The influence and power wielded by large corporations in our country has never been more pronounced than it is today. But how did we get here? In a new book published this month (March 27), Woodhouse/Sysco Professor of Economics Richard Adelstein explores the remarkable transformation undergone by business in the U.S. over the half-century following the Civil War—from small sole proprietorships and partnerships to massive corporations possessing many of the same constitutional rights as living men and women. Approaching this story through historical, philosophical, legal and economic lenses, Adelstein presents an original, three-pronged theory of the rise of business firms.
In The Rise of Planning in Industrial America, 1865-1914 (Routledge), Adelstein traces the big business boom to three historic developments: a major managerial achievement within the firms themselves; an ill-conceived and ill-timed attempt by legislators to rein in rapidly expanding firms; and the Supreme Court’s understated—but immensely consequential—decision granting constitutional rights to corporations separate from those of their owners.
The first of the three developments refers to the unprecedented emergence following the Civil War of industrial giants demonstrating successful, consensual central planning at a large scale. For the first time in history, thousands of men and women were organized to work toward large-scale production for the common goal of profit maximization. Previously, only military generals and a few slave masters had succeeded in purposefully coordinating the efforts and interactions of hundreds or thousands of individuals toward a single purpose.
In the 1880s, as the efficiencies brought by large-scale production drove down prices, firms in dozens of industries organized in trade associations, cartels and trusts to keep prices up, output down and marketing territories protected. An anti-monopoly campaign was initiated, but by the time the federal Sherman Act was enacted in 1890, many of the trusts and cartels had already collapsed under their own weight, releasing their small member firms back into the competitive sea. Some of these firms continued to grow much larger by acquiring suppliers and distributors to ensure a steady flow of materials in and product out of their enormous facilities. Consequently, the Sherman Act was of little use in a fight against bigness, which Adelstein argues was the more important problem posed by the great firms, and which only began to become clear to Americans after 1890.