Cities and the Wealth of Nations

Rating:
Summary: Wealth Creation
Review: "Any settlement that becomes import-replacing becomes a city." Cities and the Wealth of Nations, Jane Jacobs

Written by an economist, this is a very unusual book. Ms. Jacobs is not hampered by orthodox preconceived notions, misleading postulated theoretical myths like utility optimization, rationality, or efficient markets. These standard phrases of neo-classical economic theory cannot be found in her book. Instead, and although her discussion is entirely nonmathematical, she uses a crude qualtitative idea of excess demand dynamics, of growth vs. decline. Her expectation is never of equilibrium. The notion of equilibrium never appears in this book. Jacobs instead describes qualitatively the reality of nonequilibrium in the economic life of cities, regions, and nations. She concentrates on the surprises of economic reality.

Jacobs argues fairly convincingly that significant, distributed wealth is created by cities that are inventive enough to replace imports by their own local production, that this is the only reliable source of wealth for cities in the long run, and that these cities need other like-minded cities to trade with in order to survive and prosper. Her expectation is of growth or decline, not of equilibrium. If she is right then the Euro and the European Union are a bad mistake, going entirely in the wrong direction. As examples in support of her argument she points to independent cites like Singapore and Hong Kong with their own local currencies. Other interesting case histories are TVA, small villages in France and Japan, other cases in Italy, Columbia, Ethiopia, US, Iran, ... .

The book begins in the chapter "Fool's Paradise' with discussions of Keynsian economics and Phillips curves (the Philips curve idea is demolished convincingly by Ormerod in "The Death of Economics"), I. Fisher and monetarism, and Marxism. These were all ideas requiring equilibria of one sort or another. Also interesting: her description why, in the long run, imperialism is bound to fail, written in 1984, well before the fall of the USSR. Her prediction for the fate of the West is not better. Jacobs is aware of the idea of feedback and relies on it well and heavily. She is a sharp observor of economic behavior and is well versed in economic history. This book will likely be found interesting by a scientifically-minded reader who is curious about how economies work, and why all older theoretical ideas (Keynes, monetarism, ... ) have failed to describe economies as they evolve.

I'm grateful to Yi-Ching Zhang of the Econophysics Forum for recommending this book.

Rating:
Summary: Wealth Creation
Review: "Any settlement that becomes import-replacing becomes a city." Cities and the Wealth of Nations, Jane Jacobs

Written by an economist, this is a very unusual book. Ms. Jacobs is not hampered by orthodox preconceived notions, misleading postulated theoretical myths like utility optimization, rationality, or efficient markets. These standard phrases of neo-classical economic theory cannot be found in her book. Instead, and although her discussion is entirely nonmathematical, she uses a crude qualtitative idea of excess demand dynamics, of growth vs. decline. Her expectation is never of equilibrium. The notion of equilibrium never appears in this book. Jacobs instead describes qualitatively the reality of nonequilibrium in the economic life of cities, regions, and nations. She concentrates on the surprises of economic reality.

Jacobs argues fairly convincingly that significant, distributed wealth is created by cities that are inventive enough to replace imports by their own local production, that this is the only reliable source of wealth for cities in the long run, and that these cities need other like-minded cities to trade with in order to survive and prosper. Her expectation is of growth or decline, not of equilibrium. If she is right then the Euro and the European Union are a bad mistake, going entirely in the wrong direction. As examples in support of her argument she points to independent cites like Singapore and Hong Kong with their own local currencies. Other interesting case histories are TVA, small villages in France and Japan, other cases in Italy, Columbia, Ethiopia, US, Iran, ... .

The book begins in the chapter "Fool's Paradise' with discussions of Keynsian economics and Phillips curves (the Philips curve idea is demolished convincingly by Ormerod in "The Death of Economics"), I. Fisher and monetarism, and Marxism. These were all ideas requiring equilibria of one sort or another. Also interesting: her description why, in the long run, imperialism is bound to fail, written in 1984, well before the fall of the USSR. Her prediction for the fate of the West is not better. Jacobs is aware of the idea of feedback and relies on it well and heavily. She is a sharp observor of economic behavior and is well versed in economic history. This book will likely be found interesting by a scientifically-minded reader who is curious about how economies work, and why all older theoretical ideas (Keynes, monetarism, ... ) have failed to describe economies as they evolve.

I'm grateful to Yi-Ching Zhang of the Econophysics Forum for recommending this book.

Rating:
Summary: One of the Best
Review: I read this in 1984. It is one of the five best non-fiction books I have read. Really. It forced me to reconsider some long-held notions about the economic role of individuals, and their environments, in society.

Rating:
Summary: Dated in some particulars but not as a whole
Review: It is true that the opening chapter of this book sounds dated, but the book as a whole still stands up well.

