There have been times/places where everything was city-states (classical Greece, renaissance Italy, the Holy Roman Empire, Sengoku period Japan), and they were not good times/places to live.
I don't know how strongly that argues against what Jane Jacobs actually said, but to me it's a pretty strong argument against the "everything should be a city-state" point that the review suggests she almost said.
It seems like one way to ease the lack of feedback to cities that Jacobs points out is a YIMBY-like openness to internal migration. It’s certainly not as effective as currency feedback in terms of helping places, but it seems like it’s relatively effective at helping people: your city is failing, so move to a city that’s not failing!
This was great, it introduced an idea that I hadn't heard of/considered before and that seems at least somewhat compelling. My guess about at least part of why her ideas may not have caught hold as strongly in mainstream economics is a lack of quantitative predictions. Modern Economics (for both better and worse) is built on a foundation of math and quantitative analysis. It's great to have a good idea, but then you need to figure out a way to make testable hypotheses using data you can actually collect. If you can't do that, then you aren't going to get more than a shrug.
But assuming for a moment that this is all 100% correct, it does imply a somewhat depressing conclusion: Human flourishing seems to be self limiting (at least in the rate of increase) due to the combination of the economic reality that smaller, more dynamic entities are what drive growth, but human psychology leads to ever greater agglomeration and centralization. When societies become successful, they are driven to kill the very thing that gave them their success.
I hope she is at least wrong in part, because I'm quite skeptical that we will overcome the psychological part anytime soon.
Saying that (urban, free-market) import replacement has "approximately nothing" to do with (national, government-encouraged) import substitution doesn't seem right. I mean yeah there's an important distinction between the two but they're clearly related...
I am by no means an expert on economics, but I was under the impression that "optimum currency areas" were a well-known topic of study with quantitative (testable?) predictions, and that the generally accepted theory in this regard suggests optimal areas larger than single urban areas.
I was a little surprised not to see any reference to this in the article, and whether there is some synthesis possible between Jabobs' ideas and optimum currency area theory.
>The prices in a poor country like Portugal or India (her two examples) feel low for an American or Canadian, but they’re high for most Portuguese or Indian people. At the same time, Portugal and India provide too few jobs to their residents. Inflation and unemployment are both perennially high, and none of that feels surprising whatsoever.
This is an egregious mistake. Expensive != inflation.
This is a fascinating review, well deserving of a spot among the finalists! I had never heard of either of these books. Thank you to whoever wrote this review!
Jane was clearly a brilliant and original thinker, but I can't help thinking that she has overlooked many things. (Epistemic status: wild-ass speculation from a non-economist; please tell me where I'm wrong.)
The way Jane tells it, it's so simple: divide the world into smaller units, each unit will be incentivized to produce stuff and export stuff; prosperity for all! In reality, well...
/laughs-sobs in Sub-Saharan Africa
There are plenty of small countries that would benefit tremendously from import replacement and yet continue to be stuck in subsistence-level agriculture and poverty. If Jane is right, then why hasn't the end of colonization unleashed a ton of productivity and prosperity everywhere? She makes very insightful points about the disadvantages of empire and size, but she overlooks some basics like "infrastructure" and "good institutions" and "cultural norms against corruption and nepotism" and "strong rule of law" and such. Being small and locally controlled and having your own currency is clearly NOT sufficient for a strong economy!
Second, the reviewer says that Jane would have applauded Brexit. From my very cursory skimming of The Economist magazine, I get the impression that Brexit has been an economic disaster for the UK, so much so that Scotland wants to leave the UK *and rejoin the EU*! If autonomy is all that and a basket of roses, why would Scotland want to join the EU? What does the EU offer that Jane could not see? Why hasn't the UK blossomed post-Brexit, contrary to what we might have guessed based on Jane's writings?
Third, our old friend Moloch comes a-knocking. "Si vis pacem, para bellum." It's all well and good to have a bunch of right-sized somewhat-larger-than-city-states, as long as all these entities agree to cooperate and not attack/conquer each other. All it takes is one Putin to ruin it for everyone.
This was a great review and a great post. I could not stop reading it.
I wonder what Jacobs and those who support her theories think about autonomous regions like Tyrol (shared by Italy and Austria) and The Basque Country (shared by Spain and France).
Both regions are incredibly wealthy and are in constant negotiations with the centralized states with regards to the sharing of power and economy. I was very impressed when I visited these regions and felt that more places could use this system.
I wonder if Jacobs thought that the centralized governments would eventually make these regions poor?
The central premise seems to be pretty in line with Austrian theory - "mal-investments wreck the economy". Her value adding insights seem to be "hey there's a ton of bad investment / underinvestment happening because of signal distortion that we haven't really been seeing. Large regional currencies disguise important signals and the things large regions do to try to pacify peripheries don't give back as much as they cost and slowly drain everything" and secondly "you might think the former statement suggests that maybe we need to go down even further and assess within cities or even at the individual level, but no, actually cities are the right unit to consider economics".
The former is pretty in line with previous economic theory and makes apparent sense.
I'm not nearly so convinced of the latter. This focus on import replacement feels like a special case and not a precondition. Trade is good where there's comparative advantage and literally creates wealth. You could not make a struggling city prosperous by nudging it to replace imports. Rather, it seems like in some notable cases where places happened to, by chance, find themselves in a situation where it suddenly made tremendous economic sense to replace imports, doing so made them a lot of wealth very quick, which makes sense. All at once they started pocketing the costs previously paid in shipping and tariffs. I'd really like to know a lot more about the specific mechanisms by which those 5 forces create the declining towns mentioned, because overall the USA seems to be a tremendous counter point to her thesis. There are a large number of massive economic centers that are very successful and growing rapidly, even if you can pick out a biggest, and many didn't do it by a process of replacing imports generally.
An alternative model of events that maybe fit the same data:
People will agglomerate where a combination of factors make productivity high. Some of these factors are things like natural resources, availability of labor, access to capital. Two other notable factors are economic and governmental policy, and the network (agglomeration) effect.
Starting from a state of some distribution of economic centers of various size, in large economic centers there is high productivity due at least in large part to it's large network. It's trend however is for natural resources to drain and more importantly for local policy to be captured, lowering productivity.
In some small regions, there will be plenty of access to resources, sufficient access to labor. Capital in the modern world is relatively fluid. As long as a locality keeps their policy good, at some point somewhere the scale is going to tip - someone considering their next venture will weigh the large network of the large center against it's low natural resources, poor access to cheap labor, and / or constrictive local policy, and choose the smaller center.
This creates a cascade because now the smaller center has more capital and a larger network, making the next venture more likely to pick it. In very short order, there is a sudden shift of economic activity from various places to this new center, which _looks_ like import replacement, because it's suddenly producing a lot of activity.
The city might still be right unit if economic analysis but I'm not convinced. But the proposed solution for economic crises is "keep policy that makes it easy to be productive and stop making mal investments"
I have a lot of issues with the Jacobs view of the world. She’s right of course that the nation state is an abstraction that contains a lot of internal variation, but so too is a city! Western Sydney is substantially poorer than the Northern Beaches. The Bronx is poorer than Manhattan.
It’s often useful to sum up these areas with differing economic circumstances as “Sydney” or “New York”, just as it’s often useful to sum up Auckland and Christchurch as “New Zealand”. But I don’t see a principled reason to embrace the city as the fundamental economic unit.
I’m also deeply unconvinced by the idea of import replacement being an especially important process. It seems to imply that the more things a city produces for itself the more it will grow, while in reality it seems to me that the largest cities have the most trade.
Suppose we have a factory town that imports food and exports widgets. If the demand for widgets collapses and they turn to subsistence farming, that’s “import replacement” but it doesn’t seem like a step in the right direction economically. Conversely if the price of widgets goes up and they can start importing more stuff, that seems like a good thing, even though it’s kind of the opposite of import replacement.
Hm, so, as the natural boundaries for calculating housing prices are not cities or states, but neighborhoods and metropolitan areas, so the natural boundaries for efficient economic engines are not nations but conurbations? Sort of a watershed theory of grouping...
Some of this is similar to a crazy theory I cooked up while on a long drive, a number of years ago. I posted it earlier on one of the housing posts, so I'll quote without editing. I welcome any comments ripping it to shreds, and pointing out what huge chunks of human life it casually ignores (a big one is added value, as in the chain from ore to metal to machine part to full assembly). :-)
> America's current population distribution is an artifact of inefficient transportation and slow travel, and it's slowly transitioning to a new equilibrium. (This is deliberately provocative and biased framing, which assumes as "normal" a pattern which we are only moving towards.)
> Ultimately, the interior of the continent is for resource extraction (including such things as farming and the use of cheap hydro-electrical power to work aluminium). Ports at natural harbors and large rivers allow inhabitants to siphon off some of the value of the trade flowing through. Everyone else, including tech workers, might as well live in one giant city, or in the middle of nowhere or in small towns if they can work remotely and choose to. Legacy cultural and industrial centers may hold out for a time, but will eventually succumb to gravity, because resisting requires a constant use of energy. (See also, how so many native languages of the world are dying out, and how American Standard English is effortlessly gaining ground. Resisting this takes active effort; going with the flow takes none.)
> Some jobs, such as resource extraction or creative work, essentially generate wealth ex nihilo. Everything else, from government to schools to restaurants to retail to hairdressers to movie theaters, all of that siphons money out of wealth generation. (This is not meant to be pejorative, merely descriptive.) Wealth flows, like current (i.e. currency) from one person to the next to the next. But each time it flows through a corporation with a non-local HQ, some of it is siphoned away to the location of the HQ. And eventually, to the location of the owners of capital, and while they may invest some of that on a global level, their circles of concern tend to center on their own location, and the governments of their own location siphon off their share.
> Overall, resources and money flow downhill like rivers, seeking the ocean. A little mining town in West Virginia may have one source of generated wealth, and if that source dries up or goes away, the town will slowly shrivel and die. Every time anyone spends money at a chain store or online, wealth leaves and does not return. Yes, yes, equal exchange of value, but even putting aside taxes and profit, something has left that will not return. Draw a line around the town and monitor cash in and cash out, and it will show a steady flow outward. The death knell is when they resort to tourism, an explicit attempt to create artistic value inside the line that will draw in wealth from outside.
This review sparked a lot of interesting ideas. Bravo! Particularly noticing how states are so fleeting and cities are so often immortal, and what implications that has for the basic unit of economic analysis.
I couldn't help thinking as I read, that in a world where Jacobs is correct, what you really need isn't a patchwork of independent city-states as such, but rather a large confederacy with some extremely weird fiscal policies. I can imagine, for example, a world where the west coast of the US becomes "Pacifica" or whatever, and allows Seattle, Portland, San Fransisco, and Los Angeles to each mint their own fiat currencies with oversight by a local 'Fed', and maybe even manage their own internal tax policies up to and including tariffs against other cities in Pacifica. The role of the state, Pacifica, in this would be to oversee and centralize military development (an economic drag, but not as much of one as a war between Seattle and Portland), set a floor for basic human rights (especially exit rights and migration), and manage policy towards rural areas outside major city regions (probably with an archipelago of minor municipal governments, much as it is done today). The state of Pacifica would need to be tax-supported, but without the ability to set fiscal policy, or indeed to even mint its own currency, that would probably have to be done with literal production quotas from each city or something equally strange.
One quibble about Seattle: Boeing doesn't just make military planes, it's one of the biggest civilian plane manufacturers in the world, and has been for a long time. I think currently the civilian side generates about twice as much revenue as the military side, but I don't know how that holds up historically, through all the mergers and whatnot.
Plus, Seattle has a huge port, by at least one metric the 4th largest port in North America (for countainer ports, behind LA, NY, and Savannah, ahead of Vancouver BC and SF). (For sheer tonnage, it doesn't match east coast ports, though.) I have in the past described all the "cool parts" of Seattle as being a wart on the gigantic port complex.
Also, the reason Boeing is near Seattle is cheap electricity via hydroelectric power, for aluminum working. So in an ominous sense, Boeing's location there is another example of an industry making use of local resources, the way Detroit was.
How do you reconcile the theory that `all large polities decline' with the sustained multi-century growth exhibited by such large polities as the USA? For that matter, how do you reconcile the `one country one major city' hypothesis with the state of affairs in the USA, or China, or India, or Germany, all of which seem to have multiple major cities (the US sometimes even has multiple major cities in the same state). And if wealth comes from cities then how does she explain wealth in Switzerland, or New Zealand, neither of which has any cities worth the name? All three conjectures seem pretty load bearing for her thesis, and each one is trivially falsified by data that everyone knows about (and she should have known about). That's probably the most parsimonious explanation for why economists ignore her economic theory - viz. its trivially falsified by looking out of the window.
Meanwhile, if her main `correct prediction' is the decline of Japan...that could alternatively be explained (far more persuasively in my view) by demographics. vs Japan started stagnating when it grew old. No city magic required. As for the inevitable decline of all nations and empires - this is far more parsimoniously explained by `all things end.'
Why do these authors have to tautologically appeal to "cities" and "nations" and whatnot? Doesn't anybody at least hand-wave to something about "discrete density distributions" or some such?
(disclaimer: I'm totally uneducated on this topic, both economically and mathematically)
'Import replacement' being used as a main driver of city growth demonstrates the author has a profound misunderstanding of how growth actually happens - by generating efficiency through specialisation, comparative advantage and trade, not via 'import replacement'. This is the case even if import replacement may happen somewhere in that process if there is an efficiency gain to be made (or, as is often the case, import replacement may not happen at all). Seoul, Shenzhen are examples of cities that have grown massively in the recent past by exploiting comparative advantages in manufacturing and exporting (and importing!) ever growing quantities.
Shows me that she doesn't really understand growth. Her further misunderstanding of the value that nation states provide, mainly the public good of national security, also makes me wonder if her ideas are worth consuming.
Third world national debt is often denominated in USD or EUR. Same with cryptos. If you made a bunch more tiny currencies, people would probably continue exhibiting the same preference for large unified currency blocks, and the real impact would be small as everybody circumvents your new system.
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Mostly people live in Seattle because it has jobs, even though most services are more expensive than in smaller cities or developing nations. This seems like exactly the opposite of import replacement. People live in Seattle because its a good place to make exports, and not because it has cheap imports.
I think we will eventually discover that the “optimal” size of a settlement or polity is a function of our neural hardware and technologies that extend it in various ways. As I write this I’m sitting in a hotel room in Shanghai, in a country that is essentially cashless and requires the citizen to maintain an electronic record of who they are and what they are doing just to live a normal life, even down to very small remote towns. As technology extends our ability to manage complexity, I would expect the size and complexity of “cities” to increase.
Thank you, clear exposition of interesting ideas. So, has Montreal declined the way she said it would?
Can I imagine Canada letting go of Quebec peacefully? Or Britain Scotland? Yes, isn't that what the referenda were about?
When she says trade between backward and advanced cities is bad, does she mean specifically cases where the backward economy has a lot of money (like Iran) or all cases?
Jane Jacobs had a huge effect on urban economics which is a thriving field of economics. I believe urban economics and her thinking have also deeply affected national statistics and accounts which do a lot of measurement of localized urban economies below the national level. So the conclusion here that she didn’t affect economics isn’t true.
'When the American South seceded from the Union in 1861, the reaction wasn’t “good luck!” even though the Union was itself the result of a secession from Great Britain.'
Okay, this is a great review, and I'm going on a tangent that's mostly irrelevant to the point of the review. But when the American South started seceding. President Buchanan thought it was manageable. Horace Greely, the abolitionist leader, wrote 'Let the erring sisters go'. The North wasn't looking to fight. Lincoln won only after the South boycotted the election. Lincoln did not force the South to boycott the election. The South wanted a fight.
The Fire-Eaters who pushed secession were looking to fight. They said so through 1861. The record is written and clear. Then they got a fight and lost. The South was ruined. Nobody in the South could say it was worth it. So instead they blamed the North, and getting unreconstructed Secesh back inside the US system required the rest of us to be nice to the South. Jim Crow through Wilson's administration and the twenties was about being nice to the South. Letting the popular histories claim the North started it was part of that price. The written records of what secessionists said and wrote before 1861 get stuffed in footnotes, but they are still there.
So far as this tangent is relevant to this fine review, I'd suggest that people who want secession are worse-tempered than the nations they secede from. Quebecois who want secession are touchier and more macho than the Canada they wish to secede from. If there was a fight, the machos would start it.
Great review. Jacobs raises neat questions, even if her preferred answers don't work.
Economists study optimal currency areas. The right size is much larger than a city. How large? Depends on how mobile the wealth and people are. The dollar works better than the euro, because mobile workers and federal benefits make it easier to "even out the boom" between two US states than between two EU countries.
Jacobs is flatly wrong about "stagflation" being the default. Inflation itself is a remarkably modern phenomenon; conversely, lots of countries now have clocked a generation or more of rising income without repeating Japan's ugly 90s. She's right that we don't really understand why some countries keep stalling short of sustained growth, why bad politics in places like Pakistan and Argentina so easily sabotages the growth so many in those countries want. But that seems to be a riddle of politics, not economics.
