Mass Production and the Transformation of enterprise 1860-1890

Readings for week of 4/4/05

Readings: 

Micklethwait, Chapter 4 (57-78) see Full Text Readings on WebCT

Chandler Chapters 8,9  (Read pages: 240-244, 285-289 (The selected pages provide the skeleton of the argument, you should supplementally read the rest of the chapters for detailed explanations and examples).

Schweikart, Chapters 6 pp. 179-212

Assignment:  Write a brief summary of Micklethwait emphasizing the changing nature and public perceptions of the corporation.  Specifically address why Micklethwait believes the corporation rose to prominence and contrast this with the ideas we have studied from Chandler and Schweikart.  Due:  Monday 4/11/05

Overview: 

The revolutions in industry and transportation during the 19th century created a positive growth dynamic in which both production and transportation were qualitatively and quantitatively transformed. 

“The rise of modern business enterprise in American industry between the 1880’s and World War I was little affected by public policy, capital markets, or entrepreneurial talents because it was part of a more fundamental economic development…. Changes in transportation, communication, and demand brought a revolution in the processes of distribution.  And where the new mass marketers had difficulty in handling the output of the new processes of production, the manufacturers integrated mass production with mass distribution.  The result was the giant industrial enterprise which remains today the most powerful privately owned and managed economic institution in modern market economies” [Chandler, 376].

Key Ideas and Issues:

1.      For several hundred years, the company remained essentially the same in organization, although it grew in size.  Why did the company evolve a different form and differentiate functions?

2.      Notice how Chandler claims that the economy first required specialization and differentiation in distribution, and then integration of these distribution functions into the production organization.

3.      The rise of mass production necessarily accompanied an era of mass consumption.  Why?  Which came first?

4.      The rising use of consumer durables (such as Singer sewing machines) required a new form of marketing.  How did this change the nature of the corporation?

 Reading Highlights and Summary:

Micklethwait and Woolridge:  Chapter 4:  The rise of big business in America:  1862-1913

This book, The Company: A Short History of a Revolutionary Idea, traces changes in the function, form, and importance of the business company from prehistory to present.  The authors are editors for the Economist magazine and are firm believers in the catalytic influence of the company on society.  In this section, they describe the changes during the 19th century.  In the early 19th century, people expected that a market filled with numerous small suppliers would dominate production.  By the First World War, the American economy was dominated by a relatively few enormous corporations.  This transition involved nearly every industry and evoked strong public reaction. 

Chandler:

Chapter 8:  Mass production

The late 19th century technologies in oil, steel, flour and other materials allowed production in a continuous flow, rather than custom order or batches of production.  New technology allowed greater speed, increased use of power equipment, and increased amounts of capital per worker.  The modern factory system with new emphases on quality and time emerged to cope with the new mass production.  Frederick Taylor develops “scientific management” that attempted to maximize output per worker through detailed job analyses. 

Chapter 9:  The coming of the modern industrial corporation

Large producers required ever more efficient means to distribute their output.  For many producers of continuous process goods (e.g. processed food, tobacco, steel) had trouble finding enough demand for their production.  They turned to vertical integration and creating their own internal marketing departments to get rid of their production.  The rise of consumer durables (sewing machines, agricultural equipment, office equipment) required specialized installation, sales, repairs, and often long term credit.  These companies therefore expanded their own sales forces to bypass the wholesalers and sell directly to the end consumers.

 

Supplemental Readings (if you’re interested in the era):

Atack, J. (1985). Industrial Structure and the Emergence of the Modern Corporation. Explorations in Economic History, 22, 29-52.  Cliometric analysis of changes in industry during the late 19th century. 

Cochran, T. C., & Miller, W. (1961). The Age of Enterprise:  A Social History of Industrial America. New York: Harper and Row.  The book opens by saying, “Men’s lives are determined chiefly by habits formed in daily activities.” People increasing spent their days working in factories or farms, then spent their earnings on goods advertised for sale in magazines published for profit.  Architecture, science, education, all reflected the business orientation. The authors attempt to examine how the daily activities of business and labor changed during the 19th century.  Considered a classic in economic history.

Josephson, M. (1934). The Robber Barons:  The Great American Capitalists 1861-1901. New York: Harvest Books-Harcourt.  Considered the classic description of the practices of the period’s great entrepreneurs and the social backlash.  Written during the Great Depression, it reflected the social attitudes of the era toward the behavior of business.  Excellent biographies.

Folsom, B. W. (1996). The Myth of the Robber Barons (3rd ed.). Herndon, VA: Young Americas Foundation.  Written to counter Josephson, this book celebrates the innovativeness and industry of the entrepreneurs.

Lamoreaux, N. R. (1985). The Great Merger Movement in American Business, 1895-1904. New York: Cambridge University Press.  Considered the seminal, cliometric book documenting the nature and extent of the merger movement in the late 19th century.  She argues that the mergers were the result of a unique combination of circumstances and reflected increased productivity and the opportunity for economies of scale.

Trachtenberg, A. (1982). The Incorporation of America:  Culture and Society in the Gilded Age. New York: Hill and Wang.  Trachtenberg, an American Studies scholar, documents the influence of the large corporation on society and culture during the late 19th century.  He argues that this period resulted in the modern social structure with its middle class and business elite. Where Chandler describes the impact on business of the changing technology, Trachtenberg examines the impact on culture, urban life, social structure, and philosophy.

Twain, M., & Warner, C. D. (1873). The Gilded Age:  A Tale of Today. Hartford, CN: American.  This is an early Twain novel that coined the term “gilded age” as applied to the aftermath of the Civil War.  The book is co-authored and not Twain’s best, but it gives some interesting insights into social class in America during the period.

Veblen, T. (1958). The Theory of the Business Enterprise. New York: Mentor Books.  Originally written in 1905, Veblen was a prominent economist whose views have had more influence in sociology.  He argued that business represented the pecuniary view requiring high prices and restricted output in contrast to the scientific and engineering perspective that produced higher quantities and lower production.  His other book, The Theory of the Leisure Class, documented the concept of a rising consumer class that sought to buy things that were “unnecessary” and useful primarily for showing relative status, which he called, “conspicuous consumption”.  The book claims that workers don’t want to overthrow the capitalists, they want to emulate them.