In The Visible Hand: The Managerial Revolution in American Business, Alfred Chandler provides an ambitious survey of American business history from 1840 to 1920. The work is focused on the managerial characteristics of various American businesses, rather than on individuals, industries, or business functions. Chandler’s overarching thesis is that from 1840 to 1920 the resources in the American economy, which before had been allocated within the marketplace by Adam Smith’s “invisible hand,” were allocated rather by the visible hand of management.
Chandler maintains that the market forces faced by American businesses in 1840 were little changed from those confronted by an Italian merchant five centuries earlier. The rapid growth of the American population and its westward expansion resulted in a growth in demand. For Chandler, it was the technological and organizational changes beginning in the 1840s that increased the volume and velocity of resources. With the advent of high-volume manufacturing and rapid transportation and communications via railroads and the telegraph, Chandler believes that the growth of the American economy required their exploitation through coordination and planning. In short, greater efficiency resulted from the development of various layers of middle management.
As Chandler repeatedly reminds the reader, modern management arose first with the railroads, which due to the large areas of operations and the potential for serious injury, required managers to carefully monitor and coordinate the flow of equipment. As railroads multiplied, owners sought to bring together separate lines into integrated networks. In Chandler’s view, it was the need to organize these vast networks that required the emergence of a middle level of management to coordinate the safe and efficient flow of commerce. From about the 1880s to the 1910s, this managerial revolution spread to other industries. In heavy industries, such as steel and machinery, the techniques developed by the railroads led to modern factory management. In consumer goods, the techniques of middle management were taken up in such industries as flour milling, canning, meat packing, and cigarettes, resulting in an explosion in production and distribution through vertical integration of purchasing, production, and distribution operations.
Through the modern business enterprise, Chandler maintains, “was the organizational response to fundamental changes in processes of production and distribution made possible by the availability of new sources of energy and by the increasing appreciation of scientific knowledge to industrial technology.” (376). To support his argument, he relies mostly on secondary works concerning the history of business. For example, in discussing the productivity revolution in the flour industry in Minneapolis (p. 250-53, notes 11 and 12 on p. 556-57), or its integration with mass distribution of consumer flour products (p. 294-95, notes 12-14 on p. 562), Chandler’s support is dependent entirely on a finite number of secondary works. Yet the reliance on secondary sources pales in comparison to the depth of its analytical scope, the lucidity of its prose, and its use of specific case studies to illustrate changes in organizational form.
Chandler’s synthesis of American business history is not without its critics. In one article, Richard Sylla argues that national banking standards, especially reserve policies, resulting in a net flow of deposits from rural banks to city banks, thus increasing the amount of leverage-able assets in the late nineteenth century. In another article, Naomi Lamoreaux, Daniel Raff, and Peter Temin survey American business through the early twenty-first century and argue that the management of information is the central problem of business. Rejecting Chandler’s focus on resource allocation, these historians emphasize the fluidity of business conditions, criticize Chandler for declaring an end to business evolution by the 1920s, and see a more complex historical process at work, in particular the decline of hierarchical institutions.
Yet these critiques seems to mistake Chandler’s point that managerial organization in American business created productivity gains that were central to the development of the modern consumer-centric world. While certainly today’s business environment is different, such productivity gains in today’s information-technology era in many ways remain channeled through firms such as Walmart, Amazon.com, and United Parcel Service, that retain elements of hierarchical forms.
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