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The Visible Hand: The Managerial Revolution…

The Visible Hand: The Managerial Revolution in American Business (original 1977; edition 1980)

by Alfred Dupont Chandler (Author)

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Title:The Visible Hand: The Managerial Revolution in American Business
Authors:Alfred Dupont Chandler (Author)
Info:Belknap Press (1980), Paperback
Collections:Your library
Tags:American history, Capitalism, read, used

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The Visible Hand: The Managerial Revolution in American Business by Alfred D. Chandler Jr. (1977)



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Pulitzer and Bancroft Prizes
  Jwsmith20 | Feb 3, 2012 |
Excerpted as "The Coming of Mass Production and Modern Management" in Gary Kornblith, ed., The Industrial Revolution in America (1998)

Chandler describes the process through which mass production necessitated the emergence of bureaucratic forms of management and the emergence of a professional managerial class. For Chandler, modern management "contains many distinct operating units and it is managed by a hierarchy of salaried executives." (p. 141)

In the metal-making and metal-working industries of the latter half of the 19th century, the drive to mass production required "concentration on the development of systematic practices and procedures of factory management." (p. 142) In metal-making this meant the co-location of blast furnaces, forges, and rolling and finishing mills in one geographic location. In the 1860s and 1870s, the Bessemer process for steel making was implemented by Alexander Lyman Holley who regarded "the design of the works and the quality of the management as important as machinery in increasing the velocity of throughput." (p. 143) Arguing for rational placement of machinery within a plant, he also championed redundancy to ensure high levels of throughput.

In the construction of Andrew Carnegie's Edgar Thomson Works, Holley had the opportunity to put his ideas into practice. Located at the junction of three railroads, the plant was built around the transportation system to ensure maximum throughput. Steam and electric power were increasingly used to replace human labor until by the start of the 20th Century, a dozen workers could roll as much steel in a week as it took a whole plant a year to produce in 1850.

It took tremendous management effort to make this transition. Each of the component parts of the steel mill were run by foremen whose activities needed to be coordinated with the activities of other foremen. This required strong management oversight. The model adopted for this management was taken from the railroads. All Bessemer plants had ties to the railroads and the transmission of management techniques from railroads to steel mills was therefore a rather straightforward process. Carnegie, for instance, appointed the railroad executive William P. Shinn to serve as general manager of the ET Works. Shinn focused on the use of statistical data for coordination and control. He introduced the voucher method of cost accounting, whereby each subunit had to account for the cost of the step that subunit performed before passing the product on to the next step. These cost sheets became Carnegie's obsession and they served as his primary means of control of the mill. Carnegie's focus on cost accounting allowed him to beat the competition in the market place and amass a legendary personal fortune.

Response to Industrialization: Accumulating America
Chandler, Alfred D. The Visible Hand. Introduction and Chapters 3-8.

In the introduction to this book, Chandler states his major thesis clearly.

During the second half of the 19th century modern business enterprise took the place of market mechanisms in coordinating the activity of the economy and allocating its resources. In many sectors of the economy the visible hand of management replaced what Adam Smith referred to as the invisible hand of market forces. (p. 1)

Examining the revolutionary transformation in production and .' distribution which accompanied the shift from urban to rural America between 1840 and 1920, Chandler's focus excludes any "attempt to assess the impact of modern business enterprises on existing political and social arrangements." (p. 6)

Historiographically, Chandler is filling a void left by progressive historians (and progressive economists?) who had neglected the study of "big business." He goes beyond such facile labels as "monopoly power" in describing the rise of the modern business enterprise known as the corporation. Many previous economists and historians, themselves clinging to the teachings of Adam Smith, had assumed that the decline in competition attendant with the rise of the corporation meant that "the American economy had achieved its success despite its structure," Chandler makes a good case for the opposite proposition. Reading Chandler one comes away believing that it was because of the structure of managerial capitalism that the American economy succeeded. With Chandler, one can thus get beyond irony. (To?)

In Part II, "The Revolution in Transportation and Communication," Chandler takes the reader step by step through the changes in the railroad industry. In this part of the book Chandler ably illustrates his conclusion that

the visible hand of management replaced the invisible hand of market forces where and when new technology and expanded markets permitted a historically unprecedented high volume and speed of materials through the processes of production and distribution. (p. 12)

The railroads are paradigmatic for this revolutionary transformation.

In Chapter 3, "The Railroads: The First Modern Business Enterprises, 1850s-1860s," Chandler explains the change in management which took place within the railroad industry before the Civil War. The railways victory over the canal system was the result of organizational as well as technological superiority (p. 87). During this time ownership and management separated in the railroad industry. This is the key distinction between a pre-modern and a modern business enterprise --a modern business enterprise is run by a class of professional managers who had little to no capital invested in the business they managed. It was the

need to assure safety of passengers and employees on the new, high-speed mode of transportation that made the Western Railroad the first American business enterprise to operate through a formal administrative structure manned by full-time employees." (p. 98)

Other railroads followed in the Western Railroad's tracks.

