Getting Down to Business

The business world creates a social landscape that envelops us completely. Business is everywhere—in the shops and office buildings and factories; in the simplest products as well as the most complicated machines; in the unending barrage of commercial noise; in the moods of anxiety, anticipation, desperation, or just plain coping we experience in daily life.

Yet we all know that this business world is a façade, that something else is going on behind its life-consuming presence. That something else consists of the silent, order-bestowing, and disorder-creating processes of capitalism. Business is the theater in which the drama of capitalism is acted out, a drama in which the players, unbeknownst to themselves, write the very script that dominates their actions. That stunning puzzle is the central challenge of economics. Economics exists to help us see the imperatives of capitalism in the turbulence of the business world.

At least, that is how I see the task of economics. I am afraid that most other economists view the matter somewhat differently. Rather than seeking to discover the invisible structures of capitalism within the goings-on of the business world, economists look for the equally invisible relationships of something called “the economy.” The difference is that whereas capitalism is inextricably mixed up with the dirty stuff of history, the economy can be considered sub specie aeternitatis. To the economist, the business world can be reduced to a collection of individuals maximizing their “utilities” subject to the constraints of a stingy nature—a description of life that presumably applies to all civilizations at all times. Thus the sound and fury of the business world, through the earphones of economics, become transmuted into the music of the spheres; and all that is immediate, tense, and vital in the business world becomes timeless, cosmological, and utterly dead.

As a result, if it is business that we wish to understand, it is the economic historian rather than the pure economist to whom we must turn nowadays. Three instances in point are the books under review, all of which have a common interest in discerning how the background workings of capitalism gave shape and direction to the foreground goings-on of business. Alfred Chandler, as his title The Visible Hand announces, wants to explain how the structure of the business world evolved from a collection of tiny enterprises—the social counterpart of a Newtonian universe—to the lopsided collection of miniscule enterprises and gigantic corporations of our own day. More precisely, Chandler wants to show how the “invisible hand” of market relationships that coordinated the Newtonian universe gave way to the visible hand of contemporary management—not in all industries but in some. Why did the congeries of small automobile firms in 1900 evolve into the oligopoly dominated by General Motors, while the business worlds of furniture or clothing or restaurants never gave rise to similar giant enterprises?

Chandler finds the explanation in two conditions necessary for the rise of giant firms. The first was the appearance of a technology capable of significantly lowering production costs, thereby opening the way for an industrial pioneer to steal an irretrievable march on his competitors. These technological advances came, as Chandler illustrates, mainly in those industries in which the velocity of “through-put” could be raised by machinery and energy—and these were principally industries that dealt with large batches of raw materials or could link their men and machines in a continuous process of production. Steel, petroleum, or sugar are obvious examples. Similar advantages did not accrue in industries with discontinuous processes such as apparel, leather, woodworking, and the like.

But it was not technology alone that determined the industries in which large firms were most likely to arise. Equally necessary was the development of a marketing apparatus capable of disposing of vast quantities of output, first by creating a network of wholesale and retail outlets, later by mobilizing “latent” demand by advertising.

Together, these two elements of technology and marketing give coherence to the appearance of large-scale business in the United States. Under Chandler’s guidance we watch “organized” enterprise arise originally in the railroad industry—an obvious first candidate for technological cost-cutting and marketing expansion—and then spread laterally to other forms of transportation. We then find the new pattern of organization in industries where flow-processes and national marketing possibilities converged: food and tobacco, oil and rubber, chemicals and metals, later automobiles and consumer durables. In each case the visible hand of management, rationalizing production within the enclave of an integrated industry or allocating it across the national marketplace, replaces the coordinating mechanism of the invisible hand; management, in effect, performs the task that buying and selling did before businesses grew “vertically” or “horizontally.” And meanwhile, among the emerging industrial giants the visible hand appears in the form of pools, trusts, mergers, holding companies, as the new managers seek to regulate production among themselves as they have already regulated it within each of their companies.

