Summary Review of Alfred

Chandler's "The Visible Hand"

Bill Brown
FROM: http://www2.cddc.vt.edu/digitalfordism/fordism_materials/brown.htm
In this book, Chandler argues that American business history can be separated
into two separate phases: pre-1850 and post-1850. He contends that the first
phase represents the market economyone characterized by what economists
call perfect competition. The second phase, continuing to the present, represents
what he calls managerial capitalism. The transition between these two periods
constituted a revolution in American business enterprise, for it transferred
operation of a company from the owner or partners to a full-time, salaried
manager. It was necessitated by the requirements of operating the first truly
modern enterprise, the railroad. With its vast system and complex operations, the
railroads were compelled to devise new management methodologies. For
Chandler, the railroad was the catalyst for the managerial revolution.
Businesses prior to 1850, what Chandler terms traditional enterprises, fell into
three primary models: the Southern plantations, the Lowell textile factories, and
the Springfield Armory. The Southern plantations were the first enterprises that
had to contend with the management of people and production. They operated on
a age-old system of work gangs assigned a specific task. The plantation overseers
main duty was to manage the gangs foremen. The plantations accounting system
was little changed from the time of the Medicis. No cost accounting was used and
neither the plantation owner or the overseer appeared to be concerned with this
lack. The Lowell textile factories were a considerable step more advanced from
the Southern plantations in their complexity. Managers were much more
concerned with enhancing productivity and increasing output. Lowells managers
not only had to supervise workers, they had to have a thorough knowledge of the
factorys production line and machines. They kept detailed records of past
transactions, but showed no inclination to analysis of these records to determine
operating costs. The Springfield Armory, by far the closest to a modern business
of the three models, was one of the few American businesses to have an internal
specialization of labor during this period. It had three auxiliary shops that fed
material into a central shop, where the guns were assembled into a final product.
Each shop had its own manager, who was responsible for only his workers and
area. Records were meticulously kept and the Armorys superintendent could
review the work of each area in great detail. However, cost accounting was not
introduced and the superintendent did not use the information available to
render the Armory more efficient. Chandler contends that the Springfield Armory
was significant for factory management, not multi-unit business management.

The railroad, for Chandler, is an especially significant development in American

business. Not only was it the first modern enterprise, it also facilitated the
development of other businesses because it provided reliable, fast transportation.
Railroads were the first organizations to have multiple, geographically-dispersed
units whose operations must be coordinated. Job functions, long nebulous in
earlier industries, became solid and well-defined; organizational charts were
created showing lines of authority and communication. Multiple layers of
management were introduced. By far, the most significant organizational
innovation introduced by the railroads was cost accounting. Utilizing data only
hours old, railroad managers could accurately track trains, estimate their cost per
ton-mile, and determine whether rates should be changed based on this data. It
was a watershed in business management. The railroads also enabled other
industries to expand, both by their pioneering efforts in organization and their
reliable transportation system. Mass production and mass retailing could not
have come about without the railroads innovative management methods or their
ability to ship goods cross-country quickly and reliably.
For Chandler, the revolution was not so much the evolving methods of
management as it was the creation of management as such. Prior to the railroads,
market mechanisms governed and guided the production process. After the
railroads, skilled management took over that capacity.