langlois article

Industrial and Corporate Change, Volume 12, Number 2, pp. 351–385

The vanishing hand: the changing dynamics of industrial capitalism
Richard N. Langlois

Alfred Chandler’s portrayal of the managerial revolution of the late nineteenth and early twentieth centuries does not extend well into the late twentieth century, when widespread vertical disintegration began replacing the classical multi-unit managerial enterprise. This paper attempts to explain the new economy in a manner consistent with Chandler by providing an enlarged theoretical account of industrial evolution. In this account, clusters of Chandlerian firms appeared as a temporary episode within a larger Smithian process of the division of labor.

1. Introduction
In The Visible Hand (1977) and subsequent works,1 Alfred Chandler focused the spotlight on the large, vertically integrated corporation. He did this not merely to chronicle the rise of that institution but also to explain it and to give it a prominent place in US economic growth during the last century and a half. The force and originality of
Chandler’s ideas coalesce in the book’s title, a provocation in the direction of Adam
Smith (1976). Smith had predicted an increasingly fine division of labor as the response to a growing extent of the market; and, although he was actually quite vague on the organizational consequences of the division of labor, Smith was clear in his insistence on the power of the invisible hand of markets to coordinate economic activity.2
Chandler’s account appears to challenge this prediction: internal organization and managerial authority became necessary to coordinate the industrial economy of the late nineteenth and early twentieth centuries. The visible hand of managerial coordination had replaced the invisible hand of the market.
On one reading, The Visible Hand is about the response of business institutions to the conditions of a particular historical episode, namely the dramatic increases

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