Professor Herbert Hess creates a new course in advertising and salesmanship, continuing the School's innovations in marketing instruction. Hess also chaired the School's "merchandising" department and assisted in the significant expansion of its faculty.
In a time of rapid societal change, the Trustees of the University of Pennsylvania dismiss Scott Nearing, assistant professor of economics at Wharton, for his outspoken views advocating the prohibition of child labor and the adoption of other social reforms. The situation sparks a national debate over the issue of free academic expression, setting the stage for formal recognition of tenure in academia.
Between 1897 and 1917, the number of business schools in the U.S. grows from one Wharton to thirty. 1918
Old Penn becomes The Pennsylvania Gazette.
Emory Johnson, Wharton's first specialized business professor and a towering figure in the early studies of transportation, helps develop a program that was enacted into law as the landmark Transportation Act of 1920. Wharton's dean from 1919 to 1933, Johnson had earlier been called to the Panama Canal to help set tolls on the waterway under construction.
Civil rights leader Raymond Pace Alexander graduates from Wharton. Alexander was born in Philadelphia and supported himself from a young age after his mother died. In 1923 he graduated from Harvard Law School and married Sadie Tanner Mossell, who in 1921 had been the first African American woman to earn a PhD at Penn and the first African American women in the nation to earn a doctorate in economics.
On to Research Takes Root >>
Great schools have...endeavored to do more than keep up the respectable standard of a recent past; they have labored to supply the needs of an advancing and exacting world...When Wharton was founded in 1881, what was the business environment like?
Joseph Wharton, Entrepreneur and Founder of the Wharton School
Daniel Raff: What is striking about the 1880s is that across a fairly wide range of industries, there was technical change with powerful organizational and commercial implications - all on a scale so large that historians actually refer to it as the Second Industrial Revolution. The first industrial revolution involved the displacement of animate sources of power such as oxen or the operators themselves with inanimate sources of power such as water wheels and steam engines. Before the first industrial revolution, you wouldn't say that America had industries so much as crafts. After the second, you had real industries. This had huge economic consequences. Think about the second revolution as being based upon new technology with massive economies of scale. In case after case, this led to a transition from industry structures that were relatively fragmented with many small regional or local producers into ones in which a relatively small number of giant firms produced for national markets using relatively expensive production plants that they needed to keep running full bore. The managers of these firms faced two big problems. The first was how to keep the raw materials and intermediate inputs coming in sufficiently steadily to use equipment at maximum capacity and at minimal unit costs. Second, they had to figure out how to actually sell immense amounts of the output they were now making. The first consideration led to a marked increase in degree of backward integration in companies. The second led to branding, national advertising, and the beginnings of recognizably modern marketing (along with some actual forward integration). All of this led to a tremendous premium on administrative coordination capabilities within companies. It was no longer viable, as it had been, say, in the early 19th century New England textile mills, for a relatively small group of managers often each of them principal owner of the company - to run companies the by themselves. In the 1880s you first began to see (outside of the railroads, of which the Pennsylvania Railroad was an outstanding exemplar) large numbers of salaried professional managers working in companies in which they didn't have a major ownership stake. The second industrial revolution was in a broad sense the birth of the type of professional career for which Wharton has been educating people ever since. How did things change in the 1890s?
DR: The catalyzing event of the 1890s was the economic depression in the U.S. and Europe early in the decade. There is a lot of financial distress, partly because of the general effects of the depression but also because of the capital-intensive nature of production processes of new industries. The capital-intensive Second Industrial Revolution firms had been producing at large scale; but suddenly demand melted away. If you are running a business whose cost is mostly fixed rather than variable, the question you should ask yourself when you want to know whether to continue producing is whether you can sell your output for more than variable cost. If you can, you can contribute a little margin towards the fixed cost. If you're making a lot of margin, you may even have something left over for profit. So if demand falls away, there is tremendous temptation to cut prices so long as they stay above variable cost. And that is what firm managers did. So the depression set off price wars. Two things happened because of this. One was that companies tried, not for the first time in American history but with a renewed sense of urgency, to figure out ways to control prices and keep them up. Many banded together either informally or through formal reorganizations of ownership among the firms. The other was that companies started to run out of money, at which point their creditors pursued reorganization for them. The trusts in particular became politically very unpopular and spawned a series of congressional actions known as antitrust statutes which are still with us today. (Ask IBM, AT&T, or Microsoft.) The other movement involved reorganization of ownership claims of companies that were not as profitable as before. The rise to real prominence and economic influence of the investment banking industry dates from this period of reorganization activities this is the period of the rise to prominence of JP Morgan and the development of a vital national market of industrial securities. The bankers had been around for some decades financing railroads and helping fund federal debt issues in the Civil War, but investment banking as the industry we know dates from this period. It seems clear in retrospect that what these bankers financial entrepreneurs did was to find ways of reorganizing ownership claims in industries so that it was easier to shut down excess capacity and run firms more profitably. This involved both coordinating the interests of the owners of the firms and selling securities to third parties to finance the transactions. You can also see in the Transactions of the American Society of Mechanical Engineers in this period the first glimmerings of the development of scientific management, which is essentially an attempt on the part of managers and engineers to "routinize" and actively manage shop floor operations. There were some industries in which it was possible to substantially mechanize the processes of making the firms more productive; but there were at this point still industries in which company owners remained highly reliant upon skilled workers. Scientific management was trying to capture the knowledge that the skilled workers had about tasks and execution, routinize it, and then plan and coordinate.
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