Since her books, we've seen decades of rapid growth in places like China, India, Taiwan, South Korea, Bangladesh, the Dominican Republic and Malaysia. Poverty isn't conquered worldwide yet. But stagnation, let alone stagflation, doesn't seem inevitable at all.
Her "import replacement" theory is also wrong, if it's meant to predict which cities become rich. Manufacturing exports has been the takeoff recipe that's worked best; business and trade services work for some; no city got rich by trading *less*.
On the other hand, "import replacement" is a pretty nifty description of what happens in the vicinity of a city as it grows and promotes subsidiary economics around it. And her observation that cities are a lot more real than states is brilliant, even if it's harder to use than it looks.
Her predictions are bad, but her descriptions are insightful. I'm very glad of this book review.
This is a very interesting counter-perspective to essay on adding housing to cities, where the economic growth coming out of population growth was treated as automatic.
I wish we could know how she thought containerized shipping and the internet impacted her theories. In business contexts, I've seen lots of discussion about how New York City is effectively closer to London (for example) than it is to the rest of New York State.
If her ideas were applied seriously, I can't help but think a lot of places would simply depopulate, becoming "bypassed places". Natural resources are real and make some places more desirable than others. Looking around New Mexico, where I live, I don't think there'd be much here (well, even less) without the wider network afforded by the United States.
I'm somewhat confused about how stagflation can be the default when the actual default for most of history was...not having currency. Sure, empires mostly minted coins, but that money saw less and less use the further into the hinterlands you looked. Taxes from rural areas were generally collected in goods, not coin. I'm not even sure what inflation would mean in that context. Subsistence farming has many, many downsides but worrying about the food you're going to grow to eat being worth less next year is not one of them. Stagflation makes everyone poorer, but it's distinct from the type of poverty that has existed in most places and times.
I wonder if Jane's theories, on import replacement for example, make any distinction between development versus the mature economic endpoints, travelling hopefully, so to speak, versus arriving, or in other words the process of change versus its results.
Sometimes prosperous cities can become victims of their own success, if circumstances change for example, although admittedly that can take a long time to happen.
I wonder if local sub-national currencies, like the Chiemgauer in Bavaria, or in minor British towns like Bath/Bristol (well aware that others exist) could provided an effective feedback loop for smaller cities in a country.
In turn, this reminds of the Freigeld ideas of Silvio Gesell for minor towns like Wörgl – perhaps every smaller city needs their own currency, and might there be a way to make this compatible with a nation state?
Jacob's views about feedback and scale seem to mirror my own (very depressing) realization about large human societies : They will always be oppressive to somebody.
You can never have a true Democracy in a society with a million+ (I would say even 100K+) people. Insofar as Democracy means anything other than a trivial and tautological "Majority vote lol" rephrasing of the word, it can never be satisfied when too many independent wills are smashed together and forced to live in a single monolithic "Society". It's inherently absurd and unjust, Americans say things like "The Polarization that started in 2016 had made every election a battle with winners and losers" but they don't realize this was always true, they just owe Trump/Social Media the favor that they made it too obvious to be ignored. Every democracy is an institutionalized, ritualized Rule by Conquerors, except nobody dies and the losers have the small consolation that they can try again in 4 years (Unless they are a minority too irrelavant to have significant voting powers, in which case fuck them I guess). This is much more obvious if you had lived in a society that has religious or ethnic tensions, Democracy there is much more of a clusterfuck. But it's always like this to some degree or another even if you don't realize it. For instance :
- Why **Should** a person who doesn't want to live with black people, whose all of their friends and families don't want to live with black people, whose entire city doesn't want to live with black people, suddenly be forced to live with black people ?
- "This is okay because those people are bigots and my morality is better", okay, consider abortion rulings by the supreme court then, it's very likely that there is something there that you hate whatever your opinions on De-Segregation, either RvW or it's strike down.
I always laugh at the (unconscious ?) hypocrisy of people who say "Abortion is aweful and I don't condone it, I just want governments to have no say in the matter", hmm very admirable indeed, now can they replace 'abortion' with 'Segregation' ?t's irrelevant the particular examples I choose and what is my exact stance on them, even more irrelevant is the question of what is the "Correct" stance on them. Sooner or later, you will find yourself a loser in some fight or another. The larger the society, the more bitter the defeat, the more difficult it is to reverse, the worse its consequences on your dignity and your respect for yourself and other people living with you.
Apriori, it's not clear how being a Muslim or a Christian differs from being pro- or anti- abortion, or being pro- or anti- Segregation. Why are the people who hate forcing Muslims or Christians to do things against their religion (lots of people) are suddenly okay with forcing the other side than the one they take in those issues to do things against their belief. Indeed, Religion, as the quintessentially ridiculous/polarizing opinion, should breed almost infinite tolerance in you. If you are not a follower of a certain religion who managed to find enough benevolence in you to tolerate its followers against all your instincts, almost no opinion is too false or too repulsive to be intolerable.
Other socio-political organization don't get a pass either. Consider that Communism works on the small scale : Family, extended family (which can easily reach several hundreds), small businesses. Those units can reach a 1000+ person, say 10000 at most. After that, you start having the feedback nightmare that the Soviet Union in its last years was a parody of. They thought that Computation was the problem, they thought that computers would save them (the plot of Red Plenty), but they were not. Computers need algorithms to run on input data, the algorithms don't exist because you can't formalize human needs as algorithms, and the data doesn't exist because humans don't love to be surveilled 24/7 for every single little need and want they have to be exposed. On a small scale, that's not a problem. Everything is beautiful and legible and consensual, people "fill in the blanks" with heuristics and intuitions and it mostly works out, and when it doesn't the failure isn't too bad.
Hell, theocracy and military juntas don't seem too bad if they are on the scale of a large extended family. I already pretend to be a Muslim in front of my 100+ family and extended family, so what's the big deal. Military juntas don't seem so scary when one of the ruling class is a cousin that I can tell "You're a bunch of stupid nobodies who don't understand shit except weapons and following orders" and be secure that I won't be put in prison.
And the maddening thing is : humans were small scale like this for the ***Vast*** majority of history. Cities, the innovation that introduced Big Societies^TM, were invented in the last 15000 years, they were for a **very** long time hotbeds of disease. They were a failure, people were miserable living in them. Their walls didn't protect them from invading hordes coming from the deserts. Despots loved the centralization of they brought and the easy conquerability. Human Trust doesn't work well with cities and their vast number of strangers, and we had to invent countless inferior substitute from Money to Gods to try to get strangers to trust each other when there is no good reason to do so.
Against all reason, humans kept re-inventing Ants and Bees, only on primate hardware.
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Great review, I added J. Jacob to my "Small is Beautiful" reading list, a fuzzy category that includes Seeing Like A State.
> When Jacobs’ aunt arrived as a Presbyterian missionary in 1922, and suggested that they build a church out of stone, the people of Higgins confidently stated that this was impossible: mortar just wasn’t strong enough. “These people came of a parent culture that had not only reared stone parish churches from time immemorial, but great cathedrals,” Jacobs writes, and yet eventually they forgot that stone buildings were a possibility at all.
This is what the MTA sounds like when they talk about subways expansions (or installing things like elevators/platform screen doors).
Overall I liked this review a lot, and it made me respect JJ a lot more than I had before. I still think she made the mistake of being too narrowly focused. She makes good points about decentralization, but a lot of different things can be decentralized, e.g. you could have open free trade between regions but have each region have a different currency/welfare system.
(Also, she seems to mix up inflation and poverty, which are related but really aren't the same thing, in a meaningfully important way. And she's straight-up wrong about Japan afaict, Japan's centralization worked out fine, they just got hit by an aging population.)
I thought it was interesting that your two examples of small nations that we do not see as “failures of unity” are both built on the back of social compacts between three or four significant sociolinguistic groups - if anything, they are extraordinary successes of unity (cf. Belgium or Spain, for instance).
As for the sort of political prescriptions that entails, I’m not sure. Singapore is good at investing in institutions (education, healthcare, urban development), and comparatively less on Western-style welfare. I suspect the dirigiste mode is able to work well on a Singapore scale and in a Singapore context, I’m not sure how extrapolable that is.
I am very confused about the idea of a "city region", on which so much of the analysis seems to rest. Tokyo has one but Sapporo doesn't? Boston has one but Atlanta doesn't? Manila somehow doesn't? I don't get it. And how doesn't Montreal have a city region when it's the dominant city of Francophone Canada?
And Seattle seems like a uniquely terrible example of a city rendered sterile by military production. Being a centre for military aircraft production turned it into a centre for civilian aircraft production. And then being a centre for aircraft production gave it a high tech workforce, which then attracted other companies such as Microsoft.
<i>Stagflation is not a strange monster from legend. It is, Jacobs says, just the normal state of everything. Backward economies are in fact constantly in a state of stagflation. The prices in a poor country like Portugal or India (her two examples) feel low for an American or Canadian, but they’re high for most Portuguese or Indian people. At the same time, Portugal and India provide too few jobs to their residents. Inflation and unemployment are both perennially high, and none of that feels surprising whatsoever.</i>
I'm not an economist, so maybe I've missed something, but this seems completely wrong to me. High prices aren't the same as inflation. In medieval Europe, for example, prices were high relative to what the average person could afford, but inflation was low by modern standards.
<i>Small size also allows more diversity in cultural and economic matters, and here Jacobs waxes philosophical, pointing out that favoring diversity over uniformity is a recent, post-Enlightenment idea that has not yet been fully embraced in politics.</i>
That seems completely backwards to me. Medieval Europe was a bewildering patchwork of sub-national jurisdictions; it was during the Enlightenment that states began imposing greater uniformity on their populations, in the name of efficiency and rationalism.
<i>But that doesn’t happen, because empires always milk their own cities until they become poor.</i>
That seems not to have been the case with ancient Rome (the only empire whose fall I know about in enough detail to comment on). Or at any rate, the provincial areas seem to have become noticeably less wealthy after the fall of the Roman Empire, which doesn't suggest that they were being excessively squeezed by a demanding central government.
All empires fall, therefore empires are an inherently unstable system. Yet the history of city states seems much less robust. We used to have plenty of city states in Europe and now the lone example of Singapore.
I don't think her mechanism of currency valuation changes could possibly work back when currency was just valuable metals and everyone used the same few types?
To re-use the example of Venice, they started out using Verona's currency, then introduced a more pure and heavier silver coin (the grosso), which was imitated by all their trading partners. And reliable imitation, in a commodity-currency world, means essentially equal value. The byzantine empire's basilikon was a 1-to-1 equivalent to the grosso. This only ended when it was massively devalued. Venice then introduced its gold ducat, which also was copied by all its trading partners (which at that point meant that large chunks of Europe had a local gold coin equivalent to the venetian ducat, which they also called a ducat).
Meanwhile most of the new world, including british colonies there, all standardized on the spanish silver dollar. The US dollar started its life as an exact equivalent.
And modern city states with good economic growth don't have free floating currencies either: Luxembourg's franc was 1-to-1 with the Belgian franc, until both got replaced by the Euro. Hong Kong has generally been pegged to the US dollar (except for a 10 year period after Nixon closed the gold window). Singapore has a floating currency, but their official policy is to maintain a relatively fixed (technically, very-slowly-appreciating) exchange rate against a basket of the currencies they trade against (https://www.mas.gov.sg/monetary-policy/Singapores-Monetary-Policy-Framework/faqs/section-2#S02.2). This means they're actively suppressing the currency-swings framework that Jacobs thinks to be so important.
The mechanism she suggests doesn't seem crazy to me, but none of the obvious candidates seems to have ever followed it.
An interesting review of a flawed and dangerous idea: To split the world up in city-states.
The economic problems with the import-replacement hypothesis (if pursued as a policy) has been spelled out by other commentators. But I am alarmed that some US-based commentators seem to actually like this idea from a political perspective, applied to their own country.
Speaking as a European from a small country: Are you not aware that Pax Americana is what makes inhabitants in small countries in Europe, Asia, the Middle East and Africa able to sleep well at night? How do you think we feel about any idea that the US should split up, with the severe weakening of US military might that would follow?
Any idea that might lead to increased political fragmentation of the US is dangerous security-policy nonsense from a small-state perspective - and we constitute the majority of the world’s 194 states.
The world has avoided a new world war since 1945 because everyone, also in the former USSR, knew in their heart of hearts that the world was really unipolar. In the cold war era (1946-1992) the US would have suffered terribly from a nuclear exchange, but the odds were favourable that the US would win in the end. That’s also why Khrushchev gave in during the Cuban missile crisis in 1962. Moving to a multipolar world, as a “let’s strengthen cities at the expense of states” would imply, will create a more unstable and dangerous world.
Thus even if moving toward city states would have made economic sense (which is does not), politically the books this review is based on, peddle a terrible idea. But the review is well written!
Ive tend to think less big the better the state, usually assuming it doesn’t mean continual war, just judging by results.
The problem though, is how do small states just not instantly get gobbled up by big states?
Only back in the distant past (when defenders advantage was bigger) and post 1950’s (when war became rarer) does this seem possible.
Though it’s also worth noting that open borders are very profitable, if Canada had decided to instantly treat Quebec as a foreign nation, with the resulting closed borders/tariffs overall growth surely would have declined.
Was the example of Boston's early imports from the book? Because Boston's early exports were mostly furs that the settlers trader for with the local Indians. The timber and fish exports came later.
An interesting view of the world. However, like many one-sided views, it's easy to find evidence against it. Take Seattle as an example. It was built on military money, and companies like Microsoft and Amazon would certainly not have gone there if it wouldn't be part of the large US market. The same is true to an extent for the Bay Area. Agreed that military research money is different from your average grunt base, but it's still military money. I am also not sure that the various economic centers in Germany would be better off independently.
>Let’s take a moment here to appreciate how Jacobs casually destroys ideas so many of us hold dear.
Does she? She's saying they don't work as a financial prop, but I never got the impression people thought the military or welfare were money-makers. The benefits are non-economic, like buying a pet rabbit or going to the movies. You pay the cost of a military to get the benefit of not having Rome burn your town and salt the earth. You pay the cost of welfare for the psychological benefit of not watching people starve.
> nations aren’t the right way to think about wealth.
Well, if you're analyzing *markets*, nations are important because it's almost always far easier for people, goods, capital, etc. to move between places in a single nation than between nations. (Which is one reason why the US federal government taxes incomes at a much higher rate than states -- you can easily flee from one state to another.) As another commenter said, Brexit seems to be a good test case for all of this.
Promoting in the 80's the idea of cities as places of import substitution is weird as deindustrialization was already under way. I don't see any value in it now.
Read this insanely brilliant essay, especially if you've been trained in economics. This will shake a few brain cells, particularly when applying the import replacement theory to current situations.
This is more than a book review, or rather, more than a typical critique of ideas in book form. This essay explores the ideas in the book(s), applies them to situations to make them easy to understand, and makes you question what you assumed to be as true as gravity.
"Richard Cantillon, Adam Smith, John Stuart Mill, Karl Marx, John Maynard Keynes. Jacobs explains how they each had their own ideas of how the economy worked, disagreeing over things like whether supply or demand was the main driving mechanism, but they all agreed on a fundamental fact: inflation and unemployment have an inverse relationship to each other, like a seesaw."
I'm interested to see what quotes she has to back this up, but as someone who teaches the History of Economic Thought I don't think this is true of the pre-Keynesians. Unemployment was not generally a big focus of pre-20th-century economists, and Phillips first described the Phillips Curve in 1958.
The description of mid-20th-century economics in the surrounding paragraphs is much better. In simple modern economic terms, we'd say that stagflation is caused by adverse supply shocks; the Keynesian solutions of the time could only shift aggregate demand, and so could only fight inflation by making unemployment worse (and vice-versa). Today we'd say best way to fight stagflation is to find ways to increase aggregate supply; this broadly seems to be what Jacobs thinks her solutions would do, though I'm not convinced they actually would.
Political diversity means political choice and a greater ability to vote with your feet. Competition of governments means they have more incentive not to oppress the people.
Thanks for this fine review! One of the best kinds of reviews is one that alerts the reader to the existence of worthy books he never would have heard about on his own.
The point about currencies is really interesting, it's a form of feedback I think the EU should have taken more seriously, even if there have also been useful effects of the Euro. And I think seeing cities and the key nodes in an economy makes a lot of sense. But I think the historical viewpoint relies in part on a world where everything important*can* be done well at the scale of a city. Much of the value of the modern world's recent technology and growth comes from networks and network effects. Power plants and stable electric grids and the internet work better at larger scale. Maybe it would be better in some sense to achieve that by having free trade and cooperative infrastructure projects among large numbers of relatively independent cities, but I don't know any time or place where that has been done stably/peacefully/efficiently?
Even in ancient times, it took Rome to build the roads and aqueducts and bridges that Europe used for the next millennia, which they wouldn't have done if they hadn't formed the empire. And there's a reason China has the saying that "the empire divided longs to unite, united, longs to divide." And why long-lived companies seem to go through periods of centralizing and unifying control and other periods of letting a thousand flowers bloom. Have humans ever devised a stable system of having a central organization powerful enough to do what's best done at scale without overreaching and taking over things that should be local? I don't really think so.
