Andrew Carnegie is a rag to riches story where he starts working at age 13 as a poor immigrant and goes on to amass a fortune by the age of 35. And, later becomes one of the wealthiest people in the world. He writes The Gospel of Wealth to describe his views regarding the accumulation of wealth and its proper use.
Although written in 1889, it is still relevant today.
Andrew Carnegie came to American in 1848 with his impoverished parents and five-year-old brother. They settled in the Pittsburgh area where the uneducated but ambitious Andrew sets out to earn money to help support the family.
His journey from poor to wealthy certainly influenced the views presented in The Gospel of Wealth, and he never forgot his roots.
The Gospel of Wealth discusses how to bridge the age-old gap between the rich and the poor. “The problem today is administering wealth to keep the rich and poor in harmonious relationship.”
Written during the Gilded Age The Gospel of Wealth discusses why the gap exists and then proposes solutions for it.
The Gilded Age was an era of rapid economic growth in America from about 1870 to 1900 when millions of European immigrants came to benefit from industrial growth. But, it was also a period of poverty and inequality that made a concentration of wealth more visible and contentious.
Carnegie’s Unique Perspective
Most of us hold a view of the poor or wealthy based on our personal experiences and our own station in life. Carnegie’s perspective is unique, experiencing life as both a poor immigrant and very wealthy person. And, the experience of everything in between as he made the transition.
Not surprisingly, then as now, the poor want wealth distribution to them, and the wealthy want to retain their prosperity. Carnegie’s underlying view is surprising; the poor are right to a point and the wealthy are wrong.
He presents these views in an open and honest manner absent the political correctness of today. But, aside from the presentation style, his rags to riches journey lets him see both sides as well as points others miss or ignore.
He discards short term, quick, and easy fixes as superficial. Instead, he weighs the proposed alternatives against the long term impact. Always with the common good in mind.
Carnegie sees wealth accumulation and capitalism for their positive impacts on society, improving the standard of living for all.
A Practical but not Perfect System
An analogy to capitalism and wealth accumulation is a life-saving medicine with harmful side effects. Forced to make choices between life and adverse side effects most gladly choose life.
Of course, in an ideal world, there would be no side effects, but it is not a perfect world, and side effects are there.
He doesn’t suggest capitalism is ideal, just the best and most practical available. He believes that capitalism and wealth accumulation create more benefits for society than the short-comings and side effects that pull us apart.
Really all that is needed is an adjustment to a practical but not perfect system that works. This is opposed to capitalisms replacement with systems proven historically not to work; Socialism or Communism.
The Gospel of Wealth
In summary, Carnegie writes that the rich are only trustees of their wealth, obligated to give it back to the community and, preferably before their death.
They should live without extravagance, provide moderately for their families and, use the excess prosperity to promote the welfare and happiness of others.
He then goes about setting an example committing the bulk of his wealth to philanthropic causes during his lifetime.
The Gospel of Wealth was read around the world when published, and it still influences some of the wealthiest people today.
Let’s go through the tenets of The Gospel of Wealth. We’ll learn what if anything has changed over the last 130 years. And, if Carnegie’s views still hold.
The Law of Competition
Previously home businesses and small shops reminiscent of the butcher, the baker and the candlestick maker produced products and services. The master and apprentice worked side by side using the same tools and methods.
They, in turn, taught succeeding generations the same way to do it. The result was general equality amongst them, but the products and services were very basic, uncertain in quality, and the prices high.
Under the Law of Competition, improvements in efficiency, such as mass production, and technology, like the steam engine at the time, helped to produce more products and services with better quality and prices.
Economics balanced the suppliers of capital and the suppliers of labor. The result, however, was the formation of castes and friction developed between the employer and employed, capital and labor and between rich and poor.
Better Products and Prices
The products and services improved with excellent quality, and lower prices that the preceding generation would think incredible. The net effect is society benefits greatly, and the standard of living improves.
Carnegie argues the poor enjoy what the rich could not obtain or afford before. And, the laborer has luxuries the rich did not a few generations ago; better housing, books, art, medicine. These improvements benefit all.
But there is a high price to pay for the change. Thousands of employees gathered in factories, and the employer knows little or nothing about them. And, the employers seem like a myth to the employees.
This ignorance of each other breeds distrust. Under the Law of Competition, friction develops between the employer and the employed. Society loses its homogeneity.
Although the price society pays is high, Carnegie believes the advantage of inexpensive comforts and luxuries are more significant. Competition provides incredible material development and improved living conditions.
Capitalism for Society’s Greater Good
And, although capitalism is sometimes hard on the individual, it is best for society’s greater good.
“…we must *accept* 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 views individuals with the ability to conduct business on a vast scale as possessing a rare talent. A talent that invariably secures “for its possessor enormous rewards…it is inevitable that their income must exceed their expenditure, and that they must accumulate wealth.”
And, there is no middle ground because the millions invested to obtain better quality and lower prices must earn a return on the investments made. [And, the firm] “must go forward or fall behind; to stand still is impossible. It is a condition essential for its successful operation that it should be thus far profitable.”
Capitalism’s Side Effect: Economic Inequality
Carnegie concludes that inequality is the inevitable outcome of capitalism. These advancements started the day the “capable, industrious workman said to his incompetent and lazy fellow, ‘If thou dost net sow, thou shalt net reap,’…separating the drones from the bees.”
He writes that the Socialist, Anarchist, or Communist who seeks to eliminate economic inequality are attacking the foundation of civilization itself. No doubt in reference to the contentious feelings between the rich and poor during the Gilded Age.
And, concludes civilization itself rests on the sacredness of property; the other systems tried and failed.
“…civilization itself depends–the right of the laborer to his hundred dollars in the savings bank, and equally the legal right of the millionaire to his millions.”
Individualism
Good, not evil, came from the race to accumulate wealth by those with the ability and energy to produce it. And it is individualism that enables this ability and energy to come to fruition.
But, he concedes many will argue it is nobler to labor for others and share in common. He responds that this would necessitate the changing of human nature itself. And, it is not practicable even if desirable theoretically. Our duty is to what is practicable and possible now. And, it is criminal to waste our energies to accomplish little.
“We might as well urge the destruction of the highest existing type of man because he failed to reach our ideal as favor the destruction of Individualism, Private Property, the Law of Accumulation of Wealth, and the Law of Competition; for these are the highest results of human experience, the soil in which society so far has produced the best fruit.”
Concluding: “Unequally or unjustly, perhaps, as these laws sometimes operate, and imperfect as they appear to the Idealist, they are, nevertheless, like the highest type of man, the best and most valuable of all that humanity has yet accomplished.”
The Proper Administration of Wealth
Capitalism promotes the best interests of society and the inevitable side effect is wealth to the few. Still, it is better than the known alternatives of Socialism or Communism.
He then asks: “What is the proper mode of administering wealth after the laws upon which civilization is founded have thrown it into the hands of the few? And it is of this great question that I believe I offer the true solution.”
The message The Gospel of Wealth is directed to the truly wealthy. Carnegie excludes explicitly those who accumulate moderate wealth saved over years of effort that is needed for family comfort and education. “This is not wealth, but only competence which it should be the aim of all to acquire.”
In the second part of The Gospel of Wealth, we’ll learn Andrew Carnegie’s “true solution.”
Resources:
- The Gospel of Wealth
- Andrew Carnegie’s Story
Dividend Growth Investing Summary Part 5