I wish that I had more space to write on how disgusting Carnegie's defense is and what Rand would have to say about it, but I couldn't write a whole paper for my business history class on Rand. :-)

Andrew Carnegie, a leading industrialist of the 19th century in America, is seen by many as one of the greatest businessmen of all time. Not only did Carnegie create one of the largest and most productive steel industries in the history of American business but he was also a staunch defender of capitalism. In 1848, Carnegie started out by earning $1.20 per week in a textile mill in Pittsburgh. By 1900 Carnegie is estimated to have been receiving $40 million in profit annually from his complete revolution of the steel industry. Just that next year, in 1901, J.P. Morgan, one of America’s leading investment bankers, bought Carnegie out for a whopping sum of $480 million! It is estimated that by 1911, 8 years before his death, Carnegie had not only brought America to the forefront in steel production, but also he had given away much of his wealth to philanthropy.

When the economic system of capitalism, which made these great successes possible, came under attack, Carnegie defended capitalism on the grounds that the economic inequalities that it created were justified by the material prosperity, quality of living, and decrease in prices it ushered in. More importantly, Carnegie believed that capitalism is a moral system because of the great economic benefit that capitalism brings to the human race as a whole and that much of the wealth created by it could be re-distributed to the poor by means of philanthropy. Also important to understanding Carnegie’s argument is support and opposition by other thinkers including Adam Smith, John Stuart Mill, Karl Marx, and Ayn Rand. Therefore, in this paper, Carnegie’s economic and moral arguments for capitalism will be discussed as well as the support given by Adam Smith and John Stuart Mill and the opposition given by Karl Marx and Ayn Rand respectively.

Arising out of the break with the colonial power of Britain after the American Revolution, The United States of America slowly embraced the economic philosophy of capitalism. This period of increasing capitalist ideas in America saw a vast increase in wealth, standard of living, material goods, and overall quality of life in America, peaking with the Industrial Revolution of the late 19th century. Despite these seemingly great material benefits however, some individuals pointed out what they believed to be problems with this economic system. Most importantly, capitalism was believed to create inequality in that it concentrated a large sum of wealth in the hand of a few businessmen; meanwhile, the mass of the population, not having much wealth, was forced to submit to the economic wishes of these wealthy individuals. Thus, two main charges were laid against capitalism: it is economically harmful to the people as a whole since it engendered inequality and it is immoral and unjust that so much wealth is concentrated in so few hands.

Responding to these two charges against capitalism was Andrew Carnegie with his work entitled, Wealth. First, Carnegie argues that capitalism is extremely beneficial on purely economic grounds. While the earlier mercantilist and feudalist forms of government were economically inefficient, Carnegie states about capitalism that, “To-day the world obtains commodities of excellent quality at prices which even the generation preceding this would have deemed incredible…What were the luxuries have become the necessaries of life” (Carnegie, 115). Carnegie here is arguing that the economic system of capitalism was responsible for the availability of new and higher quality goods at lower prices than before and consequently an increase in the quality of life of the citizens living under capitalism.

As was stated earlier before, it was perceived by many that capitalism created a great inequality of wealth by placing it in the hands of a few businessmen. Carnegie, in response to this criticism, agrees that capitalism does in fact create such economic inequality. However, this economic inequality is essential to the great economic benefits stated above. As he states, “We accept and welcome, therefore, as conditions to which we must accommodate ourselves, great inequality of environment, the concentration of business, industrial and commercial, in the hands of a few, and the law of competition between these, as being not only beneficial, but essential for the future progress of the race” (Carnegie, 116). Thus, according to Carnegie, it is the law of competition that exists in a capitalist society that is directly responsible for the material prosperity that it creates. This benefit however can not exist if the government were to step in and control the economy by regulating the competition, but rather, it can only exist through the free market forces between a few leading businessmen. Therefore, even though capitalism creates economic inequality, it is the most economically efficient and beneficial to the economy as a whole. This emphasis on the economy as a whole leads to his moral argument for capitalism.