The Brexit bit makes me wonder. From her arguments it seems pretty germane that Jacobs would consider the Euro an abomination (and I can see a case for it), but the UK didn't have it; instead, Brexit mostly increased friction for trade and immigration, two things that ought to be as free as possible for the model to work. Nevermind that of course Britain itself is an abomination by this logic, with gigantic London almost parasitically sucking dry an impoverished host body.
On welfare or military development, it seems to me that while they are drains on growth, they are to an extent necessary ones; a booming economy alone is no good if a neighbour can stroll in and steal your stuff, or if everyone who isn't strictly of working age is miserable. Economy isn't everything. But the thing I would agree on is that they shouldn't be relied on as engines of development via increased spending. If you want to play Keynes, build infrastructure, not bombs.
Some context on _The Question of Separatism_. A lot of Americans had moved to Canada in the decade or so before Quebec's first Parti Quebecois premier. Many of them had come to Canada to escape the Vietnam war - Canada refused to extradite draft dodgers to the US.
Once there, some number of them made public pronouncements in favour of breaking up their adopted country. Even if they were unilingual anglophones themselves, they knew where they stood on any question of oppression. French speakers qualified as an "oppressed minority", and deserved the power to forbid the speaking of English. The French language would surely disappear in Canada without drastic measures, and must be saved. Unlike native born Canadians, they understood all the issues, all the nuance, and were happy to tell us what we ought to do.
I don't know whether or not any of them knew any of the nuance in the situation, let alone the claims popular among English Quebecers of the provincial government eagerly oppressing linguistic and ethnic minorities. (This is roughly the same time there were violent confrontations about building a golf course on Indian land.) At any rate, as an English Quebecer, I regarded these pro-Quebec Americans with extreme contempt.
Eventually my own government sold me down the river, metaphorically speaking. Quebec got to be exempted from any human rights legislation it chose, as part of the price for staying in the country. Signs in English were forbidden. Many children were forbidden to attend public schools in English even if it was their native tongue. Those who were permitted by law tended to encounter bureaucratic obstacles instead. Businesses above a certain (small) size were required to communicate internally only in French.
Montreal - where most English Quebecers lived - lost most of its head offices and research offices, not to mention swathes of customer service business. Real estate crashed, and Toronto gained from Montreal's losses - they were no longer roughly comparable cities, with Montreal having the edge in cosmopolitanism. Lots of English Quebecers left the province. Some ambitious French Quebecers joined them.
I eventually wound up in the United States, having lost any conscious semblance of patriotism in the process - Canada pretended English Quebecers didn't exist, or didn't deserve to be allowed to both speak their native language and live where they were born. But it's a huge sore spot with me still.
It's also worth mentioning that the prime minister of Canada during much of this was himself a French Canadian from Quebec.
At any rate, that's the context for the second of these books.
For the record I now kind of favour Quebec separating from Canada, provided all Indigenous or otherwise non-francophone areas have the option to separate from Quebec, and there are never any transfer payments. I imagine that most of the resource based wealth in Quebec would separate from it, just as much of the research and head office based wealth already did. (And they've been trying to entice it back ever since...) It's too late for Montreal - its non-francophone immigrant communities are probably long gone, along with much of its English speaking population. But I still want revenge, and while the PQ leaders probably wouldn't do too badly personally (much as I'd like to see them suffer), the children and grandchildren of the gullible fools who voted for them would certainly suffer. And giving them what they asked for - but then sensibly don't vote for - would give me that revenge.
> Jacobs doesn’t actually give a clear argument why. Maybe that was in her previous book, The Economy of Cities. So far as I can see, her reasoning is, ironically, a bit tautological: “all developing economic life depends on city economies; it depends on them by definition because, wherever economic life is developing, the very process itself creates cities and has probably always done so.”
She does give an explanation in The Economy of Cities, but it's that same explanation, and yes, it is absolutely tautological. She presents a (very much unsupported) theory that this has been true all the way back to the very first city to ever exist, and at no point does she provide any quantitative support for any of her arguments.
This is Jane Jacobs's principal sin. She never, *ever* gives numbers. And if she did, they would be used like an exotic spice to draw attention to her theorycrafting, not a basis for changing her mind.
> For Jacobs, virtually all city development can be seen through the lens of import replacement (which, to be clear, has approximately nothing to do with policies of import substitution industrialization; import replacement is not a policy, but a naturally arising free market phenomenon).
No, in Jacobs's view they *are* linked and import substitution industrialization is one of her primary forward-looking policy prescriptions. She'd prefer the 'auto-tariff' approach of free-floating currency exchange rates but she does actually support this.
And one other comment:
> Can you imagine if the Our World in Data charts had to show separate lines for the Electorate of Saxony, the Prince-Bishopric of Augsburg, the Duchy of Brunswick-Lüneburg, and about 1,800 other semi-sovereign states? Can you imagine traveling around if each of them had its own currency?
Fortunately, programmatic currency exchange is now easy and the drawbacks have become minimal.
An obvious prerequisite for this discussion is that geographical proximity is important. I wonder how the increasing interconnectivity, ever increasing fraction of digital goods and services that do not care about geography, post-COVID remote work opportunities, etc change the city-centric trajectory of economic advancement.
> Currencies, Jacobs explains, function as automatic tariffs (to protect local industry from foreign imports) and automatic export subsidies
Is there some way to get the benefits of this feedback loop without the inconvenience of having a ton of different currencies? Like, could metro regions just have regular old tariffs and export subsidies, set by an "automatic" formula?
More generally, I'm confused why currency/monetary policy is the important factor that makes large nations doomed to fail, as opposed to the other stuff that tends to distinguish nations from smaller entities (legal power over its citizens, having a military, controlling immigration, etc.).
There’s a political program in here that people could like: something mixing this, Napoleon of Notting Hill, and James Scott with a view to re-establishing city states, possibly with “something something communitarianism” thrown in as well.
Has anyone thought to examine the Mongol Empire? In particular, the Jochid horde implemented devolved currencies and politics. Might such a system work as a model for a decentralized, yet (usually) unified state?
Thank you for sharing this! As I hope is evident, I found it delightfully stimulating.
In my own amateur engagement with economics, I have asked for households to be the basic unit of economic analysis but, of course, households exist immediately in networked relation to people and places. Maybe cities is best.
As for left and right, it seems Jane Jacobs accepted that private profiteering would continue playing it's preferred role as driver of the economy. I read she preferred merchants to rent-seekers which suggests to me she was making the mistake that all apologists for empire seem to make. That is, she was vastly overestimating the moral and humane sensibilities of her capitalist cohort.
I realize that's a bold statement given I've only been introduced to her today. I doubt she thought of herself as an apologist. It sounds like she was working towards deep structural transformation in the study of economics. Her ideas and analysis as you've presented them are useful and compelling. I think they reveal her humane sensibilities. I also feel a bit justified in my declaration by the fact that she consciously places her work in the tradition of Adam Smith whom I've read was mortified to discover how quickly his cohort abandoned any moral sensibility that stood in the way of profit.
I said all that so I could speak about welfare. The general welfare is one of the few legitimate purposes of government. But, we live in empire where whatever is good for the profiteers is, a priori, deemed good for the general welfare. Empire cannot conceive a welfare greater than its own. I/me/mine is the extent of its conception of the good.
In that worldview, care for those that fall outside the circle of my concern is understood as charity. Welfare is politicized charity. It is not justice. Any real leftist would gladly give it up in favor of a economy designed to serve a commonwealth belonging to the people and not the privateers.
As long as government is the means by which the wealthy play their game of thrones, there can be no justice, economic or otherwise.
A lot of comments are picking on Jacobs' theory of stagflation for being, ya know, egregiously wrong. I think the charitable thing here is to recognize that she got caught up trying to tie her theories to a happenin' economic event of the time, and that her overall theory makes more sense if you find/replace "stagflation" with "slower economic growth since the 1960s." Slow economic growth, unlike stagflation, has a pretty good argument for being the default human state.
I end up seeing this as an optimization process: there is a situation where a good or service is expensive. There's a way to provide the same service in a cheaper way, so eventually this is noticed, someone resolves the inefficiency and provides the same service for less money (and takes a cut of the difference in profit). It's like taking a step in a gradient descent algorithm.
In the examples given here, the inefficiencies tend to be geographical and political - the cost of labor, the cost of transport, the markup of the merchant/exporter, tariffs, etc... All of those can be eliminated through import replacement by a city.
But that's not always the way of inefficiencies. As other commenters pointed out, it's often cheaper to import a certain good or service from someone else who is specialized to provide that good or service to you. As transporting goods and information becomes cheaper, it probably makes sense for many cities to instead do export replacement - taking an inefficient local industry and replacing it with a cheaper import.
The whole anti-fragile angle points out another dimension - risk. We tend to avoid over-optimizing things because it creates very brittle systems. So this is something that cities and nations also need to consider. Perhaps it's better to import-replace something, even if it's more expensive to produce it locally, since it provides you with some redundancy and resilience when compared to depending on a specialized peer.
One could also see nations as the natural outcomes of the gradient descent processes in other dimensions. Managing a myriad of fluctuating currencies has historically been intractable, so people ended up settling on unified currencies for the sake of predictability and stability. Similar forces in the dimensions of culture, military/safety, laws and other areas contribute to the stability of nations in their current form.
I read the argument in the book as: nations impose artificial constraints on cities and prevent them from following the economic gradient. But nations themselves are (perhaps local, rather than global) peaks in their own gradient.
So eventually it all kind of becomes a porridge of "everything is complicated" and I end up thinking that perhaps this is not a useful way to think about things after all.
What is it about economics that seems to cause people who don't really have a strong grasp of it feel they are qualified to offer broad theoretical or empirical claims about it. I mean, based on a quick Google she seems to just be a journalist without substantial STEM background much less a grounding in macroeconomic theory.
I can understand (tho feel it's largely unwarranted) why some people would be skeptical orthodox economists are justified in their views. However, in any other field if you hadn't mastered the math and empirical literature you wouldn't dare take the leap from skepticism to proposing your own theory.
Hell, even the global warming skeptics don't claim to offer their own alternative climate model. So why is econ treated like voting: something any idiot is justified in formulating their own theory about.
I liked Will Wilkinson's phrase "the United Nations fallacy" for treating countries as equivalent, regardless of size, because they are legally considered to have equal status. Unfortunately, his Flybottle blog is no longer available, and I believe he even blocked access to the Internet Archive.
Stagflation is not the normal state of things, because inflation is not the normal state of things. Prices that are high relative to incomes is not "inflation", because that's a level, whereas inflation is a rate of change.
I lived in Northern Quebec when I was a kid (1 to 9). 1955 - 1964. Rouyn-Noranda, about 350 miles NNW of Montreal.
The schools were separate, French and English. I feel like I had about one french class a week. The only memory I have is Mrs. Riley (my third grade teacher) holding a drawing of a cow ( it was the first time I had ever seen one) and saying “La Vache.”
When I met a French Canadian boy for the first time, who actually lived right next-door to me he was fluent in English. His father didn’t speak a word of it and made it clear that he didn’t care.
It was a very important mining town and the managerial / executive people were all anglo. The “brains” people were not only Anglo but British and Australian (my father being one of them.) It was Apartheid.
Montreal got clobbered by the Separatist movement. I was living and working in Toronto in the 70s and the relocation was palpable. I was a commercial film editor and the migration of all the major ad agencies to TO bought me a lot of dinners.
Libertarian is an easy title, but it sounds like she was just a big believer in subsidiarity (though the term is usually used with reference to Catholic Social Teaching)
Wow, that was a really compelling argument not to take her stuff seriously. If that's an accurate account it's just psuedo-intellectual vague theory building that avoids testable claims and creates a false sense of erudition all serving to create sufficient complication that the author can use their narrative control to support their pet theory.
I mean the whole thing about cities being the correct unit of analysis was a red flag! One of the hallmarks of this kind of thing is a theoretical claim that feels substantive at an emotional level but doesn't really have any clear substance (cities are the proper unit of analysis). It just serves to create the appearance of intellectual work when all that's really going on is the author is redescribing things in a way that appeals to them.
Nothing wrong with that on it's own. But it's almost always a kind of trick. Once they've asked you to look at the world with their lens they tend to simply presume that if you're still reading you'll nod along when the presume that lens offers some kind of unifying explanation of whatever seems important.
Why it would be a limiting factor is a good question, and I had to think for a bit to work out why I think so. On the premise, a mixture of hierarchies and decentralised control is too broad a brush I think. Where command & control are weak, the decentralisation doesn’t step in: Tokyo and Shanghai handle their size much better than São Paulo and Delhi. The main difference I can identify is the level of centralised control that is able to be exerted. So I conclude that decentralised cities can grow to a certain level but above that level it takes centralised management to prevent diminishing returns.
My view of cities is a bit different although I don't disagree with Jane Jacobs in general.
If we consider "modern" society as layers of complexity enabled by basic surpluses in food and energy - where does the complexity take form? Cities. The dominance is financial, social, manufacturing, etc etc - all outcomes of greater complexity.
That's the core advantage of cities vs. the rural countryside despite the rural countryside literally feeding and providing the raw materials for the survival of the overall system.
In addition, cities in a democratic system have more votes - and increasing urbanization leads to increasing relative political power. Absolute population dominance in a democratic voting system is precisely why the Constitution instituted Senatorial equivalence in voting between states as opposed to absolute votes - the electoral system. At the beginning of the United States - the Founding Fathers were very fearful that the high population states of Virginia, Pennsylvania and New York (in that order) would dominate the rest of the 13 states.
Now combine the control over complexity (because of location) plus political dominance - you end up with the rural countryside being unable to defend its economic interests against the urban centers' interests.
This same kind of dynamic rose with European nations, the West in general vs. the rest of the world. Even if critical minerals, food, energy or other resources - which are literally the foundation of Western standards of living upon which the West is dependent - are absolutely critical for the West, the same types of dominance exerted by cities on the rural countryside leads to low commodity prices in favor of "complex" "advanced economy" products such as finance.
Under this model - the decline of American cities is directly a function of the decline of many aspects of complexity, the decline itself not restricted just to cities. The outsourcing of manufacturing to China is the most egregious example.
I really like the review. But import substitution is considered by the vast majority of economists of all political persuasions as a bad theory. It predates JJ as well. The part about the value of the exports is right. But because increased transaction costs increase all costs, the idea that tariffs via unique currency or taxes will boost a developing economy isn't accepted. A history of the rise and decline of the idea can be found here. https://www.nber.org/system/files/working_papers/w27919/w27919.pdf
Also, I I wouldn't call her an accidental moderate, but rather a type of distributist.
I think "Economists examined her theories and found them wanting" is the most likely explanation. The ironic part is that "The EU is too big" actually *was* a mainstream economic argument for decades (keyword "Optimal Currency Area"). But the argument was "the EU should be half as big as it is", not "Hamburg and Munich should suceed from Germany", which seems insane.
Also, I really wish this review had looked at the data since 1980 to try to see how the theories held up or didn't since the book was written.
I'm very fond of Jane Jacobs and have long seen her as one of the great thinkers of the 20th century. She got the importance of cities correctly, but didn't address the importance of nations. The Roman Empire might only have dominated for a millennium and a few centuries beyond, but that empire did have a good long run. Cities don't function alone. You could take her taxonomy of rural areas and do a similar taxonomy of cities. You have to understand cities in the context of larger entities like nations and empires.
An organic model can help. Cells are a basic unit of biology. Each cell can perform a broad variety of functions. Each cell has a metabolism with inputs, outputs and the ability to reproduce. Understanding how individual cells work is important, but cells live in ecological niches where the work with other organisms and modify the world around them. One of those niches is as part of a multicellular organism.
A cell may survive on its own, but it serves a cell well to join a biofilm when attacked or to join with other cells to disperse spores. In multicellular organisms, cells specialize. Outer cells may suppress the reproduction of inner cells, but the resulting organism is more effective than any of its cells. They all do better. Your liver cells accept their role as the toxic waste dump of your body and your brain cells call dibs on your body's sugar supply. Your muscles accept commands even if they have to dip into anaerobic reserves.
A city often does better as a tributary within a powerful nation than as an independent entity. Interstate anarchy, you and what army, can be expensive. When the Egyptian branch of Alexander's broken empire neared collapse around 200BC, Rome was called and effectively took over. This had a cost to the cities of the Eastern Mediterranean, but they still did better under Roman rule than in constant warfare. It isn't always about armies. The EU with its euro provides an export moat for Germany. Germany alone would have an expensive currency, but sharing its currency with the rest of Europe puts a lid on euro exchange rates making it hard to undercut Germany with a cheap currency.
Jacobs focused on cities and did a lot of important and original thinking. Still, her focus was limited. Look at what I call the Crystalization of Europe. For a long time after the Roman collapse, it was effectively a continent of city states each with a backwater. Then, after the Black Death, Western Europe began to crystalize with powerful cities accumulating empires. It started in Spain and Portugal, but then spread east to England and France and finally to Italy and Germany. Each crystalization built a nation, imposed a national culture and language, and then built an external empire. Given the forces involved, I would not be surprised if this happened elsewhere as well.
