Three Faces of Capitalism

Scale and Scope: The Dynamics of Industrial Capitalism

by Alfred D. Chandler Jr.
Harvard University Press, 860 pp., $35.00

Scale and Scope: The Dynamics of Industrial Capitalism is the culmination of Alfred Chandler’s long and distinguished career as a business historian. Chandler has never been interested in capitalism as an abstract economic order. He is interested in it as a social terrain in which business corporations, the central institutions of capitalism, carry on the internecine warfare we call competition. I use military terms because Chandler has always attributed corporate success primarily to superior arms and generalship, not to luck, monopoly, or the abuse of labor.

In Scale and Scope he traces the strategies and tactics of the two hundred leading industrial companies in the United States, Great Britain, and Germany at three historically significant moments—1917, 1930, and 1948—and in so doing he has compiled the first broadly comparative account of business success and failure. If a historian compared the abilities of three countries to fight wars by making a battle-by-battle analysis over many fronts during three significantly different periods, he would produce a book analogous to Chandler’s. In casting fresh light on capitalism’s success and failure, his analysis also casts a long shadow over the American future if things continue along their present course.

The weapons that Chandler’s battling corporations use are provided by technology. In the industrial era that he is interested in, new capital-intensive techniques of production, in which a small number of machines could do the work formerly done by hundreds or thousands of men, gave rise to a means of profit-seeking previously present only in embryo. This means was the huge reduction in costs, called economies of scale, that resulted when plants equipped with the new technology ran at or near full capacity. For example, by the late 1890s a dozen men on the floor of a Pittsburgh rolling mill were able to turn out three thousand tons of steel each day, as much as a steel mill employing several hundred men produced during an entire year in the 1850s. As a consequence, the price of steel in Pittsburgh fell from $67.50 per ton in 1880 to $29.95 nine years later; and by the next decade the cost in Andrew Carnegie’s plants had dropped to $11.25. This technology had an aggressive side in the huge advantage it gave to the industrial pioneers who were willing to install it, and who then cut prices so dramatically that less well-equipped competitors were forced out of business.

Closely related to these economies of scale were economies of scope—the capacity to use capital-heavy industrial processes to diversify output, thereby making it possible for one firm to produce a variety of products for different markets. The three biggest German dye producers—Bayer, Hoechst, and BASF—expanded by using both methods. Huge investments in research and new products and manufacturing methods enabled them at first to win tremendous economies of scale: between 1873 and 1881, for example, the price of alizarin dye fell from 120 marks to 17 …

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