------------ EH.NET BOOK REVIEW --------------
Published by EH.NET (February 2007)

David S. Landes, _Dynasties: Fortunes and Misfortunes of the World's 
Great Family Businesses_. New York: Viking, 2006. xx + 380 pp. $26 
(cloth), ISBN: 0-670-03338-3.

Reviewed for EH.NET by Peter Temin, Department of Economics, MIT.


David Landes, professor emeritus at Harvard University, presents a 
dozen or so engaging stories of family firms, as we have come to 
expect from him over his long career as economic historian and 
popular author. Some of the accounts are well known, like the 
Rothschilds, Morgans, Fords and Rockefellers, while others will be 
new to most of us. We have heard of the Barings, Agnellis, and 
Wendells, but we typically know little about them. All of the stories 
are written with Landes's unique combination of good anecdotes, sharp 
judgments and felicitous prose.

To tie these essays together, Landes makes the case for the 
importance of family firms today. He acknowledges the force of 
Chandler's emphasis on managerial capitalism, but he argues that 
family firms have a prior role in economic development. In this 
claim, he associates himself on the one hand with Marc Bloch, who 
argued that Europe picked itself up from chaos in the tenth century 
by relying on the value of family connections. Landes associates 
himself on the other hand with modern economics and its concerns with 
asymmetric information and principal-agent problems. Landes argues 
that the failure of many development programs has been the neglect of 
the information and loyalty that are qualities of families -- in his 
word, dynasties.

The stories illustrate these points, but Landes's urge to tell a good 
story is at gentle odds with this justification for them. Most of the 
dynasties in this book have ruled over substantial enterprises. These 
enterprises employed many people other than family members. Normal 
business practice prevailed once these enterprises became major 
banks, auto firms, or mining companies. The importance of asymmetric 
information must have been concentrated in the early years. Yet the 
early years of well-known businesses often are shrouded in mist, and 
famous people often rewrite their history, as Landes reminds us. More 
often, the records only include success, not the early steps along 
the way. Landes, faced with the choice of examining the early, 
unknown years of these dynastic firms or telling a good story, opted 
for the latter.

The stories illustrate both successes and failures. Families may be 
the most trustworthy, but they are not always the best businessmen. 
The Baring story that opens the book is perhaps the most spectacular. 
It starts with Barings being saved by principals in the international 
financial markets in the crisis of 1890 and ends with the ignominious 
failure of Barings a century later without aid. Ford went through 
difficult periods because of Henry Ford's domination and 
pig-headedness, while French and Italian auto firms had checkered 
lives in the tumultuous European economies during and after the 
Second World War.

Landes opens a chapter with the admission that, "the Rockefeller 
story is really that of the meteoric rise of one person, John D. 
Rockefeller" (p. 217). He could have said as much about Nathan M. 
Rothschild, Henry Ford, and J. P. Morgan. In these stories, the 
making of a dynasty was more a function of biology than business. If 
there were sons who could take over the business -- daughters would 
not do -- then a dynasty could be created; if not, then the 
illustrious founder sold the company. Several of the stories hinge on 
the lack of an heir or the unsuitability for business of an heir. 
Only the Rothschilds seem to have benefited from the kind of family 
information that Landes describes in his introduction. Perhaps one 
moral of these stories is that the demographic revolution, by 
substituting quality children for numerous children, has reduced the 
role of families in economic development. Landes argues for their 
importance in less developed countries, precisely where the 
demographic transition has not taken place or is in its early stages.

One cavil may be permitted. Landes correctly includes the railroads 
in his story of Rockefeller and Standard Oil, but he misses the 
essential interaction. The railroads tried unsuccessfully to form a 
cartel and profit from shipping oil, but they could not cooperate. 
Their solution to the problem of cartel design was to recruit a fox 
to help police the chicken coop; they recruited Standard Oil to 
ensure that the railroads did not cheat on one another. Previously a 
railroad might agree to participate in a cartel and then quietly 
arrange with a few refineries to ship some extra oil more cheaply. By 
the time the other railroads found out, the deal was done, and the 
cartel was in shambles. Under the new scheme, Standard Oil 
forestalled cheating by committing to reduce the amount of oil it 
shipped over any railroad that violated the agreement. In return, it 
received both a rebate on its own shipments of oil and a drawback on 
its competitors' shipments. The fox enjoyed his access to chickens, 
and Standard Oil received about half of the profits from the railroad 
cartel.[1]

In sum, the book is a good read. Landes yet again demonstrates his 
ability to put together tales of economic and business history that 
are fun and informative.

Note:
1. Elizabeth Granitz and Benjamin Klein, "Monopolization by 'Raising 
Rivals' Costs': The Standard Oil Case," _Journal of Law and 
Economics_, 39 (April 1996).


Peter Temin, Professor of Economics at MIT, is author of "Beyond 
Markets and Hierarchies: Toward a New Synthesis of American Business 
History" (with Naomi R. Lamoreaux and Daniel M. G. Raff), _American 
Historical Review_, 108 (April 2003), 404-33 and "Economic Theory and 
Business History" (with Naomi Lamoreaux and Daniel M. G. Raff), in 
Geoffrey Jones and Jonathan Zeitlin, editors, _Oxford Handbook of 
Business History_, forthcoming.

Copyright (c) 2007 by EH.Net. All rights reserved. This work may be 
copied for non-profit educational uses if proper credit is given to 
the author and the list. For other permission, please contact the 
EH.Net Administrator ([log in to unmask]; Telephone: 513-529-2229). 
Published by EH.Net (February 2007). All EH.Net reviews are archived 
at http://www.eh.net/BookReview.

-------------- FOOTER TO EH.NET BOOK REVIEW  --------------
EH.Net-Review mailing list
[log in to unmask]
http://eh.net/mailman/listinfo/eh.net-review