Gresham's law for management?

[rockstar.esq]

I've been mulling over a pet theory of a writer I admire.  They start with Gresham's law which is a monetary principle that applies to the debasement of currency.  There are several ways to debase a currency, but the easiest example is in coinage of precious metals.  Imagine a silver dollar which was originally made to contains one dollars worth of silver.  When mints reduce the total silver content of that same silver dollar coin, they debase the currency. 

Gresham's law states that "bad money drives out the good".  Let's say we have two forms of currency in circulation, which are accepted by law as having similar face value, the more valuable commodity will gradually disappear from circulation.  Practical evidence of Gresham's law could be observed by the abundance of paper dollar notes, and the scarcity of silver dollar coins in circulation.

The writer's theory is that Gresham's law can be applied to the debasement of skill among people in leadership positions as well.  

Imagine a team of engineers who have proven themselves capable in a challenging environment.  Each individual knows how hard they have to work to be a part of this team, in this environment.  

Now imagine a new-hire replacing an established engineer in that team.  The individual has the relevant credentials, connections, etc. to get the job, but they don't have the skills, the grit, the acumen, or the desire to pull their own weight.  This modern working environment allows the original engineers no viable avenue for criticism, equal treatment, or individual performance review.  If the team falters, they all suffer.  This means that the remains of the original engineering team has to do more work for the same compensation.

That's a bad deal, which get's worse with each original engineer who decides to move on.  Eventually the engineering team is staffed entirely with less valuable workers.  This cycle doesn't end, because every new-hire that delivers less than their predecessors, drives the threshold of engineering value to the team downward.  

At some point, this decline might lead to a reevaluation of the entire staffing situation.  More often than not, the contemporary business decision is to expand the number of people managing the progress of the engineering team.  

So the management goes out and finds new-hires using the exact same methodology as above.  In comes perfectly qualified incompetents, who gradually debase the currency of management until something breaks.

Now all of that is admittedly pessimistic, but it explains how it's possible that huge faltering companies get bought out, and turned around so quickly.  Nine times out of ten, the solution is mass layoffs in middle management because the firm isn't getting what it's paying for.  But that's only one part of it. 

See I think that the skilled engineers who left earlier, are now looking for firms that won't debase their vocation.  The strongest horses end up pulling the lightest cart.  

What do you think?

 

 

 

[George N. M.]

First, Gresham's Law only works with precious metal currency, not bills or base metal coins.  It doesn't function well in our modern monetary systems of bills, electronic transfers, and crypto currency.

In your engineering example it can work just as well in the opposite direction.  You can have a low proforming team and you get a new supervisor or even another emloyee who is a high performer and enspires or leads the team to higher levels than they had achieved before.  A new, high performing member of a team can be met with hostility or resentment ("Don't work so hard, it makes the rest of us look bad.") but I have seen folk who inspire their coworkers rather than bring out hostility.  Sometimes it is just natural leadership.

And, yes, you can have cycles of high or low performance in any human system because you are dealing with highly variable humans.  Look at how similar military commanders can be brilliant or stodgy and unimaginiative even though they have similar professional backgrounds and experience.

BTW, I greatly enjoy your postings and they often make me think about general principles but I have noticed that they are always about business and professional issues and not really about blacksmithing except possibly as blacksmithing as a business.

"By hammer and hand all arts do stand." 

[anvil]

I agree with Georges post, especially his last paragraph, even if I question how it applies to the crafts.

[rockstar.esq]

George,

I'm not sure I can agree with you about Gresham's law not applying to the debasement of other forms of currency.   Paper currency pushed coins of the same denomination out of circulation.  Paper is intrinsically less valuable than metal.  

You made a good point about the inverse of my engineer example, however Gresham's law is about the market response to the debasement of currency.  It's my contention that skills/abilities as a labor currency, are being debased by the "paper" certificates/diplomas/etc. used to gatekeep access to the jobs.  The theory presented here, is that this practice actively encourages higher value workers to leave.

I think you'll find that I generally post in "The Business Side of Blacksmithing", or "Everything else".  I post on what I know, in hopes that it will help others. It won't take much looking to find responses to threads in either of these areas that delve heavily into the compensation afforded to a certain level of skill, or prestigious title.  A "master" this or a "fabricator" that.  Just a little looking into the other subheadings will show a unified curmudgeon front opposing entrepreneurial upstarts trained by youtube.

I saw a connection to professional debasement as it affects the blacksmith's earning potential competing against these people.  I also thought it might prove insightful to blacksmith entrepreneurs with no exposure to the counter-intuitive nature of semi-modern management mentalities.  "Selling" your business or your skills with the wrong credential keywords might bring unfair or unwarranted comparison to hack competitors employing those commodity terms.

