The “visible hand” and the managerial revolution of the 70s

The “Visible Hand” is a book considered a masterpiece in business literature, that was published by Harvard University Press in late in 1977, and awarded the 1978 Pulitzer Prize for History. Later on, it was recognized the Bancroft Prize of Columbia University. The book is the most common work by Alfred Chandler, an historian and professor of business history at Harvard Business School. He dedicated most of his life to business strategy and management reviews from an historical perspective: he focused on case studies of the first US large corporations developing between 60s and the 70s, analysed them with a scientific approach and developed and published his theories.

One methodology that was common, and was used in another masterpiece of his, “Strategy and Structure” of 1969 was collecting and browsing company reports, press releases and account balances, to produce objective comments.

In "The Visible Hand: The Managerial Revolution in American Business," he explored the rise of the modern managerial corporation. In this book, Chandler argued that the success of American businesses in the 19th and 20th centuries was due in large part to the emergence of a new type of manager who was able to coordinate the various aspects of a business and oversee its growth and expansion. Chandler's work has had a significant impact on the study of business history and has been widely cited by other historians and economists in the past century.

The eight concepts that are portrayed as pillars for the "visible hand" are:

1)????when administrative coordination permitted better profits than the natural coordination by free market regulation mechanism, the US modern multi-unit business replaced the small traditional enterprises

2)????multi-unit business enterprises appeared for the first time in history in a time when the volume of economic activities reached a level that made administrative coordination more efficient than market coordination

3)????managerial hierarchy have been created for these multi-unit business enterprises

4)???once a managerial hierarchy has been created and had successfully carried out its functions of administrative coordination, the hierarchy itself became a source of power, permanence and continued growth

5)????the careers of the salaried managers became increasingly professional and technical the more the time passes and expertise is gained

6)????the multi-unit business enterprise grew in size and diversity and as its managers became more professional, the management of the enterprise became separated from its ownership

7)????managers preferred policies that favoured long term stability and growth of their enterprises to those that maximized current profits but focused on the short term

8)???? as the large enterprises grew and dominated major sectors of the economy they altered the basic structure of these sectors and of the economy as a whole

The name of the book recalls, by producing and antagonistic form, a classic theory from the economics traditional literature by Adam Smith, “the invisible hand”. Many of the concepts cited that belong to the pillars of the visible hand in fact contradict the principles of Smith’s classic. Particularly, Chandler argued that in late 60s, with the rise of multi-unit businesses, the role of managerial hierarchy in controlling some aspects that were normally open market regulated, took on. More specifically, the invisible hand of the market was supplanted by the visible hand of middle management, which became "the most powerful institution in the American economy”.

Adam Smith was a Scottish economist and philosopher who is best known for his book "The Wealth of Nations," which is considered to be the foundation of modern economic theory. In it, Smith proposed the concept of "laissez-faire" economics, which is the idea that the economy will function best when people are free to pursue their own self-interest without interference from the government. He believed that when individuals are free to compete in the marketplace, they will produce goods and services more efficiently and at lower prices, leading to increased wealth and prosperity for society as a whole.

Smith also argued that the invisible hand of the market, which is the natural tendency of the market to regulate itself, would ensure that resources are allocated efficiently and that prices reflect the true value of goods and services. It is the idea that the market, left to its own devices, will naturally regulate itself and allocate resources efficiently. This is because individuals, in pursuing their own self-interest, will inadvertently promote the general good of society. For example, a businessman may aim to maximize his profits by producing goods at the lowest possible cost, but in doing so, he also provides consumers with lower prices and a greater variety of goods to choose from.

Overall, Smith's theories have had a profound influence on economic thought and continue to be studied and debated by economists today.

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Literature Reference

Antonio, Robert J. "The Visible Hand: The Managerial Revolution in American Business." Telos 1979.42 (1979): 188–193.

Chandler, Alfred. The Visible Hand. Belknap Press, 1977. ISBN 978-0674940529.

Hensel, Nayantara. "The Visible Hand: The Managerial Revolution in American Business." Defense A R Journal 19.3 (2012): 345+. Academic OneFile. Web.

John, Richard R. "Elaborations, Revisions, Dissents: Alfred D. Chandler, Jr.'s, The Visible Hand After Twenty Years." Business History Review 71#2 (1997): 151–200. Online

Smith, Adam. 2012. Wealth of Nations. Wordsworth Classics of World Literature. Ware, England: Wordsworth Editions.