Like General Relativity, Jacobs theory of cities was a breakthrough but incomplete. So much of economics starts with a political theory (h/t to Joan Robinson) and tries to wedge the real world into it often ignoring basic accounting that is obvious to even a street vendor. Jacobs started with observations and came up with a theory that lined up with experience and simple concepts of accounting.
Question: if Japan is so overwhelmingly doninated by Tokyo that there’s a good case to be made for rough parity between Tokyo-centric concerns and Japan-wide ones, why did Jacobs make a prediction of decline in the 1990s? Seems hard to chalk that up to the kind of principal-agent type problem that characterizes her viewpoint.
First, I found the book review engaging and compelling throughout, so thank you for this! As I am digesting it, I find myself convinced by the economic arguments, though frustrated that's the only lens brought to viewing development.
It seems so obvious that there are other necessary criteria for economic development that are not touched on, primarily security. City-states had this phenomenon (let's say it's correlated but maybe it's causation) where warrior societies would spawn that decide simply let's take their stuff. That has all sorts of implications for coordination between cities, security investments, and insider/outsider views of who a city might feel comfortable paying tribute/taxes to.
Similarly, currency and state-sanctioned violence are downstream of the legal system, which in turn is downstream of cultural values. I struggle just remembering state-level legal distinctions when driving across borders, and I have to imagine city-state level distinctions were constant sources of misunderstandings, frustrations, and abuse (think: Ohio targeting out-of-state speeders for tickets on steroids). I would imagine that to regulate city-states to certain sizes, only to be out-competed by regions that could provide more consistency over more domains where security and some culturally-shared view of fairness was sufficient for commerce to proceed.
This is one of those books that I would file under 1970s weirdness. (Yes, I know, technically it was published in 1980, but it was written in the 1970s.) You could write some crazy stuff back then and still be published and respectable.
The idea that nations should be broken up into city-states is just so deligtfully kooky, I don't even really want to dunk on it. It's like dunking on a clown. Plus, if we could get SF into its own nation and build a wall around it, it might be worth crashing the economy and plunging society into a dark age.
You know. Pros and cons.
I do feel compelled to point out, though, that the story of the 20th century is to a large extent the story of cities becoming less and less relevant. It used to be that factories and industry were located in cities. But as transportation networks matured and environmental concerns proliferated, the idea of having heavy industry in cities became a bit silly. Now the triple whammy of increasing crime rates, skyrocketing costs of living, and the COVID-era forced work-from-home orders are starting to do the same for commercial activity in cities.
There are increasingly few economic reasons to live in a city. Increasingly it is just a lifestyle choice.
"If any of these separatists got their way, we can be sure that the new nation of Quebec, Scotland, or Catalonia would then oppose further separatism in the strongest terms."
One of the funniest things about the recent Catalan push for separatism is "Tabarnia", a satirical mirror of the Catalan independence movement which demands independence for the Tabarnian region *of* Catalonia from the larger polity. The independence activists went *insane with rage* at the demands and claims of the Tabarnienses even though these were deliberately exactly identical to the activists' own claims visavi Spain.
The argument is that the Tokyo based central government is unproductively subsidizing the rest of the country thus both spending its own economic surplus and undermining the growth of other regions that themselves could be more robust regional city economies. Or the Tokyo metro area’s integration is good, but the national reliance on Tokyo is bad.
Is it that impossible to induce "import replacement" for cities that are within larger nations? Why can't Montreal do import replacement today, and why would it be able to if Quebec separated from Canada? Is it just the currency feedback loops? In that case what if Quebec stayed within Canada, but was given its own currency?
"It is why nations and empires always centralize everything into one large city, whether that’s Paris, London, Tokyo, or Toronto, or ancient Rome: that city, being the largest, is simply the only one for which national-level currency feedback works fine."
Which is why Washington D.C. is the largest city in the US.
I mean, it could be that one of the reasons why the US has become so economically dysfunctional is that the national-level currency feedback doesn't work for anywhere. The government is centralized in DC, while the financial sector is centralized in NYC.
I see many people are arguing about the failings of her theory in regards to "import replacement", "stagflation", whether a city really is the best unit to analyse wealth, and on the "currency feed back loop" thing.
All of those things are outside my expertise, so I'm grateful people are pointing out those problems. But what *really* caught my attention here is her model in regards to economic forces radiating from a city and the rural regions affected by it. No one seems to be talking about it, and I find myself curious if there is any validity to it, and would be grateful if someone with the apropriate expertise could comment on it.
This is my first time reading about import replacement, and I gather that it's largely known as a bad theory. I'd like to know if there's a similar theory that's more specific, which is more well respected?
As I understand, import replacement is an argument in favor of specialization within the city (relatively to the rural surroundings), but for generalization within the nation.
But on the national level, there's a balance to be struck between extreme specialization, and extreme generalization. With extreme specialization the country gets a globally competitive product to base their economy on, so they can import everything else - but it's fragile to put all eggs in one basket (not to mention that you miss the synergistic effects of having many industries).
With extreme generalization, the country imports nothing and might as well have closed borders, and thus it's a sure recipe to fall behind globally, which will bite your ass eventually (is North Korea a fair example?).
I don't know what "import replacement" is most often criticised for, but I'd guess it's that when it's taken to its extreme, the country (or the city) misses out on the positive effects of specialization and trade outside the city? In other words, when a country does it, it misses out on the positive effects of globalisation?
Would separation even be necessary? If we can somehow figure out which area belongs to a city area like she claims with scotland and london, we must have some certain metrics to determine this. Couldnt these be used to figure out which areas would need to switch it up? Using metrics instead of currencies as a guide.
"They were making the classic mistake of treating poverty as a mystery and wealth as a given, when in fact poverty is the normal order of things and wealth, when it does occur, is what warrants an explanation."
I recently heard an argument going much the opposite way, that up until 'The Wealth of Nations' everyone took *poverty* as the given, and its fresh perspective was to suggest that sustainably increased wealth was in fact possible. Malthus and Ricardo, after all, saw poverty as the natural state of mankind. Adam Smith meanwhile needed to investigate this new weird thing, increasing wealth.
> Jacobs doesn’t actually give a clear argument why. Maybe that was in her previous book, The Economy of Cities. So far as I can see, her reasoning is, ironically, a bit tautological: “all developing economic life depends on city economies; it depends on them by definition because, wherever economic life is developing, the very process itself creates cities and has probably always done so.
If you want a non-tautological argument for or against this, you should look to "The Dawn of Everything: A New History of Humanity" by David Graeber and David Wengrow. You can have a high population density without any centralized power. You can have highly organized bureaucracy without high population density. The universal use of "city" hides a bunch of wrong assumptions about what's necessary for social organization.
Maybe the book itself is different, but after reading this review, I don't feel like I have a nuts-and-bolts understanding how growth works in Jacobs' view. A standard introductory economics textbook will talk about things like specialization and division of labor, gains from trade, and savings and investment. These factors explain where the things that are necessary for growth come from. Here it sounds like people just decide to make factories, and so they do.
> All empires eventually collapse. This is not what we would expect if empires were a good economic arrangement. If they only ever got wealthier and wealthier, they wouldn’t disintegrate into various separatist factions or end in foreign conquest.
This seems a bit simplistic... empire collapse is related to an enormous array of factors. Sometimes they're economic, but related to very empire-specific factors, like the accumulation of wealth in religious temples in Bagan. But they may also be related to climate, as happened to the Maya, as well as with the Bronze Age collapse. Or there might be new technological development which shifts the balance of power (Bronze Age collapse again). Or there's a succession crisis, or plague, or some other factor. None of these tell you much about what the optimal area for a single connected economic area is.
edit: Forgot to mention, that free trade is generally considered an incredible economic boon to all entities involved. The fact that the US Constitution forbids states from passing tariffs means that the entire US can freely move goods and services around (well, mostly) and probably contributed to is developing into such a rich and powerful country. (On the other hand, its size is probably also contributing to its current political disfunction, but that's not an economic problem).
As an Atlantic Canadian with a father who grew up in suburban Montreal in the 50s through 70s, I feel like this review is targeted at me in some ways.
Two things are notable about Atlantic Canada that line up very nicely with the theories Jacobs describes - it has one decent urban center (Halifax, in Nova Scotia) when it really should have two (PEI is too small to really have one for the purposes of this discussion). Why? Because in New Brunswick, there are three cities - Saint John, Fredericton, and Moncton. Moncton exists to be a railroad crossroads and with government funding, Fredericton exists entirely to be the capital, and Saint John has actual industry etc. But the government has never liked Saint John, so instead of one big city and two small ones there are three cities of roughly similar scales. It is very dumb.
Second, Atlantic Canada used to be the economic heartland of Canada. But the various local industries got bought out or expanded west. And once the Atlantic Canadian operations were branch plants, they were more vulnerable to being shut down. Basically, Atlantic Canada transitioned from being a network of its own cities and industry to being the outsourced industries of cities outside Atlantic Canada. And then, unsurprisingly, those eventually went away.
(To be fair, Atlantic Canada has also just been hurt by the passage of time. PEI, for example, used to have a very solid industrial base in brickmaking and wooden ship-building. It is fair to say demand for both has declined, even locally, and transitioning to other industries is not necessarily straightforward. Though, really, the bit where it is economically viable to buy bricks from China vs locally also explains a lot).
I am almost certain that she is wrong about separation being the answer - separation does not preclude poverty. People and capital are still perfectly capable of abandoning one region for another, even across borders.
On the currency side, I think there's a bit of a trap in that having a smaller currency could usually be helpful but having the most important currency is even more helpful. Like, Italy would be better off with it's own currency than with using the Euro, but would be even better off if the Euro some day replaced the dollar as the worlds reserve currency. That would create incentive to plow on hoping to eventually take the number one spot.
Interesting stuff, and I love TDALOGAC, but doesn't the city economics thing fail empirically in a pretty obvious way? In the US, New York, Los Angeles, Phoenix, Miami, the San Francisco metropolis, Atlanta, and various other cities all seem to be doing very well. And cities do specialize in different industries to some extent and trade with each other, much more than countries trade internationally. This all basically seems to work well, which Jacobs' theory would predict is impossible.
Similarly, in Germany, to my limited knowledge, Berlin, Hamburg, Munich, Frankfurt, and so on all seem fine.
So, I think it's an interesting lens. Yes, cities should be a more important unit of economic analysis, and they need to produce something valuable to prosper. But in fact they do prosper, and Jacobs' analysis ultimately fails pretty badly.
Thanks - this is great! I still have somehow never read Jacob’s, despite being a huge fan of urbanism generally. I’ve seen her ideology as being most closely tied to that of Friedrich Hayek, who is usually thought of as a libertarian of sorts. I hadn’t heard as much about the rest of the economic and political work of hers that makes this even more clear than Death and Life.
I always think that cities are an underappreciated unit of analysis, and nations are an overemphasized one. I would have thought there are better ways to make unions work (and that the EU has an interesting mix of unity and laxity that avoids some of the problems she mentions).
In this view and in realty, the endless outsourcing and neoliberal pyramid scheme style capitalism has indeed impoverished and hollowed out the economies of western nations where these ideas were applied. A growing National economy with a rising gdp does nothing and tells us nothing useful about the direction a nation is going.
I’d rather be richer in a flat economy than poorer in a richer gdp. Wealth concentration is extreme and wages have been flat in a permanent recession for workers in almost all places in the USA for over 50 years. Forget gdp as your city and your job prospects crumble. Who cares of so,e billionaire gets minted from your old job which was outsourced to China. or mexico? Some rich guy got richer in New York or London, and we should what? Celebrate from our impoverished hovels as all the wealth is extracted into the stock exchange? No thanks. Any economist priest will be happy to tell me ‘it doesn’t work that way according to my religion’ but it doesn’t matter what those dog mouths of the elite say or think, people know their lives are much much worse and getting worse still as their cities crumble due to outsourcing.
Things which are objectively bad for common peope such as National disasters, wars, and financialisation where wealth is hyper concentrated into non productive Wall Street hands into soaring stock markets divorced from reality…are all in fact very very good for the gdp numbers. This false image and the ideology and cult of economists with their high priests in the central banks who issue decrees out of one side of their mouth and praise the non existent free markets out of the other side of their mouths are nothing but a self serving ideology and cult of kleptocracy and plutocracy to take from everyone and give to themselves.
The rise or fall of gdp can mean many things with a lot of them being bad things for regular people. While a cities focus is seemingly far superior, it is not fool proof either, but is a far better indicator of true prosperity for the common people. Sentiment, scale, interconnectedness, and the concept of feedback in general works better at a smaller scale. You don’t need a think tank to run polls which are framed to support their ideology to run a city, the sentiment and state of affairs is clear enough. One can only be so out of touch and blind to the streets they live on.
I’d say the failure of modern cities has to do with the extraction and the isolationist practices of the elites who run them from afar. No longer do the elites run businesses locally, go to school or university locally, or even live locally except in extremely isolated elite enclaves. Funny that…the poor in ghettoes and the rich in enclaves. When you cut off true feedback, you ruin everything.
What we have now is rampant cannibalism and the war of cities and powers. Forget National horses, nyc is at war with Detroit and it won the war. The most corrupt places such as New York wield National taxes and power to steal, and extract from other cities. Nyc is a vampire city which has consumed other cities and disrupted the virtuous prosperity loop of import replacement. Now we see cities like Detroit were taken over by stock markers, a most vile creation, and the wealth from Detroit was extracted.
Your well paid blue collar job and rich import reducing economy was stolen and turned into a long forgotten bonus or stock bump for some uncaring fsr away elite in nyc who have a great reason and academy of ideas to explain to you why you should be happy they stole from you and accept it was a ‘law of economical thst they take your prosperity and you suffer. The moment a cheaper mine to strip became an option, it was taken. Far away from the city minded elite of Ford who realised the simple idea that he wanted his own workers to be able to afford the cars produced locally.
Globalism is a worse cancer than nationalism and has destroyed the foundation of prosperity. Jacobs may not have out it in such blunt terms, but this is the simple and easy to observe truth. Prosperity is based on your local relationships. The jobs you can get around you, price of the house down the street or the cost of groceries or the crime rate in your neighbourhood are what makes life good or bad. Not the far flung idiotic data on National rental price trends which mean nothing as your city and suburban can be doing something else entirely.
So, the reason the "conurbation" became Toronto instead of Montreal is like this.
Before the war, Canada had been conceived as basically a British empire resource extraction zone. It did undergo fits and starts of independent industrial and commercial development, but Canadian elites generally preferred the resource extraction model and extensive rather than intensive growth. Economic development lagged and Canada, while it continued to experience mass immigration, actually needed the immigrants just to maintain the existing population levels given outflows to, mostly, the United States.
After the war, and especially after the Suez Crisis, it was obvious to everyone that the extractive development model was at an end. (Note that it was NOT extractive in terms of extractive institutions, except of course in our apartheid-like Indian Act ghettoes. We had a relatively clean system, but it was like that of Montana or Alaska today, only kept clean from the outside pressure.) So we had to restructure our economy, which meant a lot of stuff closed, a lot of stuff opened, and there was just a need to do big reshuffles of corporate structures anyway, including of physical corporate office spaces.
Simultaneously, Quebec was undergoing a revolutionary transformation akin in many ways to the American Black struggle that was occurring, including in the bad ways, such as inner city disorder and corresponding "English flight." Even down to Jewish businesses being driven out or boycotted as oppressors, that kind of thing. People were looking around at New York City, at Paris. The world political system as a whole just seemed very unstable. Decamping a few hundred miles up the St Lawrence Seaway to the shores of Lake Ontario just made every kind of sense in the world. Actually, the corporate headquarters that are even left in Montreal are mainly state-owned enterprises; quasi-state-owned-enterprises; there under some sort of semi-corrupt regulatory deal; etc. Something like Ubisoft Montréal, pbuh, is much more the model for development in that city going forward.
Something about the idea of moving towards the city state seemed wrong to me and it's borders. The problem is borders. The US has several cities that are fairly equivalently nice places to live and you can fluidly move between them without worrying about immigration and work visas. That's great for wotkers. What if you're not born in LA but you want to make movies? What if you're born in LA but want to do Biotech? Mobility is great for talented people with specific passions.
Your own country can be clever about allowing the immigration you need to get access to passionate, talented people from elsewhere, but that can't guarantee your own people will be accepted elsewhere on similar terms. This is why Brexit felt like such a loss for people in the UK: they lost access to vast swaths of opportunity.
Worse, immigration is hard for democracies because so much of what makes democracies functional depends on the collective power of voters, but non-voters don't have power. As someone who dealt with marriage-based immigration in the US I can confidently say that most of the harm is not maliciousness but rather simple bureaucratic bitrot thanks to a structurally-guaranteed lack of supervision by voters. The bias towards big countries or supernational entities like the EU could come from the tendency of democracies to let immigration get annoying.
Some sophisticated global treaty on the right to immigrate could make it easier to contemplate secession: it would allow the antifragility benefits of Brexit without the heartbreak.
This states that import substitution industrialization has "approximately nothing to do with" import replacement, due to the first being a policy and the second a (possible) phenomenon, that's fine, but it does seem to me that Jacob's argument lends some credence to the policy.