In presenting a moral defense of capitalism, Carnegie argues that capitalism is a morally good system on the grounds that it benefits the entire human race collectively. As shown earlier, Carnegie believes that capitalism is a good economic system because it is the most economically efficient for the community as a whole. Thus, Carnegie posits the moral principle that the good is that which is good for the whole community, or as he states it, the human race. As a result of this, Carnegie argues for a particular kind of businessman in the capitalist system that would serve the interests of the community as a whole. He states that the man of wealth ought to be “strictly bound as a matter of duty to administer in the manner which, in his judgment, is best calculated to produce the most beneficial results for the community—the man of wealth thus becoming the mere agent and trustee for his poorer brethren” (Carnegie, 123). Since each of these individual businessmen, in Carnegie’s conception of capitalism, should put the needs of the whole human race at the forefront, the businessmen that make up capitalism would be acting in accordance with Carnegie’s moral principle stated earlier. Applying this moral principle to the moral charge against capitalism, this new ideal businessman solves the problem of the economic inequality created by capitalism in that while the inequality would still exist, those at the top would be using their power to serve the community, not to exploit it. Therefore, Carnegie claims to justify the economic inequality that makes up the major economic and moral argument against capitalism.

Following this conception of the new ideal businessman is a way in which the businessman can serve his community as a whole: philanthropy. According to Carnegie, there are three ways to give one’s money to charitable endeavors: it can be left to one’s family (usually one child in particular), it can be bequeathed in one’s will for public purposes, or it can be used while one is living towards public purposes. For Carnegie, the first is the worst way that one could use one’s wealth due to the fact not only does the child receiving the money have an awesome burden placed on them but that money also does not go to benefit the State, thus harming the community as a whole. As for the second way of spreading wealth, Carnegie believes that a vast majority of the wealth bequeathed through a will is wasted due to the fact that the businessman can not take an active role in its dispersion and he makes it seem like the only reason for giving the wealth away is that he can not have it when he is dead. The third option, actively giving away one’s money to worthwhile causes during one’s life, is the best and most beneficial way to spread one’s wealth. As Carnegie states, “Under its sway we shall have an ideal state, in which the surplus wealth of the few will become, in the best sense, the property of the many, because administered for the common good…can be made a much more potent force for the elevation of our race than if it had been distributed in small sums to the people themselves” (Carnegie, 121). Therefore, Carnegie extends his first moral argument for capitalism by showing how his ideal businessman can distribute his wealth.

In support of Carnegie’s arguments, the ideas of two thinkers, Adam Smith and John Stuart Mill, lay at the foundation of Carnegie’s ideas. Specifically, Adam Smith advanced the economic theory of capitalism that advocates that through the individual selfishness of every member in a capitalist society, the community as a whole benefits tremendously. As Smith states in his work, Wealth of Nations: [Every individual generally] neither intends to promote the public interest, nor knows how much he is promoting it…[He] is in this case, as in many cases, led by an invisible hand to promote an end which was no part of his intention…By pursuing his own interest he frequently promotes that of society more effectually that when he really intends to promote. (Smith, 3). By many, Smith is considered to be the “father of capitalism” and therefore was no doubt a great influence to the economic and moral arguments for capitalism that Carnegie gave. John Stuart Mill, while certainly agreeing that capitalism and limited government are the most beneficial, is more well-known for his ethical doctrine of utilitarianism in which the good is that which generally promotes the greatest level of happiness in the greatest number of people. As he wrote regarding the definition of utilitarianism, “The creed which accepts as the foundation of morals, Utility, or the Greatest Happiness Principle, holds that actions are right in proportion as they tend to promote happiness, wrong as they tend to produce the reverse of happiness” (Mill, 144). Thus, when Carnegie posited the moral principle that it is good for the community as a whole to benefit, Mill’s philosophy of utilitarianism was at the base. Therefore, Carnegie’s arguments, in the context of the history of Western thought, are supported by the economist Adam Smith and the philosopher John Stuart Mill.