Beyond all of this, we have market trends that affect the customer base.  Anyone paying the least bit of attention  to current events will have noticed that the highest earners in the tech sectors have faced massive, and wide-scale layoffs.  Some global firms are cutting 75% (or more) of their staff in the span of a year with no loss of function.  The labor market is about to be flooded with "highly qualified" people, many of whom were objectively proven to be bad at their job.  That's going to increase the competition for labor, and it will decrease the demand for sales for entrepreneurs.  

3 hours ago, anvil said:

I agree with Georges post, especially his last paragraph, even if I question how it applies to the crafts.

The ring of an anvil is not it's most useful attribute, especially so after the work is done.  

[rockstar.esq]

George,

I responded without realizing that you answered the question in your last paragraph yourself, using the subheading title of this thread.  So my verbose response could have been replaced with "Yes".  Sorry for that.

Still the underpinnings of your question implies that my posts are heading away from the course of the forum.  Many years ago I asked Glenn for permission to post articles from my estimating blog.  Glenn made it clear that the goal then and now, is to build everyone up by sharing what we all know.

I've recently returned to posting a bit after a long, and intentional pause.   

The last week has reminded me why I took that break.  

I'm acquiescing to Brandolini's law, and admitting that I'm not only outnumbered, I'm out gunned.

Congratulations, you and anvil have supported my pet theory that Gresham's law applies to the debasement of skill in a group. 

[Scott NC]

    I have learned a lot from you, but don't usually get involved, as I am learning.  I guess I never showed my appreciation.  Thank you for sharing.  The same goes for forging and blacksmithery.  So if I don't speak up and advise, I am learning.  You would think there is room for all, and all kinds of knowledge. 

[George N. M.]

Rockstar,

I sincerely hope that you keep posting.  Your posts are always thought provoking and I usually feel I have 2 small currency units to contribute to the commentary.  Sometimes I agree with you and sometimes not but it is still a worthwhile expenditure of thought and time.

The dynamics of large organizations, such as what you normally deal with, sometimes can and cannot be transferable to small scale operations, IMO.  This, IMO again, is because large systems are often dealing with large or small group dynamics while often the internal dynamics of most blacksmith is themselves, which can be influenced by the things that effect everyone, family, health, day jobs, etc..  However, things like cost estimating and how to run a large or small business differ only in matters of scale.  Someone bidding on a gate or railing for a custom builder has to apply the same principles you do of electrical contracting.

The Wiki article on Gresham's law says, regarding its application to other than economic fields, "Gresham's law may be generally applied to any circumstance in which the true value of something is markedly different from the value people are required to accept, due to factors such as lack of information or governmental decree."  I think the "lack of information" may be applicable in your engineering example.  The customer doesn't really know that team A is lower functioning than team B and will use the lower bid to select an engineering team.  Sometimes the customer has more information and experience and will choose something other than the lowest bid knowing that they will get better value.  Whether, over the long run, the worse companies/teams will drive the better out of business may or may not be true because word of mouth will reinforce the reputation of the good, high functioning organization and they will continue to get work.

I know that back in my County Attorney days I would sometimes call around to other cities and counties to find out if there were certain contractors, e.g. bond counsel law firms, with which they had had good or bad experiences.  And if we had a bad experience with a contractor it was a long time before we'd think about doing business with them again.

So, again, I hope you continue posting.  Your posts are more thought provoking than telling someone about the TPAAT method of finding an anvil or warning someone about the dangers of casting molten metal without proper trainking, knowledge, and protective measures.

Yours,

George

[anvil]

19 hours ago, rockstar.esq said:

The ring of an anvil is not it's most useful attribute, especially so after the work is done.  

Perhaps better spoken would be Without the ring of the anvil, the work will not even start. 

 

17 hours ago, rockstar.esq said:

Congratulations, you and anvil have supported my pet theory that Gresham's law applies to the debasement of skill in a group. 

Quite frankly, I believe you need to reevaluate your premise. Your premise concerning the crafts appears to be based on the concept that modern craftsmen have evolved from youtube.   How sad.

When I first read your business posts, I was very excited. Here was an individual involved with the modern construction industry with a great knowledge of business. One of the weak areas within all the crafts is that the modern market is its not favorable to anyone interested in setting up a modern craft business. I was hoping for some insights on dealing with this. Alas, I made an assumption that being here on a blacksmith/craftsman site and involved in construction economics that you would be empathetic to this lack. I rarely make assumptions and shouldn't have done it to you. My bad. 

