Popular Illusions About Trusts

by Andrew Carnegie
Reviewed date: 2006 May 9
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In response to public outcry against trusts, Carnegie defends them as a natural and good part of a capitalist economy. "The concentration of capital is a necessity for meeting the demands of our day, and as such should not be looked at askance, but be encouraged."

Trusts are good for consumers because it allows economies of scale: "Cheapness is in proportion to the scale of production." As an example, Carnegie points to the oft-criticized invention of department stores: although they put dozens of smaller shops out of business, they are more convenient, offer better products, and are cheaper for the customer than the shops they replaced.

Carnegie seems to implicitly accept the idea that a monopoly could be detrimental to the public, but he takes pains to demonstrate that real monopolies are nearly impossible to establish: "There are only two conditions other than patents which render it possible to maintain a monopoly. These are when the parties absolutely control the raw material out of which the article is produced, or control territory into which rivals can enter only with extreme difficulty." Carnegie asserts that the only non-patent monopoly in existence is Standard Oil, which is in fact a benevolent monopoly.

In his conclusion, Carnegie assets that market forces will destroy most temporary monopolies long before any antitrust legislation could make a significant impact.

Interesting note: Carnegie presumes that markets are cyclic, that is, the market alternates between periods of relative growth and decline, although the ultimate trend is one of growth. I don't know if this is still assumed by economists.

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