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Elaborations, Revisions, Dissents: Alfred D. Chandler, Jr.'s, The Visible Hand after Twenty Years

Published online by Cambridge University Press:  13 December 2010

Richard R. John
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Abstract

Two decades have passed since the publication of The Visible Hand, Alfred D. Chandler, Jr.'s, magisterial account of the rise of the modern business enterprise in the United States. Although Chandlers pathbreaking work has been widely hailed as a landmark in business history, only rarely has anyone considered systematically its influence on the large body of historical scholarship on related topics. This essay is intended to help fill this gap. It is divided into two sections. The first section reviews Chandlers argument, touches on the relationship of Chandlers oeuvre to his personal background, and locates The Visible Hand in the context of American historical writing. The second considers how three groups of historians have responded to Chandlers ideas. These groups consist of champions who creatively elaborated on Chandler's intellectual agenda; critics who probed anomalies between Chandler's argument and their own research; and skeptics who rejected Chandlers analysis outright.

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Articles
Information
Business History Review , Volume 71 , Issue 2 , Summer 1997 , pp. 151 - 200
Copyright
Copyright © The President and Fellows of Harvard College 1997

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References

1 For a brief introduction to Chandler's influence on nonhistorians, see McCraw, Thomas K., “The Intellectual Odyssey of Alfred D. Chandler, Jr.,” in McCraw, , ed., The Essential Alfred Chandler: Essays Toward a Historical Theory of Big Business (Boston, Mass., 1988), esp. 13–14.Google Scholar For various interpretations of Chandler's ideas by sociologists and political scientists, see Roy, William G., Socializing Capital: The Rise of the Large Industrial Corporation in America (Princeton, N.J., 1997)Google Scholar; Fligstein, Neil, The Transformation of Corporate Control (Cambridge, Mass., 1990)Google Scholar; Winner, Langdon, The Whale and the Reactor: A Search for Limits in an Age of High Technology (Chicago, Ill., 1986)Google Scholar; and Beniger, James R., The Control Revolution: Technological and Economic Origins of the Information Society (Cambridge, Mass., 1986).Google Scholar For Chandler's influence among economists, see Lazonick, William, Business Organization and the Myth of the Market Economy (Cambridge, 1991)Google Scholar, and Williamson, Oliver E., The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting (New York, 1985).Google Scholar

Though Chandler's influence among economists falls outside of the scope of this essay, Oliver Williamson's “transaction cost” interpretation of Chandler's ideas deserves a brief mention, since it has sometimes been mistakenly assumed to reflect Chandler's ideas. According to Williamson, Chandler claimed that the principal cost savings in the modern corporation derived from the ability of managers to economize on transaction and information costs. Chandler, however, always distinguished between the modest cost savings obtainable through reduction of transaction and information costs and the much larger cost savings obtainable through administrative coordination. “The savings resulting from such [administrative] coordination,” Chandler observed, “were much greater than those resulting from lower information and transaction costs.” To clarify this distinction, Chandler contrasted the cost savings obtainable through the establishment of a federation of otherwise independent business firms with the cost savings obtainable through the establishment of a moderm business enterprise. Federations, Chandler wrote, “were often able to bring small reductions in information and transactions costs, but they could not lower costs through increased productivity. They could not provide the administrative coordination that became the central function of modern business enterprise.” Chandler, Alfred D. Jr., The Visible Hand: The Managerial Revolution in American Business (Cambridge, Mass., 1977), 7–8Google Scholar (italics added). See also idem, “Organizational Capabilities and the Economic History of the Industrial Enterprise,” Journal of Economic Perspectives 6 (Summer 1992): 79–100, and Lazonick, , Business Organization, 191–261. “By imposing a transaction cost interpretation on Chandler's historical material,” Lazonick declared, “Williamson failed to comprehend the nature of the dynamic interaction between organization and technology that is central to [Chandler' s] approach,” 195.Google Scholar

2 Chandler's influence on management thought has been so pervasive that, according to Chandler, a manager once advised a colleague that he could save the $100,000 fee that McKinsey & Company was charging corporations to oversee their reorganization by reading a copy of Chandler's Strategy and Structure, which could be purchased for $2.95. Chandler, “Comparative Business History,” in D. C. Coleman and Peter Mathias, eds., Enterprise and History (Cambridge, 1984), 16.

