The Visible Hand

The Visible Hand: The Managerial Revolution in American Business, Alfred Chandler’s Pulitzer Prize-winning book on the history of American enterprise, details how the landscape of American business changed in the middle of the 19th Century from small, family-based businesses to larger, manager-controlled enterprises. The purpose of the book is to show the evolution of American business because of the managerial revolution, with a focus on managers. Chandler posits eight reasons as to why the visible hand of management replaced Adam Smith’s invisible hand of market forces and how this replacement occurred. The technological advancement that contributed the most to the managerial revolution was the formation of the railroad. This essay will intersperse summary with commentary, then delve into a lengthy extra commentary on a particular business.

Chandler’s eight propositions for the managerial revolution of business are as follows: 1. Managerial enterprise replaced small traditional enterprise when administrative coordination became more profitable; 2. A managerial hierarchy was created for this new kind of enterprise; 3. Managerial enterprise appeared when administrative coordination became more efficient at handling the growing volume of economic activities than market forces; 4. Once a managerial hierarchy had been established, it became ingrained in the US economic system and became a source of power, permanence, and continued growth; 5. The careers of salaried managers – which Chandler deemed a “new subspecies of economic man” (Chandler, 4, 1993)[i] – became more specialized, professional, and technical; 6. As all of these happened, managerial enterprise became more diverse and management of businesses separated from ownership; 7. Managers preferred longevity-inducing practices in their enterprises that maximized profits; and 8. As managerial enterprises grew and dominated their economic sectors, they altered the structure of the American economy.

The formation of the railroad was particularly significant in the 19th Century as it allowed businesses in an ever-growing economy to transport their goods across great distances at small speeds without being subject to lax schedules or environmental holdups. Chandler suggests that the United States was the first to form large-scale administrative cooperation because “the rate of growth of the American population and national product was consistently higher than that of other technologically advanced nations…during the years between the American Civil War and World War I.” (Chandler, 498, 1993). Chandler claims that the homogeneity of the American economy aided in the novel and quick adoption of multi-unit business administration (a paragraph after the previous quote), though this claim is suspect as there was much higher economic disparity than Chandler is willing to admit – for one thing, a fairly large amount of the population had just been released from slavery and were now working as sharecroppers for incredibly low wages and worked in terrible conditions. Chandler does have a valid point when he mentioned that the United States was quick to adopt new technologies, but neglects to point out that James Watt’s steam engine was invented in Scotland and before then Thomas Newcomen’s (much simpler) steam engine had been invented in England, and that the British Industrial Revolution occurred before the American Industrial Revolution.

Two aspects of this book were of particular interest: labor unions (or lack thereof) and family-based businesses. It isn’t until the conclusion that Chandler mentions worker’s unions, and even then he focuses on craft unions and the American Federation of Labor. At no point does Chandler mention the Wobblies (the Industrial Workers of the World union), though this could be because the IWW wasn’t founded until 1905. However, Chandler doesn’t mention the Knights of Labor nor the National Labor union at any point in the book, and both were prominent in the late 19th Century. The glossing over of the importance of labor unions is interesting, and the reason given was somewhat unsatisfactory; Chandler wrote that unions only affected middle management and not top-level management, so they didn’t affect the landscape of the American economy. However, unions were instrumental in championing worker’s rights and shaping a workforce more capable of participating in commerce. Of note is Chandler’s demarcation of the garment industry as a trade “in which modern enterprise rarely flourished.” (Chandler, 493, 1993). This is an interesting remark as the garment industry did become an industry in which modern enterprise eventually did flourish, and eventually led to the Triangle Shirtwaist fire in 1911, which killed 146 people (OSHA, 2011)[ii] – managers had locked doors to prevent theft, directly leading to the deaths of multiple workers.

In the book, Chandler mentions that family-based businesses eventually gave way to impersonal, manager-run businesses in which those who owned the business were not members of the founding family or that the family in charge didn’t participate in management of the company. This was particularly interesting, and the history of automotive companies came to mind – especially Dodge. The rest of this essay will focus on the evolution of Dodge as a business. Dodge was founded by Horace and John Dodge, two red-haired brothers that had specialized in making bicycle parts before focusing more on making automotive parts – we can thank Horace Dodge for the dirt-proof ball bearing, which he patented with Fred Evans in 1895 (Zatz, 2017)[iii]. The Dodge brothers permanently moved from the bicycle industry in 1902 and started working with Ransom Olds (the first automaker to actually use an assembly line) in 1903. For about a decade, the Dodge brothers worked for Henry Ford (for a hefty price because of Ford’s early financial difficulties) and helped develop the Model T. In 1913, after some unreconcilable ideological and managerial differences with Ford, the Dodge brothers split from Ford and founded their own motor company.

While Ford used standard manufacturing business practices, Dodge Brothers made a point of treating their employees well. Employees were given benefits, access to a machine shop called the Playpen that they could use on their own time, social support, and were sometimes given beer on hot days. Both Horace and John Dodge died in 1920, months apart. Their wives promoted long-time colleague Frederick Haynes to run the company. The structure until 1920 was of a founder-owned and founder-managed business, which was common among early automobile manufacturers[iv]. After the death of the founders, Dodge was managed by someone close to the family, which falls close to the family-based business model. In 1928, Dodge was purchased by Chrysler and has since been a distinct brand within Chrysler (Zatz)[v]. As of 1928, Dodge started to fall under the managerial structure as described by Alfred Chandler. Dodge is currently a brand under Chrysler that is controlled by salaried managers rather than the owners, though it didn’t start out that way. Dodge started out as a company run by two brothers who fully controlled their company, and after their death the company passed along familiar ties to an old colleague rather than a salaried manager that was a stranger, bringing Dodge into a system of administrative cooperation.

[i] Chandler, Alfred. “The Visible Hand: The Managerial Revolution in American Business (9780674940529): Alfred D. Chandler Jr.: Books.” Amazon.com: The Visible Hand: The Managerial Revolution in American Business (9780674940529): Alfred D. Chandler Jr.: Books. January 1, 1993. Accessed September 9, 2017.

[ii] OSHA. THE TRIANGLE SHIRTWAIST FACTORY FIRE. 2011. Accessed September 11, 2017. https://www.osha.gov/oas/trianglefactoryfire.html.

[iii] Zatz, David A. “John and Horace Dodge: From Building Fords to Dodge Brothers.” John and Horace Dodge: From Building the Model T to Dodge Brothers. August 2017. Accessed September 11, 2017. https://www.allpar.com/corporate/bios/dodge-brothers.html.

[iv] One exception being Chrysler, whose name had been changed by Walter P. Chrysler from Maxwell when he bought the company

[v] Zatz, David A., and Bill Watson. “When was Chrysler really created? (Electric cars aren’t new for Chrysler!).” When was Chrysler really created? Accessed September 11, 2017. https://www.allpar.com/ed/chrysler-founding-date.html