If "import replacement" is indeed such an indispensable path toward growth and we can expect it to be difficult for especially undeveloped places, it would seem like interventions to encourage it would be a natural step. Not "draining away funds" and separatism seem considerably more round-about methods.
And just fyi, the evidence against import substitution industrialization isn't nearly as strong as it may seem, it likely only coincided with the debt crisis and it's not as if rejecting it for completely free trade is the undisputed path toward growth, the story is much more complicated. For an actual economist, look to: https://rodrik.typepad.com/dani_rodriks_weblog/2007/08/does-import-sub.html
Full political separatism seems like a very dramatic solution for the problem she identifies. If the problem is having a shared currency, why not just stop having one? It wouldn't be that inconvenient either, in my experience modern payment networks can handle foreign currencies at low costs and with very little friction. By contrast full political separation introduces a myriad of costs and frictions that are worth a lot to avoid. And hard as it is to imagine every city (or state, or province) issuing its own currency, it's surely much easier than to imagine every city (or state, or province) becoming fully independent.
For people who like this sort of thing, ie books that care more about intellectual rigor than reaching the “correct” conclusion, read Bertrand Russell’s _The Practice and Theory of Bolshevism_ (1920).
It’s kinda amazing how much he got right so early — and the reasons he got it right are especially important given the double-think one is expected to engage in as part of Woke.
"But Detroit exports might not go down in the first place if their currency is not being inflated by being part of a larger currency that's highly in demand, right? Like what happened to manufacturing in the UK after finance got big."
Right, that's Dutch Disease. Norway parked their oil profits in a sovereign wealth fund, which has stocks and bonds and other financial assets that are supposed to increase in value over time, and their currency stayed relatively stable and they didn't have this problem. In your proposed UK situation, the countryside and small cities have a different currency than London, and the value of the London Pound increases when their financial services become more in demand, and this is deflation ( because prices are going down). Deflation is what happened to bitcoin, and everybody goes nuts about the London Pound, saying to buy and hold. Londoners don't want to spend their LPs, because the price will probably go up, so they start to treat the LP like a financial asset, and use something else, perhaps British Pounds, as their day to day currency for transactions. Eventually the bubble pops, etc etc.
Alternatively, London could implement a massive stimulus plan while the London central bank eases quantitatively. This would counter deflation and hold the currency value steady. Entrepeneurs will borrow money in London and start businesses there, attracting employees from the countryside, and hollowing out manufacturing, which is the same result as with a unified currency.
The main point is: currencies should fluctuate as little as possible, while financial assets can vary. If you achieve stability, then the differences between currencies are mostly fictive and they're just different denominations of the same thing.
"Internal devaluation is a lot harder than an exchange rate that automatically adjusts." From psychological and political perspectives, you're right that there's a huge difference, because if your nominal wages are steady then you can pretend nothing is happening. From an economic perspective, your real wages have decreased either way.
"But might it not be better if the pain is diluted among all of Detroit rather than concentrated into one specific industry?"
... maybe? ? It's not obvious to me either way. I guess high interest rates would hit construction, and domestic car sales, and decrease entrepreneurship, and impose austerity. The effects of high interest rates are not spread evenly. Are they better or worse? I don't know. Maybe you could say that a Detroit Dollar with high interest rates would keep Detroit together but stagnant, while the US dollar with low interest rates would disperse Detroitians to areas with more opportunity. That sounds more like a tradeoff and matter of preference, rather than the Detroit Dollar being a win-win.
This reminds me of an essay by a contributor to Palladium Mag who argued that a federal government only works for nations with powerful cities (which in Jacobs terms, would be cities with regions), citing that for example New York attracts finance, Seattle attracts some high tech, and so on. The same happens in Germany, especially with Frankfurt on finance and the south with automobile industry.
Maybe nations should periodically redraw regional borders according to city regions and get separate statistics on them.
People get extremely defensive about this when you want to apply it to the United States, even non-US people are convinced that the only thing preventing the outbreak of world war 3 is the metaphorical boot on the throat of the the rest of the world that the US has. I contend that it is in fact the other way around: if the US broke up then wars and military spending would decrease around the world.
Pretty much the only reason Quebec and indeed other regions on Canada like BC and Alberta stay together is because of the threat that the United States presents. If the US broke up then Quebec would be independent within a decade at the latest. Sure, maybe the US launching a hot war against Canada is unrealistic but if Canada was split up into its Provinces then it's likely that they will be slowly absorbed into the US. Some might say that this has already happened. It's a matter of degrees really, but Canada staying united slows down and limits that process.
There is an optimal size for countries, very roughly more 5 to 50 million people (but it depends a lot on local conditions, like density and natural borders). Every town having its own currency isn't optimal and I'm sceptical of every city too. There is a trade-off between the inefficiency of a sprawling bureaucratic empire and a small town that isn't able to generate sufficient specialisation of its population.
It's hard to say what the optimal size for a state should be but it's clearly neither one world government nor Pitcairn Island (pop. ~50). It's somewhere in the middle, and for my money I'd say 25 million people. Plus or minus to fit into existing geographic and demographic zones.
One thing is for absolute sure though: the existing system is very sub-optimal and it's hard not to think that everyone who supports it (which is most people) are hopelessly biased, somehow thinking that society has reached perfection even though there are new countries forming every decade.
One only needs to look at Iberia to see the absurdities. It contains four sovereign states: Spain, Portugal, Andorra, and Great Britain and Northern Ireland (Gibraltar). A large section of Spain speaks Portuguese (Galicia), somehow everyone thinks Andorra being independent is okay and perfectly viable but Catalonia is not okay. Spain protests British control of Gibraltar mightily while brazenly defending its two colony cities in Morocco.
Redrawing the world's borders into better sized, better optimised states (absorbing some, like Monaco and Djibouti, breaking up others like the US and China) is the single best thing that can be done to improve the world. It would get every sovereign state on an even footing and end (almost all) wars. And most of all it would massively increase trust levels around the world, greatly boosting efficiency (lawyers—AKA trust-substitutes—are expensive).
Interesting ideas. I have added her books on my list. I am not persuaded she is correct, however. It appears you can explain the decline of cities by IQ and how agglomeration effects appear to snowball up to a certain level.
Absent agglomeration benefits, I am skeptical the relative prosperity of today would be possible.
Some thoughts on Jacobs generally. In terms of "urban planning" she has a real bad case of "metropolis brain".
Her work is full of ideas and thoughts on urban development that are great for Manhattan Island, and stupid for Atlanta or Denver, much less Green Bay.
It seems like this has also bled over into her reading of economics. Even my wife who is generally all in for her sort of woo, doesn't find it particularly compelling.
In particular I find her contrast between "planned areas" and "organic growth" pretty disingenuous. Almost everyone there is "organic growth" was once a "planned area". It is just not a distinction that cuts of lot of ice in reality. Most places are initially developed according to some specific plan.
And the lovely organic neighborhood you love in 2010 or 1950 was once a planned development 50-100 years before.
Additionally, the hatred of the big urban renewal "projects' she helped spearhead, sort of just completely ignores that they were a solution (and an effective one) to the issue of favellas/shantytowns which were absolutely a feature of the 1930s US.
So you have these housing projects built to solve a problem. They solve it. And then they get trashed because they didn't solve a bunch of other issues (which were serious problems, but just weren't part of the initial scope).
You mean to tell me this giant warren of apartments we built to replace the favellas and provide better more stable housing for their residents isn't as functional and healthy as a 50 year old neighborhood? Who knew!?!?!
The case for separation of Norway/Sweden seems a bit thin to me. Maybe it was a good idea for them politically or socially, but the economic case doesn't hold - at least as presented. Here's an expansion of that OurWorldInData graph, adding in Finland and Denmark to give us an idea of what else was happening regionally:
Everyone experiences the same drops for the world wars. Everyone seems to rebound about the same way. (Except Finland in WWII, oddly, which was directly invaded by Russia and a major source of fighting, but whatever.) Nothing exciting happens in 1905, nothing is different for two countries that doesn't happen to the others. If you're seeing a signal in the noise on this graph, it's because you're squinting hard enough to fool yourself.
When I read the description of Jane Jacobs, erudite, no higher education, engaging writing style, I was reminded of Gershon Legman (although they differ in many other aspects). It appears they were high school classmates in Scranton.
I find this compelling, but I also find it tough to square with the clear existence of the Northeast corridor/megaregion/acela region. If nationhood is imposed from the top by military and political concerns, the Northeast Corridor's status above it's constituent cities, but below it's nation suggests that there is more to the wealth of nations than just cities.
I'm getting to this very late, and only have undergrad econ courses for expertise. But I was left pretty confused on the whole "stagflation as default" and "stagflation as mystery" thing.
What I learned (this was just undergrad!) is that the correlation between inflation and unemployment is dependent on the *cause*. This wasn't obvious in the 70s, but is pretty straightforward now, and fits with the theory.
If the demand curve shifts, inflation and unemployment are inversely correlated. This is hard to do without pictures, but if you know the econ 101 supply/demand curves, imagine the demand one moving to the right (this would represent some kind of stimulus). More people want the same amount of stuff, so producers can charge more (inflation goes up). But also they're producing more, so they hire more (unemployment goes down). And eventually they hit full employment or whatever, so they just need to raise wages, and you end up in roughly the same place for purchasing power -- the costs all went up, but the wages went up roughly in proportion. In the inverse case (the stock market crashes, people lose their savings, so demand shifts left), costs go down, but you're producing less so unemployment goes up, yada yada yada.
But if the *supply* curve shifts left (let's say, by oil shocks in the 70s), the correlation is reversed. There's less to sell, but demand is static, so prices go up (inflation). At the new equilibrium, less is sold, so you need fewer employees, so unemployment also goes up. And the labor market hits a new equilibrium where wages stay the same or go down (stagnation). Ergo, stagflation.
This is obviously the idealized econ model and obviously these things don't respond exactly this way in practice, but my point is the theory holds up, there isn't some stagflation mystery.
On top of that, stagflation means that overall purchasing power goes *down*. It can't decline forever; old society can't be in a perpetual state of stagflation. Old society is just plain old poor -- purchasing power isn't going down, it's just not very high.
What's confusing to me is like...I assume Jane Jacobs knows a lot more about this than I do? So I'm not sure if I'm misunderstanding, or if the terms meant something different than how I learned, or if the modern understanding of what causes this is last-20-years recent and this was a big mystery then that's mostly been debunked.
Contra Jacobs: She says "So Detroit doesn’t get the signal that it should buy less stuff from other cities and replace the missing imports with local production. Instead, it just declines." But that's not true, Detroit *gets less money*, and as a consequence it imports less, which is called decline. And in default, labor becomes cheaper making it profitable to transfer some production from elsewhere to Detroit.
Also, during most of history, really until Nixon took the U.S. off the gold standard, most currencies were pegged to precious metals, so the fact that different cities used different coinage was not significant. (The currencies that were unpegged usually became inflated very quicly and ceased being the basis of trade.)
I think a good example is the euro. It was widely understood at the time that the euro meant that different countries had to have the same monetary policy. And during the European debt crisis, the problem with that became manifest.
In the United States we deal with this via "fiscal transfers"; the parts of the country doing well subsidize the parts doing poorly via the federal budget. There is no official fiscal transfer mechanism in the EU. But I recall during that crisis commentators noting that the Greek government debt was small enough that it could be bailed out without problems, and that there were strangely large and growing balances between the ECB and the national central banks that *could* be interpreted as the Bundesbank financing the Greek government, despite Merkel sternly insisting that the Greeks had to pay their own way.
And the euro hasn't broken up. I suspect that in practice, the costs of differing currencies are greater than the costs of straitjacketing multiple economies into one monetary policy.
This is a great review of two great books. To this contrarian observer, however, a few counterexamples occur, possibly undermining some of Jacobs’ argument.
The reviewer brings up Germany under the Holy Roman Empire (which, as we recall, was neither holy, Roman, nor an empire). It makes a great case study. The entire region was a poor backwater for most of its history, despite being fragmented into a multitude of little states. Its rise only began after the Bismarckian unification, and what a rise it was - Germany went from being one of the poorest regions of Europe to one of the richest in under 30 years. Furthermore, wealth did not become concentrated in the capital city - instead a significant number of regional centers was created, each making large contributions to the imperial economy. Now, it is true that these cities predate the empire - they were the capitals of predecessor states - but given Jacobs’ argument as I understand it, they should have atrophied in favor of Berlin. This obviously did not happen - in fact, Berlin never even became the wealthiest city of the Reich. This structure continues to this day, and while Germany is certainly draining wealth from the rest of the EU, benefits are distributed rather widely in the country.
Germany is not the only example of a multi-city polity. The United States, for one, has several regional conurbation centers, and a capital that is not only relatively economically unimportant but is mostly a receiver of transfers from the rest of the nation. For a time, New York did threaten to become the sole economic center, but the threat was not fulfilled. For this we can perhaps thank old George and his insistence on a Southern capital, but not solely. Just as significantly, the rise first of Chicago and then Los Angeles and the Bay Area appear to fly in the face of Jacobs’ line of argument. Similarly, China, despite being a unified empire for most of the past 2000 years, posesses a number of regional urban centers, some of which, like Shenzhen, are of very recent origin. Once again, the capital is far from the richest city in the country.
Another quibble has to do with Jacobs’ thesis regarding automatic exchange-rate-based economic stabilization is that it only functions if the currencies are commodity-based. Fiat currency disrupts the relationship between surpluses, deficits, and rates because governments gain the ability and the irresistible temptation to create money out of thin air, distorting the feedback mechanism. Furthermore, resulting inflation only enriches asset owners, mostly at the expense of producers who are thereby impoverished. It is such an important factor, as It seems to me, that money-printing ought to be included among Jacobs’ transactions of decline. In point of fact, a significant plurality of empire dissolutions, barring defeat in major wars, did result from significant currency debasements.
Finally, it should be mentioned that a multitude of regions does not necessarily imply diversity of currencies. Today’s global economy is essentially a dollar zone with other currencies struggling for relevance. This, according to Jacobs, should create one-way wealth flow to the issuer, the United States, which is clearly not occurring. In fact, the opposite seems to have been the case - the USA first became wealthy in a much more multi-polar world.
All in all, Jacobs’ argument is mostly convincing but the above issues would have to be taken into account to elevate it to a coherent theory.
"Small size also allows more diversity in cultural and economic matters, and here Jacobs waxes philosophical, pointing out that favoring diversity over uniformity is a recent, post-Enlightenment idea that has not yet been fully embraced in politics.
"We can see analogs everywhere. Europe, split into numerous small countries from the Middle Ages onward, became far more advanced than China, which has been unified more often than not. The city-states of ancient Greece and Renaissance Italy are seen as golden ages of Western civilization, even if they weren’t part of larger political units and therefore constantly went to war with one another."
The kind of diversity that is good in these examples isn't multi-cultural, local diversity. It's basically the opposite: regional isolation, preventing the free mixing of people / tech / arts / languages from different regions. Essentially, segregation. It's an evolutionary phenomenon, displayed by the law of island biogeography, and by the rapid rate of change in dialects in mountainous regions, and in earlier times when transportation was slow. This isolation leads to faster evolution because it prevents the fittest organisms or technologies or music or whatever is evolving from taking over everywhere, which is called premature convergence, and is a huge problem in genetic algorithms. I don't have time to explain what that is; presumably you can google it.
Thank you for this extremely interesting discussion of valuable insights from Jane Jacobs, which tend to be overlooked. One of my own complaints about economic data for years now has been "USA" aggregate data, which is about as helpful as "EU" aggregate data. For example, when discussing property price booms and busts, the USA has 3 distinct types of urban area (identified by Glaeser and others) with widely differing responses to demand inputs for housing. Highly elastic housing supply in many cities, leads to a boom in construction without excessive price inflation. Unfortunately, the urban areas with inelastic housing supply and hence price volatility, are also significant. It is much too complex to discuss the range of implications here, but they are many. This would be a very good example to study, of the differences between cities that evolve their own policy directions and achieve outcomes that are beneficial to them and could be emulated by others.
Just one more point I would like to make, that you might think worth considering, is the difference between positive-sum wealth creation, and zero-sum wealth transfers / economic rent. This is an important factor in the big picture you are discussing. "CITIES" can actually be generators of "primary economic income" from actual positive-sum wealth creation like manufacturing, but the attitudes of elites considering "urban planning" tends to despise these kinds of cities, and regard rent-seeking, wealth-transfer benefitting cities like Global Finance epicenters and Capital cities as the model "because they generate wealth". The tall buildings, apartment living, subways etc are mistaken for "the way to urban success" in a kind of Cargo-cult mentality, while the "urban sprawl" of "urban" economies that actually create wealth, positive-sum, and provide a wide range of opportunities for wealth-creating small entrepreneurs to make a modest start, is despised. Ultimately, it is the latter kind of urban economy that has driven the process of wealth creation that has been spun off into the havens of the economic rent-accumulating sectors in places like New York and London. These latter successes owe a lot to an increased share of wealth in the overall economy, having been captured by banking and finance, for example; or by an ever-bloating administrative State - none of which is good for the common interest.
Germany is an interesting exception in that it has a "system of cities" none of which is the dominant economic rent-seeker from the rest.