None of this is startlingly new, but it has never before been assembled in such complete detail, or demonstrated with such clear economic logic. At the same time, Chandler has interwoven an equally significant change in the personnel of the business world. As business firms expand, we see them struggle to find methods of supervising functions and processes that are now hopelessly beyond the scope of a one-man enterprise, or even a group of close-working partners. Thus branches arise, then departments with complicated tables of organization. Each department, each production or merchandizing element, requires its own directing personnel, at once subordinate to a higher authority and yet in command of its own demarcated area. Thus a “managerial” function appears, first in the middle ranks of the growing firm, then moving upward until “management” takes over every task including entrepreneurship itself, gradually but decisively displacing in authority the tycoons who started the business and held its stock.

Chandler’s book is a major contribution to economics, as well as to “business history,” because it provides powerful insights into the ways in which the imperatives of capitalism shaped at least one aspect of the business world—its tendency to grow into giant companies in some industries but not in others. Yet there is an interesting limitation to Chandler’s analysis. He grounds his analysis on technology and the market as if these were “givens” rather than themselves aspects of the capitalist process. Here we might look at the work of two young Marxist historians whose books, although less imposing and important than Chandler’s, nonetheless add to our understanding of the business-capitalism relationship precisely because the elements of technology and the market are subjected to historical examination.

David Noble introduces us to the problem of technology from an unexpected perspective. We are accustomed to thinking of technology as the design of machines and equipment. But Noble, in America by Design, makes us see technology as a force that shapes management in an industrial capitalist society. Thus Noble reveals an aspect of the visible hand process that escapes Chandler’s notice, namely its increasing domination by men trained in the profession of engineering. For engineering, as Noble shows us, was from its beginnings in the mid-nineteenth century conceived by the engineers themselves as more than a profession that trained men in the handling of materials. It was also a training ground for the handling of men. This engineering view of the labor process reached its most notorious heights in the “scientific management” promoted by Frederick Taylor, that dreadful portrayer of working men as recalcitrant machines, whose methods helped to perfect the assembly line. Taylorism was, however, never a central, or even wholly congenial, concern of the engineer-manager. Rather, the task of handling men was seen as a problem of “social engineering” whose purpose was to win the active cooperation rather than the dumb obedience of the work force.

Noble traces in detail the evolution of the engineering viewpoint into the ranks of business management—indeed into American society at large. Its triumph is “dramatically suggested,” as Noble puts it, “by the fact that in the 1920s an engineer became President [of the United States], and the chief executives of five of the largest and most dynamic corporations in the country—General Motors, Singer Sewing Machine Company, General Electric, DuPont, and Goodyear—had been classmates at MIT.”

In this way the impersonal element of technology takes on a historic dimension that more closely binds the drama of business to the workings of the capitalist system. These ties are further explored by Stuart Ewen in Captains of Consciousness, a book that holds up to historical scrutiny the forces behind Chandler’s “market.” The exploration of advertising is, of course, a familiar theme, covered in many books that muckrake the peculiarly obnoxious aspects of the advertising business. But as Ewen points out, these books seek to indict advertising for its excesses rather than to examine its function within the expansion of capitalism. That function, in Ewen’s words, has been to offer “a commodity self to people who were unhappy or could be convinced that they were unhappy about their lives.” Ewen’s book is not therefore an “indictment” of advertising or a compendium of its more egregious vulgarities (although a number of these inevitably creep into the book). It is, rather, a discussion of the way in which advertising has “commodified” the conceptions people have of themselves—not merely about their physical allurements, cleanliness, breath and body odor, but about status, family authority, even love and death. Ewen shows forcefully the ways by which advertising creates “the market.” The impersonal apparatus of selling we find described in Chandler’s analysis becomes here the domestic servant of the capitalist need for growth and expansion.

Ewen’s book is the slightest of the three under review, in depth as well as detail—a mere sketch of the treatment that such a vast and important theme deserves. But together with the work of Noble and Chandler it suggests what the proper work of the economist should be. “There is nothing which requires more to be illustrated by philosophy than trade does,” wrote Samuel Johnson shortly before Adam Smith published the Wealth of Nations. It is a sorry state of affairs when we can no longer look to Smith’s direct descendants for that mixture of abstract reasoning and historical specificity that makes the Wealth of Nations such a marvel. The important study of economics now seems to lie in the province of the historians, perhaps the sociologists. I lament the decline of my profession, but I am glad that someone is carrying on its work.