442 AMERICAN ECONOMIC ASSOCIATION specialized activity with its own elaborate division the top two levels are separated from the bottom of labor;and the corporation developed a brain level.In the multidivisional corporation,diff- to consciously coordinate the various specialties erentiation is far more complete;level three is and to plan for the survival of the organism as a completely split off from level two and is concen- whole. trated in the general office whose specific function Chandler2 distinguishes three major stages in is strategy,not tactics. the development of corporate capital.First,the In other words,the process of capital accumu- Marshallian firm,organized at the factory level, lation has become more and more specialized confined to a single function and a single indus- through time.As the corporation evolved,it de- try,and tightly controlled by one or a few men veloped an elaborate system of internal division who,as it were,see everything,and decide every- of labor,able to absorb and apply both the physi- thing.The second stage emerged in the United cal sciences and the social sciences to business ac- States at the end of the nineteenth century when tivity on a scale which could not be imagined in rapid growth and the merger movement led to earlier years.At the same time,it developed a high- large national corporations,and a new structure er brain to command its very large concentration of administration was developed to deal with the of wealth.This gave it the power to invest on a new strategy of continent-wide,vertically inte- much larger scale and with a much wider time-ho- grated production and marketing.The family firm rizon than the smaller,less developed firms that gave way to the modern corporation with a highly preceded it.The modern multidivisional corpora- elaborate administrative structure to organize the tion is thus a far cry from the marshallian firm in many disparate units of a giant enterprise.The both its vision and its strength.The Marshallian next stage,the multidivisional corporation,began capitalist ruled his factory from an office on the in the 1920's and gathered great momentum after second floor.At the turn of the century,the pres- the second World War.It too was a response to a ident of a large national corporation was lodged new marketing strategy.To meet the conditions in a higher building,say on the seventh floor, of continuous innovation,corporations were de- with wider perspectives and greater power.In the centralized into several divisions,each specializing giant corporation of today,managers rule from in one product line and organized as an almost the top of skyscrapers;on a clear day,they can autonomous unit similar in structure to the na- almost see the world. tional corporation.At the same time,an enlarged Each step in the evolution of business enter- corporate brain was created in the form of the prise had important implications for the structure general office to coordinate the various divisions of the international economy,just as each excur- and to plan overall growth and survival.This sion into the international economy provided new form is highly flexible and can operate in several challenges to the corporation and speeded its evo- industries and adjust quickly to rapidly changing lutionary development.In a world of Marshallian demands and technology. firms,commodity trade and portfolio capital were With each step in the development of business the main engines of international exchange. administration,capital obtained new power and Movement of enterprise between countries was new horizons.As Chandler and Redlicha point sharply limited because firms were small and out,there are three levels of business administra- lacked the appropriate administrative structure. tion.Level three,the lowest level,is concerned The diffusion of Marshall's vital fourth factor, with managing the day-to-day operations of the organization,from advanced to less advanced enterprise;i.e.,keeping it going within the estab- countries was therefore exceedingly slow.Move- lished framework.Level two is responsible for ments of portfolio capital were substantial,at coordinating the managers at level three.Level times,because the small Marshallian firms were one's function is goal determination and planning; associated with a highly developed banking and i.e.,setting the framework for the lower levels.In financial system.But the ability of less advanced the Marshallian firm all three levels are embodied countries to absorb capital (and technology)was in one entrepreneur.In the national corporation, limited to the rate at which they could build up their own organizations,a slow and difficult pro- 3 Alfred D.Chandler,Strategy and Structure (Dou- cess given the negative policies of most govern- bleday Co.,1961). ments in Africa,Asia,and Latin Ameri- Alfred D.Chandler and Fritz Redlich,"Recent ca,especially those in colonial dependencies.The Developments in American Business Administration and Their Conceptualization,"Bus.Hist.Rev., range of goods which could be produced was thus Spring,1961. restricted and the possibility for international442 AMERICAN ECONOMIC