There have been times/places where everything was city-states (classical Greece, renaissance Italy, the Holy Roman Empire, Sengoku period Japan), and they were not good times/places to live.
I don't know how strongly that argues against what Jane Jacobs actually said, but to me it's a pretty strong argument against the "everything should be a city-state" point that the review suggests she almost said.
It seems like one way to ease the lack of feedback to cities that Jacobs points out is a YIMBY-like openness to internal migration. It’s certainly not as effective as currency feedback in terms of helping places, but it seems like it’s relatively effective at helping people: your city is failing, so move to a city that’s not failing!
This was great, it introduced an idea that I hadn't heard of/considered before and that seems at least somewhat compelling. My guess about at least part of why her ideas may not have caught hold as strongly in mainstream economics is a lack of quantitative predictions. Modern Economics (for both better and worse) is built on a foundation of math and quantitative analysis. It's great to have a good idea, but then you need to figure out a way to make testable hypotheses using data you can actually collect. If you can't do that, then you aren't going to get more than a shrug.
But assuming for a moment that this is all 100% correct, it does imply a somewhat depressing conclusion: Human flourishing seems to be self limiting (at least in the rate of increase) due to the combination of the economic reality that smaller, more dynamic entities are what drive growth, but human psychology leads to ever greater agglomeration and centralization. When societies become successful, they are driven to kill the very thing that gave them their success.
I hope she is at least wrong in part, because I'm quite skeptical that we will overcome the psychological part anytime soon.
Saying that (urban, free-market) import replacement has "approximately nothing" to do with (national, government-encouraged) import substitution doesn't seem right. I mean yeah there's an important distinction between the two but they're clearly related...
Could you solve this without separatism by having each city issue its own currency?
I am by no means an expert on economics, but I was under the impression that "optimum currency areas" were a well-known topic of study with quantitative (testable?) predictions, and that the generally accepted theory in this regard suggests optimal areas larger than single urban areas.
I was a little surprised not to see any reference to this in the article, and whether there is some synthesis possible between Jabobs' ideas and optimum currency area theory.
>The prices in a poor country like Portugal or India (her two examples) feel low for an American or Canadian, but they’re high for most Portuguese or Indian people. At the same time, Portugal and India provide too few jobs to their residents. Inflation and unemployment are both perennially high, and none of that feels surprising whatsoever.
This is an egregious mistake. Expensive != inflation.
This is a fascinating review, well deserving of a spot among the finalists! I had never heard of either of these books. Thank you to whoever wrote this review!
Jane was clearly a brilliant and original thinker, but I can't help thinking that she has overlooked many things. (Epistemic status: wild-ass speculation from a non-economist; please tell me where I'm wrong.)
The way Jane tells it, it's so simple: divide the world into smaller units, each unit will be incentivized to produce stuff and export stuff; prosperity for all! In reality, well...
/laughs-sobs in Sub-Saharan Africa
There are plenty of small countries that would benefit tremendously from import replacement and yet continue to be stuck in subsistence-level agriculture and poverty. If Jane is right, then why hasn't the end of colonization unleashed a ton of productivity and prosperity everywhere? She makes very insightful points about the disadvantages of empire and size, but she overlooks some basics like "infrastructure" and "good institutions" and "cultural norms against corruption and nepotism" and "strong rule of law" and such. Being small and locally controlled and having your own currency is clearly NOT sufficient for a strong economy!
Second, the reviewer says that Jane would have applauded Brexit. From my very cursory skimming of The Economist magazine, I get the impression that Brexit has been an economic disaster for the UK, so much so that Scotland wants to leave the UK *and rejoin the EU*! If autonomy is all that and a basket of roses, why would Scotland want to join the EU? What does the EU offer that Jane could not see? Why hasn't the UK blossomed post-Brexit, contrary to what we might have guessed based on Jane's writings?
Third, our old friend Moloch comes a-knocking. "Si vis pacem, para bellum." It's all well and good to have a bunch of right-sized somewhat-larger-than-city-states, as long as all these entities agree to cooperate and not attack/conquer each other. All it takes is one Putin to ruin it for everyone.
This was a great review and a great post. I could not stop reading it.
I wonder what Jacobs and those who support her theories think about autonomous regions like Tyrol (shared by Italy and Austria) and The Basque Country (shared by Spain and France).
Both regions are incredibly wealthy and are in constant negotiations with the centralized states with regards to the sharing of power and economy. I was very impressed when I visited these regions and felt that more places could use this system.
I wonder if Jacobs thought that the centralized governments would eventually make these regions poor?
So this all can be condensed into two points?
1. Some economic activity is conducive to development, some isn’t.
2. Currency rate fluctuations are a feedback loop that encourages the right kind of activity.
Could it be possible to think of a smart set of regulations, some kind of adaptive taxes/subsidies perhaps, that would have the same effect?
The central premise seems to be pretty in line with Austrian theory - "mal-investments wreck the economy". Her value adding insights seem to be "hey there's a ton of bad investment / underinvestment happening because of signal distortion that we haven't really been seeing. Large regional currencies disguise important signals and the things large regions do to try to pacify peripheries don't give back as much as they cost and slowly drain everything" and secondly "you might think the former statement suggests that maybe we need to go down even further and assess within cities or even at the individual level, but no, actually cities are the right unit to consider economics".
The former is pretty in line with previous economic theory and makes apparent sense.
I'm not nearly so convinced of the latter. This focus on import replacement feels like a special case and not a precondition. Trade is good where there's comparative advantage and literally creates wealth. You could not make a struggling city prosperous by nudging it to replace imports. Rather, it seems like in some notable cases where places happened to, by chance, find themselves in a situation where it suddenly made tremendous economic sense to replace imports, doing so made them a lot of wealth very quick, which makes sense. All at once they started pocketing the costs previously paid in shipping and tariffs. I'd really like to know a lot more about the specific mechanisms by which those 5 forces create the declining towns mentioned, because overall the USA seems to be a tremendous counter point to her thesis. There are a large number of massive economic centers that are very successful and growing rapidly, even if you can pick out a biggest, and many didn't do it by a process of replacing imports generally.
An alternative model of events that maybe fit the same data:
People will agglomerate where a combination of factors make productivity high. Some of these factors are things like natural resources, availability of labor, access to capital. Two other notable factors are economic and governmental policy, and the network (agglomeration) effect.
Starting from a state of some distribution of economic centers of various size, in large economic centers there is high productivity due at least in large part to it's large network. It's trend however is for natural resources to drain and more importantly for local policy to be captured, lowering productivity.
In some small regions, there will be plenty of access to resources, sufficient access to labor. Capital in the modern world is relatively fluid. As long as a locality keeps their policy good, at some point somewhere the scale is going to tip - someone considering their next venture will weigh the large network of the large center against it's low natural resources, poor access to cheap labor, and / or constrictive local policy, and choose the smaller center.
This creates a cascade because now the smaller center has more capital and a larger network, making the next venture more likely to pick it. In very short order, there is a sudden shift of economic activity from various places to this new center, which _looks_ like import replacement, because it's suddenly producing a lot of activity.
The city might still be right unit if economic analysis but I'm not convinced. But the proposed solution for economic crises is "keep policy that makes it easy to be productive and stop making mal investments"
I have a lot of issues with the Jacobs view of the world. She’s right of course that the nation state is an abstraction that contains a lot of internal variation, but so too is a city! Western Sydney is substantially poorer than the Northern Beaches. The Bronx is poorer than Manhattan.
It’s often useful to sum up these areas with differing economic circumstances as “Sydney” or “New York”, just as it’s often useful to sum up Auckland and Christchurch as “New Zealand”. But I don’t see a principled reason to embrace the city as the fundamental economic unit.
I’m also deeply unconvinced by the idea of import replacement being an especially important process. It seems to imply that the more things a city produces for itself the more it will grow, while in reality it seems to me that the largest cities have the most trade.
Suppose we have a factory town that imports food and exports widgets. If the demand for widgets collapses and they turn to subsistence farming, that’s “import replacement” but it doesn’t seem like a step in the right direction economically. Conversely if the price of widgets goes up and they can start importing more stuff, that seems like a good thing, even though it’s kind of the opposite of import replacement.
Hm, so, as the natural boundaries for calculating housing prices are not cities or states, but neighborhoods and metropolitan areas, so the natural boundaries for efficient economic engines are not nations but conurbations? Sort of a watershed theory of grouping...
Some of this is similar to a crazy theory I cooked up while on a long drive, a number of years ago. I posted it earlier on one of the housing posts, so I'll quote without editing. I welcome any comments ripping it to shreds, and pointing out what huge chunks of human life it casually ignores (a big one is added value, as in the chain from ore to metal to machine part to full assembly). :-)
> America's current population distribution is an artifact of inefficient transportation and slow travel, and it's slowly transitioning to a new equilibrium. (This is deliberately provocative and biased framing, which assumes as "normal" a pattern which we are only moving towards.)
> Ultimately, the interior of the continent is for resource extraction (including such things as farming and the use of cheap hydro-electrical power to work aluminium). Ports at natural harbors and large rivers allow inhabitants to siphon off some of the value of the trade flowing through. Everyone else, including tech workers, might as well live in one giant city, or in the middle of nowhere or in small towns if they can work remotely and choose to. Legacy cultural and industrial centers may hold out for a time, but will eventually succumb to gravity, because resisting requires a constant use of energy. (See also, how so many native languages of the world are dying out, and how American Standard English is effortlessly gaining ground. Resisting this takes active effort; going with the flow takes none.)
> Some jobs, such as resource extraction or creative work, essentially generate wealth ex nihilo. Everything else, from government to schools to restaurants to retail to hairdressers to movie theaters, all of that siphons money out of wealth generation. (This is not meant to be pejorative, merely descriptive.) Wealth flows, like current (i.e. currency) from one person to the next to the next. But each time it flows through a corporation with a non-local HQ, some of it is siphoned away to the location of the HQ. And eventually, to the location of the owners of capital, and while they may invest some of that on a global level, their circles of concern tend to center on their own location, and the governments of their own location siphon off their share.
> Overall, resources and money flow downhill like rivers, seeking the ocean. A little mining town in West Virginia may have one source of generated wealth, and if that source dries up or goes away, the town will slowly shrivel and die. Every time anyone spends money at a chain store or online, wealth leaves and does not return. Yes, yes, equal exchange of value, but even putting aside taxes and profit, something has left that will not return. Draw a line around the town and monitor cash in and cash out, and it will show a steady flow outward. The death knell is when they resort to tourism, an explicit attempt to create artistic value inside the line that will draw in wealth from outside.
One thought reading this was that Brexit should be a great test case.
This review sparked a lot of interesting ideas. Bravo! Particularly noticing how states are so fleeting and cities are so often immortal, and what implications that has for the basic unit of economic analysis.
I couldn't help thinking as I read, that in a world where Jacobs is correct, what you really need isn't a patchwork of independent city-states as such, but rather a large confederacy with some extremely weird fiscal policies. I can imagine, for example, a world where the west coast of the US becomes "Pacifica" or whatever, and allows Seattle, Portland, San Fransisco, and Los Angeles to each mint their own fiat currencies with oversight by a local 'Fed', and maybe even manage their own internal tax policies up to and including tariffs against other cities in Pacifica. The role of the state, Pacifica, in this would be to oversee and centralize military development (an economic drag, but not as much of one as a war between Seattle and Portland), set a floor for basic human rights (especially exit rights and migration), and manage policy towards rural areas outside major city regions (probably with an archipelago of minor municipal governments, much as it is done today). The state of Pacifica would need to be tax-supported, but without the ability to set fiscal policy, or indeed to even mint its own currency, that would probably have to be done with literal production quotas from each city or something equally strange.
One quibble about Seattle: Boeing doesn't just make military planes, it's one of the biggest civilian plane manufacturers in the world, and has been for a long time. I think currently the civilian side generates about twice as much revenue as the military side, but I don't know how that holds up historically, through all the mergers and whatnot.
Plus, Seattle has a huge port, by at least one metric the 4th largest port in North America (for countainer ports, behind LA, NY, and Savannah, ahead of Vancouver BC and SF). (For sheer tonnage, it doesn't match east coast ports, though.) I have in the past described all the "cool parts" of Seattle as being a wart on the gigantic port complex.
https://en.wikipedia.org/wiki/List_of_busiest_container_ports
Also, the reason Boeing is near Seattle is cheap electricity via hydroelectric power, for aluminum working. So in an ominous sense, Boeing's location there is another example of an industry making use of local resources, the way Detroit was.
How do you reconcile the theory that `all large polities decline' with the sustained multi-century growth exhibited by such large polities as the USA? For that matter, how do you reconcile the `one country one major city' hypothesis with the state of affairs in the USA, or China, or India, or Germany, all of which seem to have multiple major cities (the US sometimes even has multiple major cities in the same state). And if wealth comes from cities then how does she explain wealth in Switzerland, or New Zealand, neither of which has any cities worth the name? All three conjectures seem pretty load bearing for her thesis, and each one is trivially falsified by data that everyone knows about (and she should have known about). That's probably the most parsimonious explanation for why economists ignore her economic theory - viz. its trivially falsified by looking out of the window.
Meanwhile, if her main `correct prediction' is the decline of Japan...that could alternatively be explained (far more persuasively in my view) by demographics. vs Japan started stagnating when it grew old. No city magic required. As for the inevitable decline of all nations and empires - this is far more parsimoniously explained by `all things end.'
Why do these authors have to tautologically appeal to "cities" and "nations" and whatnot? Doesn't anybody at least hand-wave to something about "discrete density distributions" or some such?
(disclaimer: I'm totally uneducated on this topic, both economically and mathematically)
'Import replacement' being used as a main driver of city growth demonstrates the author has a profound misunderstanding of how growth actually happens - by generating efficiency through specialisation, comparative advantage and trade, not via 'import replacement'. This is the case even if import replacement may happen somewhere in that process if there is an efficiency gain to be made (or, as is often the case, import replacement may not happen at all). Seoul, Shenzhen are examples of cities that have grown massively in the recent past by exploiting comparative advantages in manufacturing and exporting (and importing!) ever growing quantities.
Shows me that she doesn't really understand growth. Her further misunderstanding of the value that nation states provide, mainly the public good of national security, also makes me wonder if her ideas are worth consuming.
Third world national debt is often denominated in USD or EUR. Same with cryptos. If you made a bunch more tiny currencies, people would probably continue exhibiting the same preference for large unified currency blocks, and the real impact would be small as everybody circumvents your new system.
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Mostly people live in Seattle because it has jobs, even though most services are more expensive than in smaller cities or developing nations. This seems like exactly the opposite of import replacement. People live in Seattle because its a good place to make exports, and not because it has cheap imports.
I think we will eventually discover that the “optimal” size of a settlement or polity is a function of our neural hardware and technologies that extend it in various ways. As I write this I’m sitting in a hotel room in Shanghai, in a country that is essentially cashless and requires the citizen to maintain an electronic record of who they are and what they are doing just to live a normal life, even down to very small remote towns. As technology extends our ability to manage complexity, I would expect the size and complexity of “cities” to increase.
Thank you, clear exposition of interesting ideas. So, has Montreal declined the way she said it would?
Can I imagine Canada letting go of Quebec peacefully? Or Britain Scotland? Yes, isn't that what the referenda were about?
When she says trade between backward and advanced cities is bad, does she mean specifically cases where the backward economy has a lot of money (like Iran) or all cases?
Jane Jacobs had a huge effect on urban economics which is a thriving field of economics. I believe urban economics and her thinking have also deeply affected national statistics and accounts which do a lot of measurement of localized urban economies below the national level. So the conclusion here that she didn’t affect economics isn’t true.
'When the American South seceded from the Union in 1861, the reaction wasn’t “good luck!” even though the Union was itself the result of a secession from Great Britain.'
Okay, this is a great review, and I'm going on a tangent that's mostly irrelevant to the point of the review. But when the American South started seceding. President Buchanan thought it was manageable. Horace Greely, the abolitionist leader, wrote 'Let the erring sisters go'. The North wasn't looking to fight. Lincoln won only after the South boycotted the election. Lincoln did not force the South to boycott the election. The South wanted a fight.
The Fire-Eaters who pushed secession were looking to fight. They said so through 1861. The record is written and clear. Then they got a fight and lost. The South was ruined. Nobody in the South could say it was worth it. So instead they blamed the North, and getting unreconstructed Secesh back inside the US system required the rest of us to be nice to the South. Jim Crow through Wilson's administration and the twenties was about being nice to the South. Letting the popular histories claim the North started it was part of that price. The written records of what secessionists said and wrote before 1861 get stuffed in footnotes, but they are still there.
So far as this tangent is relevant to this fine review, I'd suggest that people who want secession are worse-tempered than the nations they secede from. Quebecois who want secession are touchier and more macho than the Canada they wish to secede from. If there was a fight, the machos would start it.
Great review. Jacobs raises neat questions, even if her preferred answers don't work.
Economists study optimal currency areas. The right size is much larger than a city. How large? Depends on how mobile the wealth and people are. The dollar works better than the euro, because mobile workers and federal benefits make it easier to "even out the boom" between two US states than between two EU countries.