While Carnegie receives support from both Smith and Mill, one thinker clearly opposed Carnegie’s economic and moral arguments: Karl Marx. According to Marx, all of the societies in history have been based on the oppression of one class by a ruling class. In the case of capitalism, it necessarily breaks down into a conflict between the bourgeoisie, who own the means and modes of production, and the proletariat, the workers who only have the ability to sell their labor to the bourgeoisie. Because nature of this class conflict, the bourgeoisie can demand virtually whatever they want of the proletariat. Thus, according to Marx, the bourgeoisie unfairly control all of society. While Carnegie would argue that this inequality between the rich and the poor is beneficial for everyone in that the rich act as the agents for the good of the community as a whole, Marx would argue that the bourgeoisie use their power to exploit the proletariat. The solution for Marx is not to educate the bourgeoisie to act in the community’s best interest but rather to violently overthrow their control and establish a classless society. As he states in The Communist Manifesto in 1848, “The proletariat will use its political supremacy to wrest, by degrees, all capital from the bourgeoisie, to centralize all instruments of production in the hands of the State” (Marx, 39). Therefore, Marx stands out as a thinker in major opposition to Carnegie’s economic and moral argument for capitalism that inequality is justified.

Finally, a modern thinker of the 20th century, novelist/philosopher Ayn Rand, while a strong advocate of capitalism herself, she would fiercely oppose Carnegie’s moral defense of it. As she states in her book, Capitalism: The Unknown Ideal: America’s abundance was not created by public sacrifices to ‘the common good,’ but by the productive genius of free men who pursued their own personal interests and the making of their own private fortunes…Do not, however, make the error of reversing cause and effect: the good of the country was made possible precisely by the fact that it was not forced on anyone as a moral goal or duty; it was merely an effect; the cause was a man’s right to pursue his own good. It is this right—not its consequences—that represents the moral justification of capitalism. (Rand, 29)

For Rand, Carnegie would be an individual attempting to “make the error of reversing cause and effect.” By making the wealthy businessmen of a country the moral slaves of the whole community, one would destroy the positive benefits that they create. Would anyone want to spend the vast amount of time in school, working extremely long days and nights, and losing the ability to have many friends and family, all to be told that the wealth one worked so hard for is the moral right of those who had nothing to do with it? Very few people, Rand argues, would want to put themselves in such a position because of our human nature. Specifically, according to our human nature, the ultimate value is our own life; for, as Rand argues, one could not value anything if one was not alive. By living a life of sacrifice for the good of the community, one is contradicting one’s nature, thereby harming oneself immensely. Holding one’s own life as the ultimate value, or in other words, being egoistic, is extremely beneficial as opposed to sacrificing oneself for the good of the community. Since capitalism is the only economic system that gives human beings the freedom to be fully egoistic, it is the only moral system. Therefore, Rand offers a strong defense of capitalism but on completely different and opposing moral grounds than Carnegie.

Andrew Carnegie, steel giant of the 19th century, defended the inequality of capitalism on economic and moral grounds. Not only is capitalism more economically efficient, as witnessed by the events of history from the times of feudalism and mercantilism through the present period, but capitalism is also a moral system since it is able to best serve the human race through its economic efficiency. In support of Carnegie’s arguments are the economic theory of capitalism as advocated by Adam Smith and the moral theory of utilitarianism as advocated by John Stuart Mill. Opposing Carnegie on economic grounds is Karl Marx whereas opposing Carnegie on moral grounds is Ayn Rand. Whether or not Carnegie’s defense of capitalism was a good one or not it certainly has had a great impact on the attitudes towards capitalism and business in America.

Works Cited

Class Handout. Questions on Aphorisms and Famous Passages from the Wealth of Nations. Political Ideologies, Professor Morsink. Pg. 3.
Class Handout. Andrew Carnegie: Wealth. The History of Business in America, Professor Leavell. Pg. 115-116, 121, 123.
The Internet. Timeline. American Experience. http://www.pbs.org/wgbh/amex/carnegie/timeline/timeline2.html
Marx, Karl. The Communist Manifesto. Monthly Review Press. New York, NY. 1998. Pg. 39
Mill, John Stuart. Utilitarianism. On Liberty and Utilitarianism. Bantam Books. New York, NY. 1993. Pg. 144
Rand, Ayn. What is Capitalism?. Capitalism: The Unknown Ideal. Signet. New York, NY. 1967. Pg. 29