ford would have gone down in history as, an inspired engineering genius, but not as the man who anticipated principles of economic and social organization that were to dominate half a century of the nation's life. That latter claim arises because Ford understood that his technical breakthroughs required a transformation of the society, not just of the factory or even just of the economy.

"In underpaying men," Ford said, "we are preparing a generation of underfed children who will be physically and morally undernourished; we will have a generation of workers weak in body and spirit who, for this reason, will be inefficient when they come into industry. It is industry which will pay the bill." But Ford did more than simply talk about the necessity of decent wages. He paid five dollars a day in his own plants and was attacked by some of his fellow capitalists as a "socialist" for doing so.

The idea that the workers had to be paid enough to "buy back" what they had produced was hardly new. It had been a staple of leftist agitation among the workers for almost a hundred years before Ford, and was the most popular simplification of Marx's complex analysis of capitalist crisis. There had even been a few employers in the nineteenth century who said that the system needed a well-paid labor force with sober consumption habits. Indeed, there was a bit of schizophrenia in every businessman on this count: As a producer, he wanted low wages to minimize costs; as a seller, he wanted high wages to create a larger market and maximize sales.

Henry Ford went well beyond all of his precursors. First, he actually paid the high wages. Secondly, he saw the link between wages and productivity in a manufacturing process that subjected workers to severe physical and psychological demands. Management's decency to workers would increase output; a little justice would yield a lot of profit. Thirdly, Ford created his own distribution system of franchised automobile dealers, and began to provide cheap credit to the masses so that they could buy his cars.

There was also a puritan aspect of this philanthropy. Ford created a "social" department which visited workers' homes and checked out their habits: whether they were properly married, were religious, maintained neat houses, drank, gambled, and so on. There was a premium wage which was only given to those who met strict standards. In short, Ford saw his wage policy as part of a drive for a new, controlled style of working-class life, of higher consumption, but of the "right" kind. Aldous Huxley was quite right to invoke his name as a patron of the behaviorist dictatorship in Brave New World.

Ironically, it was a Marxist genius in Italy who was one of the first to grasp what the capitalist genius in America was doing. Antonio Gramsci was the leader of the Italian Communists and was jailed by Mussolini. While in prison, he wrote a series of notebooks- they take up four printed volumes- in which he commented on events outside the walls. In 1929-30, he reflected on 'Americanism and Fordism. " Perhaps, he speculated, Fordism might constitute a new "historic epoch," a "passive revolution" in which basic economic and social change occur, but without a political explosion like the one in France in 1789.

Fordism, Gramsci wrote, was associated with a new "programmed" capitalism. It was American in that it occurred within a society without feudal traces, which could therefore "rationalize" production as the Old World, with all of its historic encumbrances, never could. In part, it was the result of shrewd economic policies: Ford's transportation and distribution network, Gramsci said, gave him the extra profits that allowed him to pay high wages. But the analysis was most profound in insisting that Fordism was cultural and psychological as well as economic.

"In America," Gramsci argued, "rationalization has created the necessity of elaborating a new type of man, conforming to a new type of labor and production process." It was not an accident, he thought, that Ford was so interested in the drinking and sexual habits of his employees or, for that matter, that the triumph of Fordism in the twenties coincided with Prohibition, making access to liquor difficult. "Animality" was the enemy of the scientifically organized work process. Therefore, the high wage and the new consumption patterns were an "objective necessity for modern industry."

It was true that, in the United States of the 1920s, the 15 percent increase in the real income of working people allowed them to buy the new consumers' durable goods of the age- the radio, the phonograph, and, above all, the car. Moreover, that change meant that the workers were now more likely to spend their free time in the private enjoyment of their new possessions- or in going to the movies- than at the union hall, the saloon, or a political meeting. The Depression brought repossession of some of those goods by the finance companies, and politicized the lives of those who lost them. But after World War II, that passive and manipulated consumerism feared by Gramsci and sought by Ford came back with a vengeance.

Ford's fellow industrialists were not as insightful as he, but they, too, flirted with what David Brody calls "welfare capitalism. " In 1913, John D. Rockefeller expressed shock when company thugs and militia set a strikers' tent colony afire and suffocated two women and eleven children at his family's mine in Ludlow, Colorado. In part, his response was pure public relations in the face of a public outcry. He proposed to the nation the "Colorado Industrial Plan"- or the "Rockefeller Plan"- to give representation to the workers in the management structure. Communication between employers and employees, he said, was the key to industrial peace. During World War I, the War Labor Board took up that thesis and required more than a hundred corporations under its jurisdiction to recognize workers' committees.

