Reviewed by George Slater Case Western Reserve University
This book is a must for anyone interested in accounting history and not already familiar with the work of Alfred Chandler. This collection of nineteen essays was selected from previously published journal articles, books, conference papers, and lectures to reveal the essence of his lifelong research in business history.
Chandler portrays a world that came to be dominated by the visible hand of big business, which displaced the invisible hand of market forces. He is so convincing that one can agree with his editor’s comment in the introduction that “models of oligopolistic behavior need to be thoroughly reconsidered in view of what Chandler and his students have produced” [p. 19]. Not only economic history but also accounting history is likey to be directly affected by his argument that the needs of newly emerging American big business spawned revolutions in all areas of business management.
The first essay illustrates the tremendous economic impact the great railroad expansion of the 1850s had on farmer, manufacturer, and merchant. Chandler’s interest in railroads dates back to his doctoral thesis, the subject of which was his great grandfather, Henry Varnum Poor, of Standard & Poor fame. Poor, who spent his life analyzing the railroad industry, vividly described the new challenges brought to accounting by the railroads’ vast acquisitions of fixed assets. Depreciation, renewals, obsolescence, and overhead costs had heretofore not been considered on this large a scale [p. 32].
The second essay explores the major dynamic forces evident in the American economy since 1815. They are, in chronological order, the western expansion of the population, the construction and operation of the national railroad network, the development of a national and increasingly urban market, the development of electricity and the internal combustion engine, and finally the institutionalization of the research and development function [p. 47]. The reader has the satisfying feeling that the author is competently tracking multiple industries and generalizing where possible so that history is not seen as the museum of the unique.
The next few essays inquire into an area that Chandler is best known for — the relationship between a business strategy and its resulting structure. His focus is always on change, maintaining that any successful change in strategy must always be accompanied by an appropriate change in structure. For example, the dominant big business strategy of the late 1800s was one of vertical integration which led to a highly centralized operating structure with functional departments. The subsequent arrival, in the early 1900s, of a new strategy of product diversification led to a more decentralized operating structure in certain industries.
The next two essays return us to the railroad scene but this time with an emphasis on how the railroads devised “rational ways to supervise, coordinate, and plan for the use of far more men, money, and equipment than any other private enterprise had hitherto had to administer” [p. 183]. The accounting historian will be interested in the references to the accountant’s role in these early organization plans [p. 195]. For example, he states that the top management of the Baltimore and Ohio Railroad were “first to separate the management of financial and accounting activities from those of moving trains and traffic” [p. 209]. The railroads also had to “meet brand new problems of modern cost accounting, to make the distinctions between variable, constant, and joint costs, to differentiate between working and fixed capital, and to account for depreciation and even obsolescence” [p. 228]. The student of history again realizes that the modern problems accountants face are not really so new.
Thirty years ago Chandler suggested that THE major innovation in the American economy in the late 1800s was the creation of the great corporation [p. 73]. Ten years later he stated that his central research interest was “trying to understand why, when, and how large corporations came to have, and continue to have, such a significant, if not dominating role, in the operation of the modern American economy” [p. 296]. He has labeled modern big business leaders as “organization builders” as compared with the empire builders who preceded them. The eleventh essay, “Business History as Institutional History,” underscores his point of view that business history IS institutional history. However, he only barely mentions the problems associated with “vast concentration of power in a society committed to democratic values” or the “difficulty, if not the impossibility, of the corporation’s allocating resources to meet socially desirable needs which bring only a low rate of return on investment” [p. 246]. He has been criticized for an excessive rationalism in describing corporate behavior as well as a “relative deemphasis on the human impact of industrialization, his neglect of the role of labor, and his implicit (and sometimes explicit) argument that the political state has played only a minor role in the rise of industrial capitalism” [p. 20]. His response to the criticism is that these factors were “less significant” [p. 451] and that his choice of focus has been deliberately “narrow but deep” [p. 2].
The last essays include the introductory chapter to his book, The Visible Hand [1977], and an entertaining, but instructive skirmish between Chandler and Charles Perrow. Perrow tends to take a “Robber Baron” approach to business history emphasizing its inclination toward control of markets and labor, while Chandler usually avoids any such characterization. The book concludes with an introduction to Chandler’s latest work, Scale and Scope, which is said to be “the closest approach to a historical theory of big business that any scholar has yet achieved” [p. 465].
Chandler went to school with John Kennedy. He edited the personal papers of Dwight Eisenhower and has personally known many top business leaders. His view is from the winner’s circle and while one can’t help but wonder about the history of the losers in the big corporate battles, the reader is more than compensated by what is revealed about the changing strategy and structure of the survivors.
The Essential Alfred Chandler is an important book and I, for one, will be ordering Scale and Scope and his upcoming biography of Pierre S. du Pont.
