In his indispensable Treatise of monopoly, Carnegie developed his theory that there is only one possible way of organizing a market: monopoly or duopoly. His book is important, and his arguments are well argued. But I think his emphasis on the role of monopoly power in depressing economic activity is too broad. I do not find that he gives enough attention to what he calls the central-planning fallacy. His book is therefore much more useful as an outline rather than as a book-length treatise.
If one wishes to study monopoly and economic freedom, then one should not only look at what Carnegie did, but what precedents he set. For example, John Locke claimed that a natural tendency to create a monopoly was one of the main causes of revolution. He said that natural monopolies arose from monopoly government.
But this is not entirely true. In The Wealth of Nations, he said that natural monopolies arise “by a dependence of trade upon custom and imitation.” This is surely a closer analogue to the current situation. And yet it does not imply that competition is always and necessarily beneficial. I doubt whether there is any sound theoretical reason for expecting that a free market with no restrictions will automatically provide a competitive enterprise with all the inputs necessary to produce its maximum volume of goods.
Still, when we examine what business practice contributed most to Andrew Carnegie’s achievement, we come across two main elements.
The first is his success in establishing a system of coordinated enterprise. He set up a series of interlocking production and sales centers which functioned smoothly and productively. The second element was to use these centers as the main source of information and the Means of Communication to the rest of the country.
The ability to get things done by collaborating is clearly one of what business practice contributed most to Andrew Carnegie’s achievement. It laid the basis for a much wider system of coordinated enterprise. Carnegie’s method of setting up a large network of cooperating factories was not revolutionary. It was simply a modernized variation of the older guild-like system of local barter where products were exchanged locally at mutually decided rates. It also combined the two functions of a manufacturer: the control of prices and the distribution of products.
The present system of distribution and the method of controlling costs were brought about primarily by the rise of the factory. But business practice and the ability to think creatively beyond the old methods enabled him to improvise and extend the new system. He could, for instance, improve on the distribution system by setting up a network of “paper mills.” By realizing that some tasks could be automated and done more cheaply, he could set about reorganizing the economy and creating a system of distribution that would save costs and enhance effectiveness. His innovations were profound and they changed the face of business.