The Golden Passport

by Duff McDonald

  The idea that college graduates should run businesses wasn’t just new; it ran counter to the way things had always been done. In the United Kingdom, for example, you either had to apprentice or be a member of the family. And usually not the most impressive member of the family at that. If Mr. Cadbury had two sons, it was the one who couldn’t get into Cambridge who got to stay home and run the business, not the other way around.

  The notion of HBS certainly had supporters within Harvard’s hallowed halls, but it does seem likely that detractors outnumbered them. Even Eliot’s recent epiphany that business success required intellectual mastery wasn’t enough to convince those critics of the merits of the idea. Melvin Copeland, a longtime professor of marketing at HBS, recalled years later that “by many professors and by numerous Harvard alumni, it was deemed to be degrading for the University to offer instruction in the venal subject of Business Management.”9

  All that said, the idea did have a lot of things going for it in early 1908, not the least of which was the emergence of a Progressive coalition united in the belief that society could improve itself through intentional and systematic reform. Moreover, as HBS’s second dean, Wallace Donham, later observed, the traditional professions were falling down on the job of providing moral authority at a time of rapid and dislocating social change. The clergy had stubbornly stuck to dogma in the face of scientific advancement, and had lost credibility in the eyes of a science-happy public. Lawyers, who had once been unbiased counselors, were becoming nothing more than servants of business.10

  So the founders of HBS took the argument to another level: The well-being of society itself demanded that business be taken more seriously by the Ivory Tower. As the trustee of society’s material resources, the businessman had greater responsibilities than to his own bottom line. And as a trustee of society’s educational system, Harvard had responsibilities to teach that to him. The study of business, they argued, could produce graduates capable of solving the human problems that had arisen because of the rise of modern business itself. It was, in a sense, the first (if slightly contorted) example of the periodically recurring argument that businessmen could not only self-govern but might be the best hope for governing the rest of us as well.

  It wasn’t as if the roster of professions was carved in stone, either. Oliver Wendell Holmes Sr. might have been one of Harvard’s favorite sons, but if he’d been born a half-century earlier, when the only doctors were Irish, there wouldn’t have been a Harvard Medical School for him to attend or at which to lecture. Accounting had just recently pushed its way into the inner circle, and the laboratory-trained engineers of the Massachusetts Institute of Technology had only been invited in when Bostonians worried that engineering’s march was getting a few too many steps ahead of them. There was always room for another cadre for the children of the privileged to join, provided it convinced the right signatories of the virtues of its application.

  With the mission in hand, then, the method needed to be addressed. In other words, what would HBS teach, and how would it teach it? In the school’s August 1908 program of instruction, they answered the first part of the what. The first year of the two-year graduate program would have three required courses—Accounting, Commercial Law, and Economic Resources—and one elective. The remaining courses included Industrial Organization, Banking and Finance, Transportation (basically, railroading), Insurance, and Public Business. But the second part of the what—what it would all add up to—was a question as yet unanswered in the minds of many, including Edwin Gay himself. He sought shelter under the broad intellectual awning of “science.” And he wasn’t the first to do so. “Led by West Point, engineers began to model businesses as rationally designed ‘engines’ that transformed scarce inputs into marketable outputs in a competitive economy,”11 writes business school and management education historian J.-C. Spender. (A very important point: The notion of the firm as a machine, as opposed to an organism, is close to original sin in the story of how the American economy has come to find itself in the predicament it is in today. But we will return to it later.)

  Said Gay in 1909: “I am constantly being told by business men that we cannot teach ‘business.’ I heartily agree with them; we do not try to teach business in the sense in which business men ordinarily understand their routine methods, or in the sense in which you speak of teaching young men to be ‘moneymakers,’ or ‘to get the better of their competitors.’ We believe that there is science in business, and it is that task of studying and developing that science in which we are primarily interested.” (This belief in science was so profound that a number of early graduate business degrees were designated masters’ in science. Some still are.)

  Gay married the spirits of scientific inquiry and professionalism, with an eye on what might be called pragmatic humanism. This was the stated reason for why HBS required an undergraduate degree for admission—the intention was to produce a sort of ethical business engineer, based on the point of view that “the administration of business was a serious matter and for its proper conduct required the services of men with breadth of view and an inclination for learning.” And the decision to include banking, finance, and insurance in the early curriculum was based at least in part on the reasoning that those occupations might be the most amenable to professionalization. (The original curriculum also included requirements in French, German, and Spanish, based on the supposition that students would require foreign languages in their business and personal dealings. American triumphalism later deemed such knowledge no longer important.)