In Chapter 4, "Railroad Cooperation and Competition, 1870s-1880s," Chandler describes the initial attempts in the immediate post-Civil War period to expand the volume and speed of through traffic. Before attempting "system building" in the later 19th century, individual railway companies attempted to form cartels to maximize efficiency and stabilize rates. .Cartels might have worked, had they received legal sanction, but they didn't. Popular opposition to the formation of cartels was one major factor in their failure which Chandler only hints at.

Chapter 5, "System-Building, 1880s-1890s," highlights the role of the railway speculator in the formation of the major railway systems. Jay Gould serves as the major catalyst to the self-defensive reaction of railway consolidation in the last two decades of the 19th century. Gould's ventures in speculation forced railways in the east and west to develop self-sustaining systems, in which centralized management structure prevailed.

Chapter 6, "Completion of the Infrastructure," examines the impact of railway advances on other parts of the American infrastructure. Urban mass transit adopted the managerial advances of the railways. The communications sector also adopted the new management structure of the railways in which "career middle managers coordinated flows and top mangers allocated resources." (p. 203)

Part III, "The Revolution in Distribution and Production," explains the impact of these infrastructure hangs on market relations. It is important to note that Chandler first discusses "Mass Distribution," in Chapter 7 and then in Chapter 8, '.Mass Production.'. The expansion in the market achieved by the great technological and managerial changes pioneered by the railroads 1 were the necessary preconditions for the rise of the mass marketer. The rise of mass manufacture is also attributable 9 ~ to this change in infrastructure, since it encouraged "the concentration within a single establishment of all or nearly all the process involved in making the product.'. (207)

In perhaps the most interesting section of this part of the book, Chandler describes the rise of the mass retailers --department stores, the mail-order house, and the chain store. All of these enterprises made their money on high rates of stock turn. The essential element here being volume. In the rise of mass production the element of speed was also key. It was the increase in "throughput" and not so much in size which Chandler identifies as essential. Examining the growth of mass production in metal-making and metal-working industries, Chandler ends this part of the book by discussing I the beginnings of scientific management.

Alfred Chandler's Visible Hand reminds one of David Landes' The Unbound Prometheus and Geoffrey Parker's The Military Revolution. This work has many of the same strengths and weaknesses as these two works. Each provides exhaustive detail on technological change which experts will find fascinating, yet each stops short of an attempt to understand the societal context in which these changes took place. The authors argue that this is not their purpose. The reader must grant them this, but stopping short in this manner leaves one intensely unsatisfied. Highly mechanistic in their approach, they simply assume that technological efficiency is a self-evident goal after which Western societies strive. Progress, defined as ever-increasing technological efficiency, is nearly predetermined by material circumstance. Though each allows for human agency, ideas are reduced to mere ephemera.

In addition, this book is a very optimistic book. With all the emphasis on speed, for instance, one would like to see something of the "shadow side" of speed in travel. In this respect, the work on railways done by Wolfgang Schivelbusch in his The Railway Journey is exemplary. The anxieties created .by all this speed are quite simply glossed over.

Chandler's Work in Perspective:

Thomas K McCraw "The Challenge of Alfred D. Chandler, Jr.: Retrospect and Prospect" RAH 15:1 (March 1987): 160-178.
Richard R. John "Elaborations, Revisions, Dissents: Alfred D. Chandler, Jr.’s The Visible Hand after Twenty Years" BHR 71 (Summer 1997): 151-200.
  mdobe | Jul 24, 2011 |
4558. The Visible Hand The Managerial Revoluiton in American Business, by Alfred D. Chandler, Jr. (read 13 Apr 2009) (Pulitzer History prize in 1978) (Bancroft Prize for 1977) I admit I read this because it won the Pulitzer History prize in 1978 and I am sort of reading those winners, this being the 48th one I've read, and because it also won the Bancroft prize in 1977 and this is the 34th such winner I've read. There were moments of interest in this book, and it was not quite as dry as I expected, but my interest in the subject--the rise of management rather than market forces in the direction of Ameican business--is not great. And then it is 30 years old and while the course of business is extremely exciting now, this book does not prognosticate in any way and today's business excitement is not reflected in the book. ( )
  Schmerguls | Apr 13, 2009 |
Profound and interesting in parts, profoundly dull in others, this book was one of the primary sources for Beniger, and is cited by Cortada and Yates. Seemed like a seminal book to become familiar with, and it was worth struggling through. ( )
  jaygheiser | Jul 23, 2008 |
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Amazon.com Product Description (ISBN 0674940520, Paperback)

The role of large-scale business enterprise—big business and its managers—during the formative years of modern capitalism (from the 1850s until the 1920s) is delineated in this pathmarking book. Alfred Chandler, Jr., the distinguished business historian, sets forth the reasons for the dominance of big business in American transportation, communications, and the central sectors of production and distribution.

The managerial revolution, presented here with force and conviction, is the story of how the visible hand of management replaced what Adam Smith called the ‘invisible hand’ of market forces. Chandler shows that the fundamental shift toward managers running large enterprises exerted a far greater influence in determining size and concentration in American industry than other factors so often cited as critical: the quality of entrepreneurship, the availability of capital, or public policy.

(retrieved from Amazon Thu, 12 Mar 2015 18:12:01 -0400)

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