Jacobs is flatly wrong about "stagflation" being the default. Inflation itself is a remarkably modern phenomenon; conversely, lots of countries now have clocked a generation or more of rising income without repeating Japan's ugly 90s. She's right that we don't really understand why some countries keep stalling short of sustained growth, why bad politics in places like Pakistan and Argentina so easily sabotages the growth so many in those countries want. But that seems to be a riddle of politics, not economics.
Since her books, we've seen decades of rapid growth in places like China, India, Taiwan, South Korea, Bangladesh, the Dominican Republic and Malaysia. Poverty isn't conquered worldwide yet. But stagnation, let alone stagflation, doesn't seem inevitable at all.
Her "import replacement" theory is also wrong, if it's meant to predict which cities become rich. Manufacturing exports has been the takeoff recipe that's worked best; business and trade services work for some; no city got rich by trading *less*.
On the other hand, "import replacement" is a pretty nifty description of what happens in the vicinity of a city as it grows and promotes subsidiary economics around it. And her observation that cities are a lot more real than states is brilliant, even if it's harder to use than it looks.
Her predictions are bad, but her descriptions are insightful. I'm very glad of this book review.
This is a very interesting counter-perspective to essay on adding housing to cities, where the economic growth coming out of population growth was treated as automatic.
I wish we could know how she thought containerized shipping and the internet impacted her theories. In business contexts, I've seen lots of discussion about how New York City is effectively closer to London (for example) than it is to the rest of New York State.
If her ideas were applied seriously, I can't help but think a lot of places would simply depopulate, becoming "bypassed places". Natural resources are real and make some places more desirable than others. Looking around New Mexico, where I live, I don't think there'd be much here (well, even less) without the wider network afforded by the United States.
I'm somewhat confused about how stagflation can be the default when the actual default for most of history was...not having currency. Sure, empires mostly minted coins, but that money saw less and less use the further into the hinterlands you looked. Taxes from rural areas were generally collected in goods, not coin. I'm not even sure what inflation would mean in that context. Subsistence farming has many, many downsides but worrying about the food you're going to grow to eat being worth less next year is not one of them. Stagflation makes everyone poorer, but it's distinct from the type of poverty that has existed in most places and times.
I wonder if Jane's theories, on import replacement for example, make any distinction between development versus the mature economic endpoints, travelling hopefully, so to speak, versus arriving, or in other words the process of change versus its results.
Sometimes prosperous cities can become victims of their own success, if circumstances change for example, although admittedly that can take a long time to happen.
I wonder if local sub-national currencies, like the Chiemgauer in Bavaria, or in minor British towns like Bath/Bristol (well aware that others exist) could provided an effective feedback loop for smaller cities in a country.
In turn, this reminds of the Freigeld ideas of Silvio Gesell for minor towns like Wörgl – perhaps every smaller city needs their own currency, and might there be a way to make this compatible with a nation state?
Jacob's views about feedback and scale seem to mirror my own (very depressing) realization about large human societies : They will always be oppressive to somebody.
You can never have a true Democracy in a society with a million+ (I would say even 100K+) people. Insofar as Democracy means anything other than a trivial and tautological "Majority vote lol" rephrasing of the word, it can never be satisfied when too many independent wills are smashed together and forced to live in a single monolithic "Society". It's inherently absurd and unjust, Americans say things like "The Polarization that started in 2016 had made every election a battle with winners and losers" but they don't realize this was always true, they just owe Trump/Social Media the favor that they made it too obvious to be ignored. Every democracy is an institutionalized, ritualized Rule by Conquerors, except nobody dies and the losers have the small consolation that they can try again in 4 years (Unless they are a minority too irrelavant to have significant voting powers, in which case fuck them I guess). This is much more obvious if you had lived in a society that has religious or ethnic tensions, Democracy there is much more of a clusterfuck. But it's always like this to some degree or another even if you don't realize it. For instance :
- Why **Should** a person who doesn't want to live with black people, whose all of their friends and families don't want to live with black people, whose entire city doesn't want to live with black people, suddenly be forced to live with black people ?
- "This is okay because those people are bigots and my morality is better", okay, consider abortion rulings by the supreme court then, it's very likely that there is something there that you hate whatever your opinions on De-Segregation, either RvW or it's strike down.
I always laugh at the (unconscious ?) hypocrisy of people who say "Abortion is aweful and I don't condone it, I just want governments to have no say in the matter", hmm very admirable indeed, now can they replace 'abortion' with 'Segregation' ?t's irrelevant the particular examples I choose and what is my exact stance on them, even more irrelevant is the question of what is the "Correct" stance on them. Sooner or later, you will find yourself a loser in some fight or another. The larger the society, the more bitter the defeat, the more difficult it is to reverse, the worse its consequences on your dignity and your respect for yourself and other people living with you.
Apriori, it's not clear how being a Muslim or a Christian differs from being pro- or anti- abortion, or being pro- or anti- Segregation. Why are the people who hate forcing Muslims or Christians to do things against their religion (lots of people) are suddenly okay with forcing the other side than the one they take in those issues to do things against their belief. Indeed, Religion, as the quintessentially ridiculous/polarizing opinion, should breed almost infinite tolerance in you. If you are not a follower of a certain religion who managed to find enough benevolence in you to tolerate its followers against all your instincts, almost no opinion is too false or too repulsive to be intolerable.
Other socio-political organization don't get a pass either. Consider that Communism works on the small scale : Family, extended family (which can easily reach several hundreds), small businesses. Those units can reach a 1000+ person, say 10000 at most. After that, you start having the feedback nightmare that the Soviet Union in its last years was a parody of. They thought that Computation was the problem, they thought that computers would save them (the plot of Red Plenty), but they were not. Computers need algorithms to run on input data, the algorithms don't exist because you can't formalize human needs as algorithms, and the data doesn't exist because humans don't love to be surveilled 24/7 for every single little need and want they have to be exposed. On a small scale, that's not a problem. Everything is beautiful and legible and consensual, people "fill in the blanks" with heuristics and intuitions and it mostly works out, and when it doesn't the failure isn't too bad.
Hell, theocracy and military juntas don't seem too bad if they are on the scale of a large extended family. I already pretend to be a Muslim in front of my 100+ family and extended family, so what's the big deal. Military juntas don't seem so scary when one of the ruling class is a cousin that I can tell "You're a bunch of stupid nobodies who don't understand shit except weapons and following orders" and be secure that I won't be put in prison.
And the maddening thing is : humans were small scale like this for the ***Vast*** majority of history. Cities, the innovation that introduced Big Societies^TM, were invented in the last 15000 years, they were for a **very** long time hotbeds of disease. They were a failure, people were miserable living in them. Their walls didn't protect them from invading hordes coming from the deserts. Despots loved the centralization of they brought and the easy conquerability. Human Trust doesn't work well with cities and their vast number of strangers, and we had to invent countless inferior substitute from Money to Gods to try to get strangers to trust each other when there is no good reason to do so.
Against all reason, humans kept re-inventing Ants and Bees, only on primate hardware.
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Great review, I added J. Jacob to my "Small is Beautiful" reading list, a fuzzy category that includes Seeing Like A State.
> When Jacobs’ aunt arrived as a Presbyterian missionary in 1922, and suggested that they build a church out of stone, the people of Higgins confidently stated that this was impossible: mortar just wasn’t strong enough. “These people came of a parent culture that had not only reared stone parish churches from time immemorial, but great cathedrals,” Jacobs writes, and yet eventually they forgot that stone buildings were a possibility at all.
This is what the MTA sounds like when they talk about subways expansions (or installing things like elevators/platform screen doors).
Overall I liked this review a lot, and it made me respect JJ a lot more than I had before. I still think she made the mistake of being too narrowly focused. She makes good points about decentralization, but a lot of different things can be decentralized, e.g. you could have open free trade between regions but have each region have a different currency/welfare system.
(Also, she seems to mix up inflation and poverty, which are related but really aren't the same thing, in a meaningfully important way. And she's straight-up wrong about Japan afaict, Japan's centralization worked out fine, they just got hit by an aging population.)
I thought it was interesting that your two examples of small nations that we do not see as “failures of unity” are both built on the back of social compacts between three or four significant sociolinguistic groups - if anything, they are extraordinary successes of unity (cf. Belgium or Spain, for instance).
As for the sort of political prescriptions that entails, I’m not sure. Singapore is good at investing in institutions (education, healthcare, urban development), and comparatively less on Western-style welfare. I suspect the dirigiste mode is able to work well on a Singapore scale and in a Singapore context, I’m not sure how extrapolable that is.
Great review.
I am very confused about the idea of a "city region", on which so much of the analysis seems to rest. Tokyo has one but Sapporo doesn't? Boston has one but Atlanta doesn't? Manila somehow doesn't? I don't get it. And how doesn't Montreal have a city region when it's the dominant city of Francophone Canada?
And Seattle seems like a uniquely terrible example of a city rendered sterile by military production. Being a centre for military aircraft production turned it into a centre for civilian aircraft production. And then being a centre for aircraft production gave it a high tech workforce, which then attracted other companies such as Microsoft.
<i>Stagflation is not a strange monster from legend. It is, Jacobs says, just the normal state of everything. Backward economies are in fact constantly in a state of stagflation. The prices in a poor country like Portugal or India (her two examples) feel low for an American or Canadian, but they’re high for most Portuguese or Indian people. At the same time, Portugal and India provide too few jobs to their residents. Inflation and unemployment are both perennially high, and none of that feels surprising whatsoever.</i>
I'm not an economist, so maybe I've missed something, but this seems completely wrong to me. High prices aren't the same as inflation. In medieval Europe, for example, prices were high relative to what the average person could afford, but inflation was low by modern standards.
<i>Small size also allows more diversity in cultural and economic matters, and here Jacobs waxes philosophical, pointing out that favoring diversity over uniformity is a recent, post-Enlightenment idea that has not yet been fully embraced in politics.</i>
That seems completely backwards to me. Medieval Europe was a bewildering patchwork of sub-national jurisdictions; it was during the Enlightenment that states began imposing greater uniformity on their populations, in the name of efficiency and rationalism.
<i>But that doesn’t happen, because empires always milk their own cities until they become poor.</i>
That seems not to have been the case with ancient Rome (the only empire whose fall I know about in enough detail to comment on). Or at any rate, the provincial areas seem to have become noticeably less wealthy after the fall of the Roman Empire, which doesn't suggest that they were being excessively squeezed by a demanding central government.
All empires fall, therefore empires are an inherently unstable system. Yet the history of city states seems much less robust. We used to have plenty of city states in Europe and now the lone example of Singapore.
Enjyoable nonetheless.
I don't think her mechanism of currency valuation changes could possibly work back when currency was just valuable metals and everyone used the same few types?
To re-use the example of Venice, they started out using Verona's currency, then introduced a more pure and heavier silver coin (the grosso), which was imitated by all their trading partners. And reliable imitation, in a commodity-currency world, means essentially equal value. The byzantine empire's basilikon was a 1-to-1 equivalent to the grosso. This only ended when it was massively devalued. Venice then introduced its gold ducat, which also was copied by all its trading partners (which at that point meant that large chunks of Europe had a local gold coin equivalent to the venetian ducat, which they also called a ducat).
Meanwhile most of the new world, including british colonies there, all standardized on the spanish silver dollar. The US dollar started its life as an exact equivalent.
And modern city states with good economic growth don't have free floating currencies either: Luxembourg's franc was 1-to-1 with the Belgian franc, until both got replaced by the Euro. Hong Kong has generally been pegged to the US dollar (except for a 10 year period after Nixon closed the gold window). Singapore has a floating currency, but their official policy is to maintain a relatively fixed (technically, very-slowly-appreciating) exchange rate against a basket of the currencies they trade against (https://www.mas.gov.sg/monetary-policy/Singapores-Monetary-Policy-Framework/faqs/section-2#S02.2). This means they're actively suppressing the currency-swings framework that Jacobs thinks to be so important.
The mechanism she suggests doesn't seem crazy to me, but none of the obvious candidates seems to have ever followed it.
An interesting review of a flawed and dangerous idea: To split the world up in city-states.
The economic problems with the import-replacement hypothesis (if pursued as a policy) has been spelled out by other commentators. But I am alarmed that some US-based commentators seem to actually like this idea from a political perspective, applied to their own country.
Speaking as a European from a small country: Are you not aware that Pax Americana is what makes inhabitants in small countries in Europe, Asia, the Middle East and Africa able to sleep well at night? How do you think we feel about any idea that the US should split up, with the severe weakening of US military might that would follow?
Any idea that might lead to increased political fragmentation of the US is dangerous security-policy nonsense from a small-state perspective - and we constitute the majority of the world’s 194 states.
The world has avoided a new world war since 1945 because everyone, also in the former USSR, knew in their heart of hearts that the world was really unipolar. In the cold war era (1946-1992) the US would have suffered terribly from a nuclear exchange, but the odds were favourable that the US would win in the end. That’s also why Khrushchev gave in during the Cuban missile crisis in 1962. Moving to a multipolar world, as a “let’s strengthen cities at the expense of states” would imply, will create a more unstable and dangerous world.
Thus even if moving toward city states would have made economic sense (which is does not), politically the books this review is based on, peddle a terrible idea. But the review is well written!
Ive tend to think less big the better the state, usually assuming it doesn’t mean continual war, just judging by results.
The problem though, is how do small states just not instantly get gobbled up by big states?
Only back in the distant past (when defenders advantage was bigger) and post 1950’s (when war became rarer) does this seem possible.
Though it’s also worth noting that open borders are very profitable, if Canada had decided to instantly treat Quebec as a foreign nation, with the resulting closed borders/tariffs overall growth surely would have declined.
Was the example of Boston's early imports from the book? Because Boston's early exports were mostly furs that the settlers trader for with the local Indians. The timber and fish exports came later.
An interesting view of the world. However, like many one-sided views, it's easy to find evidence against it. Take Seattle as an example. It was built on military money, and companies like Microsoft and Amazon would certainly not have gone there if it wouldn't be part of the large US market. The same is true to an extent for the Bay Area. Agreed that military research money is different from your average grunt base, but it's still military money. I am also not sure that the various economic centers in Germany would be better off independently.
This seems not to be an argument against nation states, but rather one against common currencies.
>Let’s take a moment here to appreciate how Jacobs casually destroys ideas so many of us hold dear.
Does she? She's saying they don't work as a financial prop, but I never got the impression people thought the military or welfare were money-makers. The benefits are non-economic, like buying a pet rabbit or going to the movies. You pay the cost of a military to get the benefit of not having Rome burn your town and salt the earth. You pay the cost of welfare for the psychological benefit of not watching people starve.
> nations aren’t the right way to think about wealth.
Well, if you're analyzing *markets*, nations are important because it's almost always far easier for people, goods, capital, etc. to move between places in a single nation than between nations. (Which is one reason why the US federal government taxes incomes at a much higher rate than states -- you can easily flee from one state to another.) As another commenter said, Brexit seems to be a good test case for all of this.
Promoting in the 80's the idea of cities as places of import substitution is weird as deindustrialization was already under way. I don't see any value in it now.
Read this insanely brilliant essay, especially if you've been trained in economics. This will shake a few brain cells, particularly when applying the import replacement theory to current situations.
This is more than a book review, or rather, more than a typical critique of ideas in book form. This essay explores the ideas in the book(s), applies them to situations to make them easy to understand, and makes you question what you assumed to be as true as gravity.
"Richard Cantillon, Adam Smith, John Stuart Mill, Karl Marx, John Maynard Keynes. Jacobs explains how they each had their own ideas of how the economy worked, disagreeing over things like whether supply or demand was the main driving mechanism, but they all agreed on a fundamental fact: inflation and unemployment have an inverse relationship to each other, like a seesaw."
I'm interested to see what quotes she has to back this up, but as someone who teaches the History of Economic Thought I don't think this is true of the pre-Keynesians. Unemployment was not generally a big focus of pre-20th-century economists, and Phillips first described the Phillips Curve in 1958.
The description of mid-20th-century economics in the surrounding paragraphs is much better. In simple modern economic terms, we'd say that stagflation is caused by adverse supply shocks; the Keynesian solutions of the time could only shift aggregate demand, and so could only fight inflation by making unemployment worse (and vice-versa). Today we'd say best way to fight stagflation is to find ways to increase aggregate supply; this broadly seems to be what Jacobs thinks her solutions would do, though I'm not convinced they actually would.
> Well. As this review is written, in March 2023, French people are rioting because the government is pushing the age of retirement from 62 to 64.
That fact is often contrasted with the fact that the UK raised the retirement age from 65 to 68 with scarcely a murmur.,
I like secessionism, but for a different reason.
Political diversity means political choice and a greater ability to vote with your feet. Competition of governments means they have more incentive not to oppress the people.
Thanks for this fine review! One of the best kinds of reviews is one that alerts the reader to the existence of worthy books he never would have heard about on his own.
The point about currencies is really interesting, it's a form of feedback I think the EU should have taken more seriously, even if there have also been useful effects of the Euro. And I think seeing cities and the key nodes in an economy makes a lot of sense. But I think the historical viewpoint relies in part on a world where everything important*can* be done well at the scale of a city. Much of the value of the modern world's recent technology and growth comes from networks and network effects. Power plants and stable electric grids and the internet work better at larger scale. Maybe it would be better in some sense to achieve that by having free trade and cooperative infrastructure projects among large numbers of relatively independent cities, but I don't know any time or place where that has been done stably/peacefully/efficiently?