The first chapter provides the motivational background for the rest of the book by discussing the problem of stagflation, and how existing schools of economic thought failed to account for it (prices should not go up when the economy is in a slump). This does have a dated ring to it; who has been worried about stagflation in the past 20+ years? But the discussion of stagflation merely serves as motivation for what follows, and contemporary readers will be able to think up similar economic mysteries that we live with today, e.g. why did years of near-zero interest rates fail to stimulates Japan's economy as theory said they should, and similarly why is the US still struggling to recover from a recession when it interest rates have been at historic lows for several years?

The rest of the book is devoted Jacobs's thesis that the economic unit that matters is not the nation, nor the individual nor the corporation, but the city (or "city regions" as she calls them). She describes (using examples which still hold up today) the economic effects that cities have on each other and on less developed areas.

As in Jacobs's other books, the writing style is clear, direct and easy to understand.

I would like to hear Jacobs's perspective on European currency union: if she holds to the analysis of the effect of national currencies on cities given in this book then she should be predicting (in the long term) serious economic malaise in Europe, especially in those parts of the union which are currently less developed.

Rating:
Summary: The Sky Is Falling, the Sky Is Falling
Review: It's probably not a good sign when you find yourself laughing at what is supposed to be a serious, scholarly, economic work, which is exactly what I found myself doing at Jane Jacob's "Cities and the Wealth of Nations: Principles of Economic Life."

This book is definitely a product of its time. It was originally issued in 1984; a time when the United States, and most other industrialized economies, were finally emerging from what had been an almost 15 year economic malaise known as "stagflation". Stagflation was a new reality in the Western world. The West had not experienced a time in its recent economic history when inflation and unemployment levels were rising in tandem. There were many pundits at the time trying to figure out why exactly that was happening. "Cities and the Wealth of Nations" is Jacobs' crack at an explanation.

Her foundation is good: cities, in so far as they are the largest accumulations of human talent and intelligence, are the economic engines of nations. However, Jacobs goes astray by forgetting what it is that makes cities important, human ingenuity, and by treating cities as organic, almost sentient beings. Cities are important because they are the largest reservoirs of human skills and for no more.

Jacobs believes that cities should be given precedence over national economies to the point where individual cities would almost certainly function better as independent city-states. In a perfect world, this may be so; but, as we all know, we hardly live in a perfect world. There is a reason why city-states either voluntarily joined to form larger nation-states or were forcibly joined by more powerful neighbors: security.

Nation-states offer security from foreign coercion to otherwise unprotected cities. It's unlikely that the thriving cities of Europe like Paris, London, or Milan would have acceded to their current heights had they remained as independent cities. They would have been constantly exposed to raids and attacks by more powerful and jealous neighbors bent on taking their wealth. A people need to feel secure in their persons in order to concentrate their efforts on the business of business. That security is best provided by the nation-state.

Also, her premise that each city would be better off with its own currency is beyond funny. Reality has shown us that any time a business is forced to deal with many different currencies to provide for most of its revenues it will be restrained by transaction costs across those currencies. The largest multinational corporations derive most of their revenues from only a few currencies. They may deal in a large number of them but only a few supply most of their revenues. This arrangement reduces transaction costs and allows businesses to use their funds in a more productive fashion.

With "Cities and the Wealth of Nations", Jacobs was sounding the death knell of Western progress. According to her, New York, London, Boston, Frankfurt, etc. should be rotting corpses of their former selves by now. Instead, the past 17 years since this book was published has seen one of the most remarkable economic expansions in the history of the world, not to mention Western civilization. Western cities are thriving despite many serious problems that need to be dealt with.

Along with these thriving cities goes thriving nations. Western nations still reign supreme when it comes to economic and military might. That last one is important because Jacobs believes that a standing military is by nature a presage of decline. It's funny though how many of our current everyday economic tranactions involve items that were spurred by defense purposes: commercial airlines, microwave ovens, communications satellites, the interstate highway system, the internet, etc. Far from being a drain on economic wealth, defense spending, within reason, is a spur to economic development of the most important kind: high-tech, cutting-edge production.

"Cities and the Wealth of Nations" is good reading for getting a glimpse into the end-of-the-world paranoia that plagues us at the end of any long economic backslide. We didn't get too much of it in 1992 because that slide was so short-lived. Although I'm sure that many "chicken little" books like this one were starting through the pipeline when we started our recovery.

Rating:
Summary: Age Does Not Wither the Provocative Appeal
Review: It's probably not a good sign when you find yourself laughing at what is supposed to be a serious, scholarly, economic work, which is exactly what I found myself doing at Jane Jacob's "Cities and the Wealth of Nations: Principles of Economic Life."

This book is definitely a product of its time. It was originally issued in 1984; a time when the United States, and most other industrialized economies, were finally emerging from what had been an almost 15 year economic malaise known as "stagflation". Stagflation was a new reality in the Western world. The West had not experienced a time in its recent economic history when inflation and unemployment levels were rising in tandem. There were many pundits at the time trying to figure out why exactly that was happening. "Cities and the Wealth of Nations" is Jacobs' crack at an explanation.

