Chandler's Living History: The Visible Hand of Vertical Integration in 19th Century America Viewed under a 21st Century Transaction Costs Economics Lens

Marcelo Bucheli, Joseph T. Mahoney and Paul Vaaler ()
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Marcelo Bucheli: U of Illinois at Urbana-Champaign
Joseph T. Mahoney: U of Illinois at Urbana-Champaign

Working Papers from University of Illinois at Urbana-Champaign, College of Business

Abstract: Alfred Chandler's recent passing is cause to review and celebrate his many contributions to business history. It also presents an opportunity to highlight links between his rich historical analyses concerning organizational and industrial innovation and contemporary management studies of the firm and industrial organization. We illustrate this point by applying transaction costs theory to several case studies from his 1977 masterwork narrating the emergence of vertically-integrated firms in nineteenth-century America, The Visible Hand. Vertical integration, organizational control and innovation in manufacturing at McCormick Harvester and Singer Sewing Machines, in transportation and distribution at Swift and United Fruit reflect managerial responses to classic transaction costs considerations including commercial relationships requiring the creation of specialized equipment and knowledge. Transaction costs analysis provides complementary historical insight on organizational innovation at these and other firms in the nineteenth century, and suggests when and where we might expect vertical integration strategies in emerging industries of the twenty-first century. Chandler's Visible Hand transcends business history to provide timeless insights and fundamental lessons on how innovative firms re-draw organizational boundaries and structures for efficient and effective innovation.

Date: 2007
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