  The pragmatism was going to come, at least in part, by utilizing not just professors but also practitioners—experienced businessmen—in the classroom, something that HBS continues to the present day. In 1908, for example, F. A. Delano, the president of Wabash Railroad, lectured on the topic of “Railroading as a Profession,” while F. B. Sears of Boston’s National Shawmut Bank taught a course titled “The Credit Department of a Bank.” Other early outside lecturers included Thomas Lamont, vice president of Bankers Trust Company (and later of J. P. Morgan & Company), and George O. May, a partner at accounting firm Price Waterhouse. William Cunningham, an employee of the Boston & Albany Railroad, taught Railroad Operations. While Cunningham didn’t even have a college degree, he went on to become a professor at HBS and a respected member of the faculty until his retirement in 1946. When you’re creating a new qualification out of whole cloth, you can’t be too picky about qualifications yourself.

  Another crucial decision was about how HBS would teach. Wharton used the more traditional scientific model of lectures and research seminars, whereas HBS decided to employ lectures and a case method patterned after the Langdell system at Harvard Law School. But it also had roots in Germany, from Gustav von Schmoller all the way back to metaphysical philosopher Gottfried Wilhelm Leibniz. The basic idea was to build qualitative understanding of the matter at hand through the accretion of myriad details collected and interpreted with a view to the good of the whole. At Harvard Law School, Christopher Columbus Langdell put the modern spin on the approach, pioneering the now-ubiquitous notion that the best way to learn American law was to study actual judicial opinions rather than the more abstract content of legal rules themselves.

  While Gay’s decision was a novel one at the time—and surely not made lightly—it’s still not likely that he had any idea it was that approach that would distinguish HBS from its competition in the decades ahead. HBS was going to be a practical school above all, but the chasm between theory and practice that opens up when the case method is employed is one that hasn’t narrowed with the passage of time. As J.-C. Spender and Jim Walsh write, “Gay’s choice was, and remains today, under constant attack from those who questioned its theoretical rigor and pedagogical objectives.”12 Today, HBS still clings to the case method as if the School’s destiny requires blind adherence to this powerful, if limited, pedagogical tool.

  Edwin Gay also decided that the School would study business history to in
form its understanding of business present. But he had a minor problem on his hands. Economic history was well established in institutions of higher learning around the world. Business history? Not so much. And to teach precedent, you must first have precedent. More practically speaking: How can you learn from history when no one has compiled it in the first place? Answer: You create that history yourself. That’s not to say that early business school curricula didn’t draw heavily on economics. But the marriage of economics and the more practical-minded coursework of the business school has always been an uneasy one, in large part due to the more abstract and theoretical nature of the study of whole economies versus the specific challenges faced by individual companies—the so-called theory of the firm. It was no accident that when hypothesizing about business in 1910, Gay conceived of the two main functions of a firm not as “production” and “distribution,” as the economists would have it, but as “manufacturing” and “marketing.”13 (Specialty functions such as banking, insurance, and transportation are mere support functions for the two primary ones.)

  Early academic inquiry into business focused on best practices in operations, in particular the question of how to organize those new business entities of unprecedented size. What had people done before, what had worked, and what had not worked? Well, no one really knew that, either, because big business was still in its infancy, although a few success stories had already emerged: John Pierpont Morgan in banking, Andrew Carnegie in steel, and John D. Rockefeller in oil.

  Edmund James had eloquently expressed almost twenty years earlier the need to study business history, but thanks must go to Edwin Gay for actually launching systematic study of that history, starting with an ambitious effort to build an archive of important business documents at HBS. And at least some thanks must also go to Rockefeller, from whom the School found some of the money needed to get it on its feet. Gay and Taussig secured $12,500 annually from Rockefeller’s General Education Board, as well as another $12,500 from private sources, to keep the lights on while they waited for the students to arrive.

  And arrive they did. The inaugural class of HBS numbered 58 men, 42 of whom had received their undergraduate degrees from Harvard. The remaining 16 came from 13 other colleges, including Yale (2), MIT (2), and Williams (2). They even had two international students, Ting-chi Chu of China and Charles Le Deuc of Paris. (Chu’s thesis was “Currency Reform in China,” a topic that could just as easily be the subject of a paper today. Some problems take more than a hundred years to solve.) Their average age was a little over twenty-three years old. The School had fifteen faculty when it opened its doors. The first classes convened in a renovated paint shop and a deserted guinea-pig laboratory, the only space available on the Harvard campus at the time.14

  Just a quarter of the original class of fifty-eight returned for a second year, but Gay wasn’t discouraged. “While this proportion of men remaining to complete the two-year course of the School is somewhat less than might be expected,” he wrote in 1909, “it is probably that during the early years of the School, and until the value of its two-year course is fully recognized, a similar disproportion in the number of second-year students as compared with those who enter in the first year will continue to be found.” (That raises, of course, the question of how anyone could recognize the value of a two-year course that had never been taught.) Similar percentages of first-year students chose not to return for their second year over the next several years, but the School was up and running, and a lack of student interest in the back half of its proposed curriculum wasn’t enough to dissuade the founders of the righteousness of their cause.