Her foundation is good: cities, in so far as they are the largest accumulations of human talent and intelligence, are the economic engines of nations. However, Jacobs goes astray by forgetting what it is that makes cities important, human ingenuity, and by treating cities as organic, almost sentient beings. Cities are important because they are the largest reservoirs of human skills and for no more.

Jacobs believes that cities should be given precedence over national economies to the point where individual cities would almost certainly function better as independent city-states. In a perfect world, this may be so; but, as we all know, we hardly live in a perfect world. There is a reason why city-states either voluntarily joined to form larger nation-states or were forcibly joined by more powerful neighbors: security.

Nation-states offer security from foreign coercion to otherwise unprotected cities. It's unlikely that the thriving cities of Europe like Paris, London, or Milan would have acceded to their current heights had they remained as independent cities. They would have been constantly exposed to raids and attacks by more powerful and jealous neighbors bent on taking their wealth. A people need to feel secure in their persons in order to concentrate their efforts on the business of business. That security is best provided by the nation-state.

Also, her premise that each city would be better off with its own currency is beyond funny. Reality has shown us that any time a business is forced to deal with many different currencies to provide for most of its revenues it will be restrained by transaction costs across those currencies. The largest multinational corporations derive most of their revenues from only a few currencies. They may deal in a large number of them but only a few supply most of their revenues. This arrangement reduces transaction costs and allows businesses to use their funds in a more productive fashion.

With "Cities and the Wealth of Nations", Jacobs was sounding the death knell of Western progress. According to her, New York, London, Boston, Frankfurt, etc. should be rotting corpses of their former selves by now. Instead, the past 17 years since this book was published has seen one of the most remarkable economic expansions in the history of the world, not to mention Western civilization. Western cities are thriving despite many serious problems that need to be dealt with.

Along with these thriving cities goes thriving nations. Western nations still reign supreme when it comes to economic and military might. That last one is important because Jacobs believes that a standing military is by nature a presage of decline. It's funny though how many of our current everyday economic tranactions involve items that were spurred by defense purposes: commercial airlines, microwave ovens, communications satellites, the interstate highway system, the internet, etc. Far from being a drain on economic wealth, defense spending, within reason, is a spur to economic development of the most important kind: high-tech, cutting-edge production.

"Cities and the Wealth of Nations" is good reading for getting a glimpse into the end-of-the-world paranoia that plagues us at the end of any long economic backslide. We didn't get too much of it in 1992 because that slide was so short-lived. Although I'm sure that many "chicken little" books like this one were starting through the pipeline when we started our recovery.

Rating:
Summary: Specialization and Adaptation
Review: Jacobs writes convincingly that individual firms are not the basis of the economy. She identifies the city as a place in which economic activity is generated by a network of interlocking dependencies amkng firms as the basis of an economic analysis. She identifies these interdependencies as either being capable of adapting to change or incapable. A closed fixed system of interdependencies is the hallmark of a city (or a firm) which is ready for decline. Cities or enterprises in which the economic components are free to exploit new opportunties can adapt to challenges from outside. Jacobs charaterizes this adaptation as taking the form of a specialization of an existing economic component to supply a new need.

Contary to popular belief this notion of local as central to economic life is not opposed to glabalization. On the contrary it is opposed to the view that the nation state is central. Jacob's analysis explains economics as global network of independent local units. In this network each local unit will continuously adapt to the challenges and opportunities supplied by the needs and supplies of the other units.

Jacobs shows that only by being open to change, by being willing to adapt, by being willing to let old ways die oif they no longer serve their purpose can a city or an enterprise ensure its long term survival.

Rating:
Summary: Age Does Not Wither the Provocative Appeal
Review: Some of your other reviewers have said that they believe this book is outdated.

That is, I can't help but think, the reaction of internet babies, who are spoiled by the 24 hour round-the-clock updating of bloggers.

This is a printed book that gives evidence of having been written at a certain moment in history, and in a certain portion of the planet. So what? That is true of all great books, and the question for us is whether we can (a) appreciate that context while (b) taking from them something lasting.

The answer, for this book, is decidedly afirmative.

Rating:
Summary: Downright SCARY.
Review: This book is a chilling repudiation of every word of our current economic gospel of global trade. Its central premise is that the metropolitan area or city-state is a fundamental economic building block, self-regulating and self-sustaining until outside forces conspire against it -- and what are shared currencies, free-trade agreements and globalization of markets for goods and labor but those very outside forces? If Jacobs' theory is correct -- and Lord help us, but I think it is -- we're on a runaway train in exactly the opposite direction we need to be going in to restore economic stability and fairness to the world. Everyone should read this book, if only to absorb a well-argued rebuttal to the free-trade propaganda with which we're constantly bombarded.

Rating:
Summary: An exciting, observant, and enduring work
Review: Wow. Jacobs is so adept at explaining the complex currents of global, national and local economies that even the casual reader will be spellbound. The book is simultaneously radical (she essentially repudiates all modern macro-economic theory) and reasonable. This book is a great asset to anyone who wishes to comprehend the world around them.