Concerning debasement of skill, lets look at just what a "master", "journeyman" and "apprentice" actually are at one particular level. Whats the difference? The master chooses to run a business whilst the journeyman doesn't. The apprentice is the laborer/student. Often the journeyman has a better skillset than the master, he just doesn't want to run a business.  With the advent of the industrial revolution, this combination of job availability and education literally ended for the crafts. In the past, a parent could place their child in a craft as an apprentice and his education and economic needs were taken care of. With time he could hit the road as a journeyman and leave his region, be assured of employment and increase his knowledge. Then if he so desired, he could become a master and start his own business. Not so today, even tho one must put in, somehow, your due diligence, spend those 7 years somehow gaining basic knowledge with no guarantee of employment and eventually end up with a successful business. That pathway is possible today for the trades. All things considered, any youth today, can leave home and either go to a jobsite and start out as a rock bottom laborer, or go to a trade school and be guaranteed a job upon completion. From here, the economic/education needs are fulfilled and the end results is open to all who follow this path. As a businessman, you should have no problem understanding this and is why I suggest you reevaluate your premise. The people who are interested in the architectural crafts who knock on your door are those with no education and who have no understanding of the architectural craft market. You have no need for them and they are wasting their time. And those craftsmen who have overcome the myriad of catch-22's know that it is a waste if time to seek you out. I don't know what you do, so I mean no offense. You have mentioned shopping malls, so along with that I include strip malls, tract homes and most office type buildings. Thanks to the industrial revolution there is literally zero need for any of the crafts in this market, just a fact. If this is your market, then i suspect you will never see a qualified craftsman at your door. Thus my suggestion that you check out the local market of fine smiths in the Denver area or up along 285 twards Vail. If you do this, I suspect without a doubt that you will,,, reevaluate your premise concerning the crafts.  

[M3F]

So scholarly. So grammatically proficient.  Some people just like to prove the veracity of their etymological prowess. Others...just like to hear themselves talk.  Social media is a breeding ground for it. It's exhausting and hard to follow for a simpleton like me. Me just wants to hit steel with hammer. Make fire!

(I just couldn't resist)

[George N. M.]

This is the fundamental difference between the hobbiest smith and the making a living at it smith.  The pure hobbiest, like M3F, enjoys making fire and hitting things.  It is fun and is a recreation and escape from the stresses of life.  That is the definition of a hobby.  On the other hand the making a living smith has the goal of making enough money to support the costs of the business with enough left over to support him and his family.  He/she has a much tougher row to hoe because besides being a good enough smith that can turn out enough widgets that people will buy there is the requisite business skills of marketing, bookkeeping, inventory control, taxes, contracts, labor concers if employees are needed, and all the thing a successful business must do.  Many folk do not have the skills or do not like having to do anything other than making fire and hitting things.

So, much of business discussions have no interest or much application for the hobbiest.  And the business smith has a hard time relating to the inefficient use of time and materials of the hobbiest.

Me, I kind of fall between the two poles.  I greatly enjoy the physical craft of smithing but I want to sell enough to cover my fuel and materials with maybe a bit of fun money left over.  I am lucky enough in my professional retirement that I don't have to worry about living income.  There was a time in my life, between when the bottom fell out of geology and I decided to go back to law school, that I made my bread with my hammer and anvil.  It didn't generate much more income than unemployment benefits but it felt better not to be on the dole.  I never wanted it to be a full time job with deadlines and business issues.  I mainly want the satisfaction of completing a job and an item that I am proud to put my touchmark on.  I don't want to loose the fun.

Many of my comments to Rockstar's business observations come from my years as a government attorney dealing with contracts and observing how the contracting business seems to run, particularly the construction trades and general life experience.

"By hammer and hand all arts do stand."

[Scott NC]

  I don't care about making a living from my talents, but highly respect those that do.  It is worthy of it.

Edited March 9, 2023 by Scott NC
Correct a thing

[anvil]

Yup, some of my best memories were doing crafts fairs and the best pay was the smile on a ladies face as she walked away with a handfull of "S" hooks.  Come to think of it, thats still the best pay!  Sheesh, if I wanted to make money,, I could have been a lawyer!!!      

[George N. M.]

Anvil, I resemble that remark! (Although I never got wealthy being a lawyer.  You have to be in private practice and put in 80+ hour weeks to do that.)

GNM

[anvil]

Glad you caught the humor. 

[Scott NC]

  Dentist's make a lot of money.  Glad I didn't end up as one after I had 6 teeth pulled to get new choppers, one of which had to be sawed in half to get the roots out.

[ThomasPowers]

My sister graduated with a Chemistry Degree and got a job with a large multinational company.  To celebrate they took a vacation in the Caribbean where she contracted Hepatitis from eating shellfish. She was told to tell her company that she needed to avoid chemicals for several years....they put her   as supervisor on one of the lines that was having some issues.  She identified it as several workers not working.  When she talked with them they told her that they couldn't be fired due to the complexity of the firing process.  After the third one was fired; her nickname was "the axe lady"  and the line was running better and morale was higher!  Turns out the rest of the folk wanted to do a good job; but the dead weights had been dragging them down... 

[anvil]

Frank Turley once equated Dentistry and Blacksmithing. Both work real close to destruction. Dentists to nerves and pain, blacksmiths to burn point in iron.