ASSOCIATION specialized activity with its own elaborate division of labor; and the corporation developed a brain to consciously coordinate the various specialties and to plan for the survival of the organism as a whole. Chandler^ distinguishes three major stages in the development of corporate capital. First, the Marshallian firm, organized at the factory level, conñned to a single function and a single indus￾try, and tightly controlled by one or a few men who, as it were, see everything, and decide every￾thing. The second stage emerged in the United States at the end of the nineteenth century when rapid growth and the merger movement led to large national corporations, and a new structure of administration was developed to deal with the new strategy of continent-wide, vertically inte￾grated production and marketing. The family firm gave way to the modern corporation with a highly elaborate administrative structure to organize the many disparate units of a giant enterprise. The next stage, the multidivisional corporation, began in the 192O's and gathered great momentum after the second World War. It too was a response to a new marketing strategy. To meet the conditions of continuous innovation, corporations were de￾centralized into several divisions, each specializing in one product line and organized as an almost autonomous unit similar in structure to the na￾tional corporation. At the same time, an enlarged corporate brain was created in the form of the general office to coordinate the various divisions and to plan overall growth and survival. This form is highly flexible and can operate in several industries and adjust quickly to rapidly changing demands and technology. With each step in the development of business administration, capital obtained new power and new horizons. As Chandler and Redlich^ point out, there are three levels of business administra￾tion. Level three, the lowest level, is concerned with managing the day-to-day operations of the enterprise; i.e., keeping it going within the estab￾lished framework. Level two is responsible for coordinating the managers at level three. Level one's function is goal determination and planning; i.e., setting the framework for the lower levels. In the Marshallian firm all three levels are embodied in one entrepreneur. In the national corporation. ' Alfred D. Chandler, Strategy and Structure (Dou￾bleday & Co., 1961). •Alfred D. Chandler and Fritz Redlich, "Recent Developments in American Business Administration and Their Conceptualization," Bus. Hist. Rev., Spring, 1961. the top two levels are separated from the bottom level. In the multidivisional corporation, diff￾erentiation is far more complete; level three is completely split off from level two and is concen￾trated in the general office whose specific function is strategy, not tactics. In other words, the process of capital accumu￾lation has become more and more specialized through time. As the corporation evolved, it de￾veloped an elaborate system of internal division of labor, able to absorb and apply both the physi￾cal sciences and the social sciences to business ac￾tivity on a scale which could not be imagined in earlier years. At the same time, it developed a high￾er brain to command its very large concentration of wealth. This gave it the power to invest on a much larger scale and with a much wider time-ho￾rizon than the smaller, less developed firms that preceded it. The modern multidivisional corpora￾tion is thus a far cry from the Marshallian firm in both its vision and its strength. The Marshallian capitalist ruled his factory from an office on the second floor. At the turn of the century, the pres￾ident of a large national corporation was lodged in a higher building, say on the seventh floor, with wider perspectives and greater power. In the giant corporation of today, managers rule from the top of skyscrapers; on a clear day, they can almost see the world. Each step in the evolution of business enter￾prise had important implications for the structure of the international economy, just as each excur￾sion into the international economy provided new challenges to the corporation and speeded its evo￾lutionary development. In a world of Marshallian firms, commodity trade and portfolio capital were the main engines of international exchange. Movement of enterprise between countries was sharply limited because firms were small and lacked the appropriate administrative structure. The diffusion of Marshall's vital fourth factor, organization, from advanced to less advanced countries was therefore exceedingly slow. Move￾ments of portfolio capital were substantial, at times, because the small Marshallian firms were associated with a highly developed banking and financial system. But the ability of less advanced countries to absorb capital (and technology) was limited to the rate at which they could build up their own organizations, a slow and difficult pro￾cess given the negative policies of most govern￾ments in Africa, Asia, and Latin Ameri￾ca, especially those in colonial dependencies. The range of goods which could be produced was thus restricted and the possibility for intemational