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4 Chandler is by no means the only economic historian to devise institutional models of economic development. So, too, has Douglass C. North. See, for example, North's Institutions, Institutional Change, and Economic Performance (Cambridge, 1990).

5 “Although mergers and acquisitions were carried out in a wide variety of industries for a wide variety of reasons,” Chandler explained, “these combinations remained profitable and powerful over the long haul only if they rationalized the facilities acquired or merged, completed the process of integrating production with distribution, and most important of all, created an extensive managerial hierarchy to coordinate, monitor, and allocate resources to the operations units acquired or merged. Even when this course was followed, an enterprise was rarely able to dominate, to become part of an oligopoly, unless it could benefit from lower unit costs achieved through administrative coordination—that is, unless the technology of that industry permitted the volume production of standardized products for national and international markets.” Chandler, “Historical Determinants of Managerial Hierarchies: A Response to Perrow” [1981], in McCraw, , ed., Essential Alfred Chandler, 460.Google Scholar For a critique see Maier, Charles S., “Accounting for the Achievements of Capitalism: Alfred Chandler's Business History,” Journal of Modern History 65 (Dec. 1993): 771–782.CrossRefGoogle Scholar “It is appropriate to ask,” Maier wrote, “as a historian, whether the organizational forces Chandler adduces were in fact the critical ones for successful development, as he claims, or whether other impulses—the state, the work force, entrepreneurial genius, or ‘animal spirits' — might not have been. With respect to this question, I believe, a level of indeterminacy remains despite the vastness of the scholarly enterprise,” 781.

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8 Chandler's preoccupation with the administrative coordination of tangible resources is worth underscoring, given the significance that certain economic historians have assigned to informational economies as the key element in the functioning of the modern business enterprise. Whatever the merits of this position, it is quite distinct from, and incompatible with, Chandler's position in The Visible Hand. Temin, Peter, “Introduction,” in Temin, , ed., Inside the Black Box: Historical Perspectives on the Use of Information (Chicago, Ill., 1991), 2.Google Scholar

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14 An analogous logic helps explain why Chandler devoted so little attention in The Visible Hand to the concept of the industrial revolution. Had he given this concept more attention, it would have risked diverting his readers' attention from the managerial revolution that was his primary concern.

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16 Ibid., 48.

17 Ibid., 84.

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19 Ibid., 49.

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72 Any generalizations about the influence of Chandler's ideas on U.S. history textbooks must be tentative, since no one has made a thorough study of this topic. But there is good reason to suspect that Chandler's ideas are getting a hearing. Out of a sample of 10 leading college survey textbooks, all but 2 treated the rise of big business in a more-or-less Chandlerian spirit. For a possible model from a related field of how one might generalize about the treatment of business in history textbooks, see Heilbron, J. L. and Kevles's, Daniel J. “Science and Technology in U.S. History Textbooks—What's There and What Ought to Be There,” Reviews in American History 16 (June 1988): 173–185.CrossRefGoogle Scholar

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133 Berkowitz and McQuaid, Creating the Welfare State, chaps. 1–3.

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138 Hughes, , “Managerial Capitalism Beyond the Firm,” 698–703.Google Scholar For an informative comparison of Hughes and Chandler, see Hounshell, David A., “Hughesian History of Technolog and Chandlerian Business History: Parallels, Departures, and Critics,” History and Technology 12(1995): 205–224.CrossRefGoogle Scholar For Hughes's assessment of Chandler's contribution to the historv of technology, see Hughes, Thomas P., “The Order of the Technological World,” in History of Technology, ed. Rupert Hall, A. and Smith, Norman (1980), 7–10.Google Scholar

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153 Ibid., 274 n6–8.

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158 Ibid., 64.

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