  Harvard’s claim to educate a more enlightened businessman is the mission it set for itself, and one to which it claims to adhere to this very day. As such, its success or failure at achieving that goal is one of the primary methods by which the School can be judged. But there is also another mission it set for itself: to discover the general principles of business upon which a foundation for a science of management could be built. While the School played an early, substantial, and enduring part in the study and teaching of the basic business functions—manufacturing, marketing, finance, and the like—the idea that business was more like physics than, say, diplomacy, set the School off on a fool’s errand that lasted years and consumed an inordinate amount of effort before they finally realized that they’d been chasing a chimera. With HBS, Harvard University founded a graduate school in the hope that it would eventually figure out what to teach. It usually works the other way around.

  True to the prevailing spirit of the age—that science held the answers to most of society’s ills—a “man of science” was the first-responder to this crisis. Frederick Taylor, the father of scientific management, was all the rage at the time, and Edwin Gay was one of his biggest fans. Gay called Taylor’s work “the most important advance in industry since the introduction of the factory system and power machinery” and put Taylorism at the heart of the original HBS curriculum. He even recruited Taylor, who lectured at the school between 1908 and 1914.

  3

  The “Scientist”: Frederick W. Taylor

  The legacy of Frederick W. Taylor is rife with contradiction. Was the father of scientific management one of the best things to happen to American management know-how or one of the worst? Was he a friend of the workingman or his enemy? Was scientific management an actual science or was it simply counting? Did he truly advance the management of business or was he simply a first mover in the business of management? At least one thing is certain: Taylor was a crucial player in the early years of the Harvard Business School, and its most prominent lecturer from the very start.

  When Edwin Gay was tasked with designing a curriculum and recruiting faculty for HBS, he had a fundamental problem on his hands: No one really knew what to teach. So he naturally scanned the horizon for someone—anyone—who was teaching something—anything—that seemed suited to the School’s still-unfocused ambitions. Frederick Taylor was an obvious choice, for a number of reasons. For starters, he was the most famous management engineer of his time, the precursor to what are now known as management consultants. Moreover, he was a pioneer in what we now refer to as business case studies, the spinning of compelling narratives of how one particular company decided on a course of action and how it played out over time. In Taylor’s case, his case study had to do with ninety-two-pound pig-iron bars,1 which we’ll return to shortly.

  The son of prosperous Pennsylvania Quakers, Taylor showed a quick mind and a knack for inventiveness as a youth. He had been admitted to Harvard as an undergraduate, but for some reason (the stated one: a nervous breakdown) had instead chosen to apprentice in a Philadelphia machine shop, Enterprise Hydraulic Works. He then went to work for the Midvale Steel Company, where he rose from lathe operator to chief engineer in six years. It was there that he began his studies in worker productivity, which rank among the first notable extensions of the logic of mechanical efficiency into the realm of human organization.

  An advocate of “the one best way” to do any particular task, Taylor argued (first at Midvale, and then later on a national scale) that there was a right man—and a right tool—for every job, and that there was a “science” in determining not just who should do what, but how much they should be paid for it. As Matthew Stewart, a philosopher, former management consultant, and bestselling author, puts it in The Management Myth, Taylor was pushing a new philosophy of management, the use of math (which he called “science”) to “work smarter, not harder.”2

  To that point, management of the country’s newly gargantuan corporations—everything from railroads to wholesalers (Marshall Field), department stores (Macy’s), mail-order firms (Sears), meatpackers (Swift and Armour), ore refiners (U.S. Steel), and electrical manufacturers (General Electric)—hadn’t been that focused on control of their workforces. The secrets to success at the time, argues historian James Hoopes, were things like first-mover advantages, capital-intensive barriers to entry, and pr
otective tariffs.3 Most companies saw oversight of the workforce as a simple matter of command-and-control, the organizational stratagem that had been ported over from the military along with actual terminology such as division and dispatcher.

  Most manual labor workforces of the era were run similarly—workers were given piece-rate pay that supposedly incentivized them to work hard. But anyone who has ever worked piece-rate knows that the incentive only works up to a point, because whenever workers raise their output substantially, management invariably “breaks” the rate, and workers end up having to work harder to stay even. So an equilibrium is always found, and it’s never one that has everyone working as hard as they possibly can for every single minute they’re on the job.

  Frederick Taylor wanted to change that. He took what he’d learned on the labor side of the piece-rate equation at Midvale and decided to wield it as a weapon against his former peers when he was promoted to gang boss, aka management, in 1879. “Other blue bloods dirtied their hands in nineteenth-century factories as preparation for a career in the executive office,” writes Hoopes, “but only Fred Taylor went to war with his men. The other shop-floor scions probably saw the sensible fairness of the men’s plodding pace in response to the fraudulent incentive of piece-rate pay. But Taylor, with his self-righteous lack of empathy, believed that the shirking workers were cheating him and the company.” And therein were the seeds of a philosophy: “The way to raise productivity,” writes Hoopes, “was to fix the piece-rate system so that more work really did earn more pay.” Taylor claimed to have doubled productivity at Midvale, and through the use of a “win-win” system.