The Rise of Big Business: 1860 - 1920

Glenn Porter's brief, but comprehensive survey of the rise of the modern, bureaucratic corporation is a solid introduction to the topic. It also contains a particularly fine review of the pertinent literature in the form of a bibliographical essay. This would be an excellent starting point for anyone interested in studying economic history in the late-nineteenth, early-twentieth century period. The first topic that Porter examines is the nature of big business. He believes that it is particularly important to understand how the giant corporations that evolved during this period differed fundamentally from those that came before. Prior to the rise of big business, most business institutions in America were small, frequently family-run affairs; at most involving a partnership of a few men. They relied heavily on the personal integrity and prestige of these men in order to do business. These firms were capitalized in extremely small amounts and, consequently, had low fixed costs relative to operating expenses. Finally, they usually operated in limited, local areas and produced a very narrow range of goods and services. Big business, however, represented a clean break from these traditions of the past. The new, large-scale enterprises were usually corporations, rather than partnerships; frequently characterized by a separation between ownership and control. These corporations were often typified by an anonymous, impersonal quality; a factor which contributed greatly to the public's mistrust of them. They had massive capital requirements and huge fixed costs (a significant barrier to entry which ensured reduced competition). Furthermore, they operated on a wide geographical scale and provided an array of products. The next topic Porter looks at is the appearance and spread of big business. The first major enterprise of this type was, of course, the railroads, which achieved this status around 1860. This was a necessary condition for the rise of big business, since it could not thrive without a basic transportation system in place. The development of the telegraph system-and, later, the telephone-was also crucial to its coming. Once these advances were in place, big business started to appear, slowly but sporadically. The corporations generally evolved through one of two methods: vertical or horizontal growth. A firm grew vertically by extending its operations backward and forward along its chain of supply and distribution. It would reach backward for raw materials and forward to the final consumers. This allowed corporations control over every facet of the production and marketing of their product. Horizontal growth, on the other hand, was where different producers who were all engaged in the same enterprise would join together to form a larger firm that served their collective interests. Initially, horizontal growth was achieved through use of the infamous, though short-lived, trust. This method was soon replaced