In the more than two centuries since the beginning of the radical transformation of economic life that accompanied the rise of industrial capitalism, one of the most interesting trends has been the changing nature of the forms through which people have engaged in economic activities. Before the industrial revolution, an artisanal mode of production predominated, with many small work-shops producing the goods required by the largely agrarian economy. At first glance, such the existence of many small firms would suggest a highly competitive economy; however this was not the case. Rather, the high cost of transporting goods created by primitive transportation networks, the risk of brigands, etc., meant that, rather than a single integrated economy, there existed many small economies between which only low-bulk, high-value goods (such as spices) were exchanged. In this situation, workshops were almost universally owned locally, since the cost of monitoring an agent in a distant city would be prohibitively high (the exception being those in the aforementioned low-bulk, high-value businesses, but they also helped ensure the loyalty of distant agents by using family members).
However, the advent of the 19th century transportation and communication revolutions, which brought better roads, canals, steamships, railroads, and telegraphs into widespread use, changed the game. The many local markets became increasingly integrated, and the prices of commodities converged over the course of the century. These changes also led to radical shifts in how firms were both run and owned. With huge, growing markets at their disposal, firms could, as Chandler describes in his brilliant book Scale and Scope: The Dynamics of Industrial Capitalism, drastically reduce the unit cost of many products by engaging in capital-intensive mass production. However, in order to fully take advantage of such available efficiencies, firms needed to mobilize amounts of capital beyond the resources of almost any individual or family. As a result of this problem, the "managerial firm" emerged as the dominant model in many industries by the end of the 19th century. Where, previously, the owner of a business was generally involved with its operations, managerial firms were characterized by a separation of ownership and management (which began to be undertaken by salaried professionals).