After the war, the idea of "industrial democracy" swept through the upper reaches of big business. At Jersey Standard, the Rockefellers not only gave their workers a voice but provided accident benefits and paid vacations as well. The financier J. P. Morgan said that the major corporations had to learn to cooperate with one another and their workers. In 1922, the new president of General Electric announced that "relations with the men" were as important as the costs of production.

This was the era in which Harvard psychologist Elton Mayo scientifically established that treating employees like human beings would increase productivity. And an exceedingly liberal Republican, a one-time supporter of 'Teddy Roosevelt and a U.S. presidential candidate favored by the New Republic, assembled industrialists of "advanced views" and told them that they should "establish liaison" with the American Federation of Labor. His name was Herbert Hoover, and Franklin Roosevelt said of him in 1919, "he is certainly a wonder and I wish we could make him president of the United States. There could not be a better one."

In 1921, now secretary of commerce, Hoover convened a conference on unemployment that explored the possibility of using public works as a part of a countercyclical strategy against joblessness. He also worked out industry "codes" to eliminate unfair competition, an idea that would be central to the National Recovery Administration (NRA) of FDR's first New Deal. Above all, Hoover agreed with Ford: Capitalism had to have high wages if it was going to survive.

Fortune magazine summarized this corporate wisdom in 1931: "Th the new capitalism, the wage earner is a purchaser, a partner and the key to production.... His wages are dictated . . . by ambition for a market and a desire for willing cooperation.... The new capitalism ... is a social conception as radical as Stalinism in its ultimate purpose."

Europe, Left and Right, agreed. Andr6 Philip, a French socialist scholar, came to the United States in the twenties to study the labor movement. His description of Fordism (which Gramsci used as the basis for many of his speculations) sounds like a 1980s American book describing productivity breakthroughs in Japan. On the right in France there ' were "neocapitalists" who tried to learn from the American experience. They believed that "the Americans have demonstrated the obsolescence of a capitalism that postulated scarcity." Prosperity, they said, would eliminate "the evil shepherds who live off the misery of the workers."

Most impressive of all was the fact that, when the Crash did come in 1929, big business tried to live up to its new creed. President Hoover urged the corporations to maintain high wages and many of them responded positively. The layoffs in the first year and a half of the Depression were not, for the most part, in basic industry. U.S. Steel, for instance, kept 94 percent of its employees on the payroll through January 1931, by rotating the work even though it was only operating at 50 percent of capacity. Ford himself answered Hoover's plea in 1929 by paying seven dollars a day.

Hoover, true to his planner's notions about capitalism, created the Reconstruction Finance Corporation (RFC) to invest government money in private banks and thereby stimulate the economy. Later, the RFC was taken over by Roosevelt, and, in a considerably changed form, made a central component of the New Deal. In the 1980s, there are serious business people- most notably, the investment banker Felix Rohatyn- who see the revival of the RFC as an answer to the current crisis. In this case, then, the left- right convergence is as obvious as a Hoover innovation that became a part of the New Deal program.

So Henry Ford's Fordism was an extremely powerful idea but ultimately it could not work in the form that he proposed.

His version of the idea required the voluntary cooperation of business as a whole, but only some of the most prosperous captains of industry were persuaded by it. It is, to put it mildly, difficult to achieve a consensus within a class in which everyone is competing with everyone else. Secondly, as the economist Sumner Slichter wrote at the time, these programs were designed to prevent workers "from becoming class-conscious and from organizing unions." They were taken seriously mainly when there was discontent to be defused, and as soon as that was accomplished, old-fashioned authoritarianism took off its democratic mask.

It was, in short, impossible for a conspiracy of private employers to change the wage structure of the United States so as to create vast new markets and at the same time maintain paternalistic power over the workers. When the stock market bubble burst, the basic reality of American society was precisely the one feared by Henry Ford: a productive system whose output far out stripped its consumption capacities. On the surface there were many continuities between the early New Deal and the corporate panaceas of the twenties. But there was one huge difference.

Franklin Roosevelt proceeded to "nationalize" Henry Ford's idea and to do so in alliance with a militant labor movement that Ford fought at every turn. The social contract was rewritten, but without the participation of business, David Rockefeller was to say, looking back from the sixties. And yet, if Fordism was thus ushered in over the violent objections of Henry Ford and his friends, Gramsci turned out to be quite right. The resultant upheaval, for all of its struggle and violence, created a system that served upper-class purposes even as it recognized working-class rights. It was not a conspiracy of the rich, since most of them had angrily excluded themselves from the process, but even so, it worked to their advantage. Even if he didn't know it, Henry Ford left his imprint on the system.

(Italics, bolding, and underlining are included for study purposes)