The railroad and big business

As the railroads system in the 1850s further evolve and get more complex, it seems that more advanced management is required to keep pace with such a fast development. As Blackford mentioned in his article titled The Emergence of Big Business, “On Oct 5, 1841, as a result of scheduling foul-up, two trains collided in western Massachusetts. One conductor and one passenger were killed; seventeen other passengers were injured.” This accident made the public worry about the railroad safety and people in charge of the railroad think up with new method to run the train safe.

Telegraph was one of the outcome under the period. Simply put, “The relationship between

the railroad and the telegraph evolved symbiotically in the 1840s and 1850s, with the telegraph serving to help managers schedule trains and the railroads allowing the telegraph to use their rights-of-way for its poles and wires” (Blackford, The emergence of Big Business, Chapter 5). Nevertheless, one thing we should notice is that the telegraph was not only used in the railroad system, but also the US government use it to “control their own far-flung business empires and to communicate with businessmen in other firms. prompted other field of industries.”

At the same time, issues emerged. The business of railroad is expanding, but the way people manage it is still out-of-date. To cope this, companies institute bureaucratic management in practice. The first helper is the United Stated Army. What the Army do was “separating[ion] between staff officers, who made strategic decisions at headquarters, and the widely scattered line officers, who carried out the decisions as tactics in the field. Precise record keeping allowed headquarters to stay abreast of events in the field” (The emergence of Big Business, chapter 5). And in the next a few decades, railroad firms kept dividing the business to more divisions. And finally, “railroad executives developed cost accounting. They divided their companies’ costs into various categories of fixed costs (such as those of roadbeds and tracks) and variable costs (such as that of labor). Because their fixed costs were much higher than their variable costs, railroad managers sought to run as many fully laden cars as possible over their tracks.” The basic principle here is that the company was trying to make the job more dedicated to different personnel. Each manager was only responsible for his part. So each person did not necessarily have master a lot of skills, but to decently perform the skill he/she was asked to do. By doing this, railroad companies could largely avoid business disorder and thus prevent accident like 1841 from happening again.

Then, as the railroad system get more complex, its effect further reached other fields.

In economy, we know that the market is an invisible hand: that is the market itself will show the societal demands, and we people drive to where the market need us. This “hand” keeps regulating the business to some extent and it is critical. But what people learned from the railroad business is that we cannot let the business develop by itself. Therefore, what the railroad management contribute to the big business is that it provided a model for business in other fields. The government, a visible hand, replace the invisible hand of the market, and supplanted the invisible hand of the market in other key industries in the United States in the late nineteenth and early twentieth centuries, dramatically changing the nature of the American business system. (The emergence of Big Business, chapter 5).

At the end, mentioning the visible hand and invisible hand, one good example is China, where I grow up. You can get more information about how the government plays a role as a visible hand in economy through China.

2 Replies to “The railroad and big business”

  1. Good job! It was very interesting to read about how the two industries of the railroads and the telegraph were so interconnected. You gave a great explanation as to how the government assisted the development of the railroad system so that train accidents like the one in Massachusetts will not happen again.

    Great job again!

  2. I did a blog post on this article as well and you did a very good job at summarizing. One thing that I tried to point out in my summary was the idea that the railroad business was the first business bureaucracy in America. You touched on how the railroad business was one of the first business to control the prices of its service rather than let the economy control it. These two facts are what separated the railroad business from all other businesses at the time. Overall thought, great job

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