Even in ancient times, it took Rome to build the roads and aqueducts and bridges that Europe used for the next millennia, which they wouldn't have done if they hadn't formed the empire. And there's a reason China has the saying that "the empire divided longs to unite, united, longs to divide." And why long-lived companies seem to go through periods of centralizing and unifying control and other periods of letting a thousand flowers bloom. Have humans ever devised a stable system of having a central organization powerful enough to do what's best done at scale without overreaching and taking over things that should be local? I don't really think so.
The Brexit bit makes me wonder. From her arguments it seems pretty germane that Jacobs would consider the Euro an abomination (and I can see a case for it), but the UK didn't have it; instead, Brexit mostly increased friction for trade and immigration, two things that ought to be as free as possible for the model to work. Nevermind that of course Britain itself is an abomination by this logic, with gigantic London almost parasitically sucking dry an impoverished host body.
On welfare or military development, it seems to me that while they are drains on growth, they are to an extent necessary ones; a booming economy alone is no good if a neighbour can stroll in and steal your stuff, or if everyone who isn't strictly of working age is miserable. Economy isn't everything. But the thing I would agree on is that they shouldn't be relied on as engines of development via increased spending. If you want to play Keynes, build infrastructure, not bombs.
Great first review, thanks!
Some context on _The Question of Separatism_. A lot of Americans had moved to Canada in the decade or so before Quebec's first Parti Quebecois premier. Many of them had come to Canada to escape the Vietnam war - Canada refused to extradite draft dodgers to the US.
Once there, some number of them made public pronouncements in favour of breaking up their adopted country. Even if they were unilingual anglophones themselves, they knew where they stood on any question of oppression. French speakers qualified as an "oppressed minority", and deserved the power to forbid the speaking of English. The French language would surely disappear in Canada without drastic measures, and must be saved. Unlike native born Canadians, they understood all the issues, all the nuance, and were happy to tell us what we ought to do.
I don't know whether or not any of them knew any of the nuance in the situation, let alone the claims popular among English Quebecers of the provincial government eagerly oppressing linguistic and ethnic minorities. (This is roughly the same time there were violent confrontations about building a golf course on Indian land.) At any rate, as an English Quebecer, I regarded these pro-Quebec Americans with extreme contempt.
Eventually my own government sold me down the river, metaphorically speaking. Quebec got to be exempted from any human rights legislation it chose, as part of the price for staying in the country. Signs in English were forbidden. Many children were forbidden to attend public schools in English even if it was their native tongue. Those who were permitted by law tended to encounter bureaucratic obstacles instead. Businesses above a certain (small) size were required to communicate internally only in French.
Montreal - where most English Quebecers lived - lost most of its head offices and research offices, not to mention swathes of customer service business. Real estate crashed, and Toronto gained from Montreal's losses - they were no longer roughly comparable cities, with Montreal having the edge in cosmopolitanism. Lots of English Quebecers left the province. Some ambitious French Quebecers joined them.
I eventually wound up in the United States, having lost any conscious semblance of patriotism in the process - Canada pretended English Quebecers didn't exist, or didn't deserve to be allowed to both speak their native language and live where they were born. But it's a huge sore spot with me still.
It's also worth mentioning that the prime minister of Canada during much of this was himself a French Canadian from Quebec.
At any rate, that's the context for the second of these books.
For the record I now kind of favour Quebec separating from Canada, provided all Indigenous or otherwise non-francophone areas have the option to separate from Quebec, and there are never any transfer payments. I imagine that most of the resource based wealth in Quebec would separate from it, just as much of the research and head office based wealth already did. (And they've been trying to entice it back ever since...) It's too late for Montreal - its non-francophone immigrant communities are probably long gone, along with much of its English speaking population. But I still want revenge, and while the PQ leaders probably wouldn't do too badly personally (much as I'd like to see them suffer), the children and grandchildren of the gullible fools who voted for them would certainly suffer. And giving them what they asked for - but then sensibly don't vote for - would give me that revenge.
Having read (and reviewed, at length, conclusion post here: https://thepdv.wordpress.com/2016/03/31/the-economy-of-cities-plainly-delivered-verdict/) The Economy of Cities, and read Cities and the Wealth of Nations, I have some corrections.
> Jacobs doesn’t actually give a clear argument why. Maybe that was in her previous book, The Economy of Cities. So far as I can see, her reasoning is, ironically, a bit tautological: “all developing economic life depends on city economies; it depends on them by definition because, wherever economic life is developing, the very process itself creates cities and has probably always done so.”
She does give an explanation in The Economy of Cities, but it's that same explanation, and yes, it is absolutely tautological. She presents a (very much unsupported) theory that this has been true all the way back to the very first city to ever exist, and at no point does she provide any quantitative support for any of her arguments.
This is Jane Jacobs's principal sin. She never, *ever* gives numbers. And if she did, they would be used like an exotic spice to draw attention to her theorycrafting, not a basis for changing her mind.
> For Jacobs, virtually all city development can be seen through the lens of import replacement (which, to be clear, has approximately nothing to do with policies of import substitution industrialization; import replacement is not a policy, but a naturally arising free market phenomenon).
No, in Jacobs's view they *are* linked and import substitution industrialization is one of her primary forward-looking policy prescriptions. She'd prefer the 'auto-tariff' approach of free-floating currency exchange rates but she does actually support this.
And one other comment:
> Can you imagine if the Our World in Data charts had to show separate lines for the Electorate of Saxony, the Prince-Bishopric of Augsburg, the Duchy of Brunswick-Lüneburg, and about 1,800 other semi-sovereign states? Can you imagine traveling around if each of them had its own currency?
Fortunately, programmatic currency exchange is now easy and the drawbacks have become minimal.
An obvious prerequisite for this discussion is that geographical proximity is important. I wonder how the increasing interconnectivity, ever increasing fraction of digital goods and services that do not care about geography, post-COVID remote work opportunities, etc change the city-centric trajectory of economic advancement.
> Currencies, Jacobs explains, function as automatic tariffs (to protect local industry from foreign imports) and automatic export subsidies
Is there some way to get the benefits of this feedback loop without the inconvenience of having a ton of different currencies? Like, could metro regions just have regular old tariffs and export subsidies, set by an "automatic" formula?
More generally, I'm confused why currency/monetary policy is the important factor that makes large nations doomed to fail, as opposed to the other stuff that tends to distinguish nations from smaller entities (legal power over its citizens, having a military, controlling immigration, etc.).
There’s a political program in here that people could like: something mixing this, Napoleon of Notting Hill, and James Scott with a view to re-establishing city states, possibly with “something something communitarianism” thrown in as well.
Has anyone thought to examine the Mongol Empire? In particular, the Jochid horde implemented devolved currencies and politics. Might such a system work as a model for a decentralized, yet (usually) unified state?
Thank you for sharing this! As I hope is evident, I found it delightfully stimulating.
In my own amateur engagement with economics, I have asked for households to be the basic unit of economic analysis but, of course, households exist immediately in networked relation to people and places. Maybe cities is best.
As for left and right, it seems Jane Jacobs accepted that private profiteering would continue playing it's preferred role as driver of the economy. I read she preferred merchants to rent-seekers which suggests to me she was making the mistake that all apologists for empire seem to make. That is, she was vastly overestimating the moral and humane sensibilities of her capitalist cohort.
I realize that's a bold statement given I've only been introduced to her today. I doubt she thought of herself as an apologist. It sounds like she was working towards deep structural transformation in the study of economics. Her ideas and analysis as you've presented them are useful and compelling. I think they reveal her humane sensibilities. I also feel a bit justified in my declaration by the fact that she consciously places her work in the tradition of Adam Smith whom I've read was mortified to discover how quickly his cohort abandoned any moral sensibility that stood in the way of profit.
I said all that so I could speak about welfare. The general welfare is one of the few legitimate purposes of government. But, we live in empire where whatever is good for the profiteers is, a priori, deemed good for the general welfare. Empire cannot conceive a welfare greater than its own. I/me/mine is the extent of its conception of the good.
In that worldview, care for those that fall outside the circle of my concern is understood as charity. Welfare is politicized charity. It is not justice. Any real leftist would gladly give it up in favor of a economy designed to serve a commonwealth belonging to the people and not the privateers.
As long as government is the means by which the wealthy play their game of thrones, there can be no justice, economic or otherwise.
A lot of comments are picking on Jacobs' theory of stagflation for being, ya know, egregiously wrong. I think the charitable thing here is to recognize that she got caught up trying to tie her theories to a happenin' economic event of the time, and that her overall theory makes more sense if you find/replace "stagflation" with "slower economic growth since the 1960s." Slow economic growth, unlike stagflation, has a pretty good argument for being the default human state.
I end up seeing this as an optimization process: there is a situation where a good or service is expensive. There's a way to provide the same service in a cheaper way, so eventually this is noticed, someone resolves the inefficiency and provides the same service for less money (and takes a cut of the difference in profit). It's like taking a step in a gradient descent algorithm.
In the examples given here, the inefficiencies tend to be geographical and political - the cost of labor, the cost of transport, the markup of the merchant/exporter, tariffs, etc... All of those can be eliminated through import replacement by a city.
But that's not always the way of inefficiencies. As other commenters pointed out, it's often cheaper to import a certain good or service from someone else who is specialized to provide that good or service to you. As transporting goods and information becomes cheaper, it probably makes sense for many cities to instead do export replacement - taking an inefficient local industry and replacing it with a cheaper import.
The whole anti-fragile angle points out another dimension - risk. We tend to avoid over-optimizing things because it creates very brittle systems. So this is something that cities and nations also need to consider. Perhaps it's better to import-replace something, even if it's more expensive to produce it locally, since it provides you with some redundancy and resilience when compared to depending on a specialized peer.
One could also see nations as the natural outcomes of the gradient descent processes in other dimensions. Managing a myriad of fluctuating currencies has historically been intractable, so people ended up settling on unified currencies for the sake of predictability and stability. Similar forces in the dimensions of culture, military/safety, laws and other areas contribute to the stability of nations in their current form.
I read the argument in the book as: nations impose artificial constraints on cities and prevent them from following the economic gradient. But nations themselves are (perhaps local, rather than global) peaks in their own gradient.
So eventually it all kind of becomes a porridge of "everything is complicated" and I end up thinking that perhaps this is not a useful way to think about things after all.
What is it about economics that seems to cause people who don't really have a strong grasp of it feel they are qualified to offer broad theoretical or empirical claims about it. I mean, based on a quick Google she seems to just be a journalist without substantial STEM background much less a grounding in macroeconomic theory.
I can understand (tho feel it's largely unwarranted) why some people would be skeptical orthodox economists are justified in their views. However, in any other field if you hadn't mastered the math and empirical literature you wouldn't dare take the leap from skepticism to proposing your own theory.
Hell, even the global warming skeptics don't claim to offer their own alternative climate model. So why is econ treated like voting: something any idiot is justified in formulating their own theory about.
I liked Will Wilkinson's phrase "the United Nations fallacy" for treating countries as equivalent, regardless of size, because they are legally considered to have equal status. Unfortunately, his Flybottle blog is no longer available, and I believe he even blocked access to the Internet Archive.
Stagflation is not the normal state of things, because inflation is not the normal state of things. Prices that are high relative to incomes is not "inflation", because that's a level, whereas inflation is a rate of change.
I lived in Northern Quebec when I was a kid (1 to 9). 1955 - 1964. Rouyn-Noranda, about 350 miles NNW of Montreal.
The schools were separate, French and English. I feel like I had about one french class a week. The only memory I have is Mrs. Riley (my third grade teacher) holding a drawing of a cow ( it was the first time I had ever seen one) and saying “La Vache.”
When I met a French Canadian boy for the first time, who actually lived right next-door to me he was fluent in English. His father didn’t speak a word of it and made it clear that he didn’t care.
It was a very important mining town and the managerial / executive people were all anglo. The “brains” people were not only Anglo but British and Australian (my father being one of them.) It was Apartheid.
Montreal got clobbered by the Separatist movement. I was living and working in Toronto in the 70s and the relocation was palpable. I was a commercial film editor and the migration of all the major ad agencies to TO bought me a lot of dinners.
Libertarian is an easy title, but it sounds like she was just a big believer in subsidiarity (though the term is usually used with reference to Catholic Social Teaching)
Cities grow the same way mold does; in congenial circumstances.
Geography has been the primary driver of where we put our cities for a long time. Las Vegas is an anomaly.
Wow, that was a really compelling argument not to take her stuff seriously. If that's an accurate account it's just psuedo-intellectual vague theory building that avoids testable claims and creates a false sense of erudition all serving to create sufficient complication that the author can use their narrative control to support their pet theory.
I mean the whole thing about cities being the correct unit of analysis was a red flag! One of the hallmarks of this kind of thing is a theoretical claim that feels substantive at an emotional level but doesn't really have any clear substance (cities are the proper unit of analysis). It just serves to create the appearance of intellectual work when all that's really going on is the author is redescribing things in a way that appeals to them.
Nothing wrong with that on it's own. But it's almost always a kind of trick. Once they've asked you to look at the world with their lens they tend to simply presume that if you're still reading you'll nod along when the presume that lens offers some kind of unifying explanation of whatever seems important.
Sorry, I'm just being irked.
Why it would be a limiting factor is a good question, and I had to think for a bit to work out why I think so. On the premise, a mixture of hierarchies and decentralised control is too broad a brush I think. Where command & control are weak, the decentralisation doesn’t step in: Tokyo and Shanghai handle their size much better than São Paulo and Delhi. The main difference I can identify is the level of centralised control that is able to be exerted. So I conclude that decentralised cities can grow to a certain level but above that level it takes centralised management to prevent diminishing returns.
Excellent writeup about a great find.
My view of cities is a bit different although I don't disagree with Jane Jacobs in general.
If we consider "modern" society as layers of complexity enabled by basic surpluses in food and energy - where does the complexity take form? Cities. The dominance is financial, social, manufacturing, etc etc - all outcomes of greater complexity.
That's the core advantage of cities vs. the rural countryside despite the rural countryside literally feeding and providing the raw materials for the survival of the overall system.
In addition, cities in a democratic system have more votes - and increasing urbanization leads to increasing relative political power. Absolute population dominance in a democratic voting system is precisely why the Constitution instituted Senatorial equivalence in voting between states as opposed to absolute votes - the electoral system. At the beginning of the United States - the Founding Fathers were very fearful that the high population states of Virginia, Pennsylvania and New York (in that order) would dominate the rest of the 13 states.
Now combine the control over complexity (because of location) plus political dominance - you end up with the rural countryside being unable to defend its economic interests against the urban centers' interests.
This same kind of dynamic rose with European nations, the West in general vs. the rest of the world. Even if critical minerals, food, energy or other resources - which are literally the foundation of Western standards of living upon which the West is dependent - are absolutely critical for the West, the same types of dominance exerted by cities on the rural countryside leads to low commodity prices in favor of "complex" "advanced economy" products such as finance.
Under this model - the decline of American cities is directly a function of the decline of many aspects of complexity, the decline itself not restricted just to cities. The outsourcing of manufacturing to China is the most egregious example.
I really like the review. But import substitution is considered by the vast majority of economists of all political persuasions as a bad theory. It predates JJ as well. The part about the value of the exports is right. But because increased transaction costs increase all costs, the idea that tariffs via unique currency or taxes will boost a developing economy isn't accepted. A history of the rise and decline of the idea can be found here. https://www.nber.org/system/files/working_papers/w27919/w27919.pdf
Also, I I wouldn't call her an accidental moderate, but rather a type of distributist.
I think "Economists examined her theories and found them wanting" is the most likely explanation. The ironic part is that "The EU is too big" actually *was* a mainstream economic argument for decades (keyword "Optimal Currency Area"). But the argument was "the EU should be half as big as it is", not "Hamburg and Munich should suceed from Germany", which seems insane.
Also, I really wish this review had looked at the data since 1980 to try to see how the theories held up or didn't since the book was written.
I'm very fond of Jane Jacobs and have long seen her as one of the great thinkers of the 20th century. She got the importance of cities correctly, but didn't address the importance of nations. The Roman Empire might only have dominated for a millennium and a few centuries beyond, but that empire did have a good long run. Cities don't function alone. You could take her taxonomy of rural areas and do a similar taxonomy of cities. You have to understand cities in the context of larger entities like nations and empires.
An organic model can help. Cells are a basic unit of biology. Each cell can perform a broad variety of functions. Each cell has a metabolism with inputs, outputs and the ability to reproduce. Understanding how individual cells work is important, but cells live in ecological niches where the work with other organisms and modify the world around them. One of those niches is as part of a multicellular organism.
A cell may survive on its own, but it serves a cell well to join a biofilm when attacked or to join with other cells to disperse spores. In multicellular organisms, cells specialize. Outer cells may suppress the reproduction of inner cells, but the resulting organism is more effective than any of its cells. They all do better. Your liver cells accept their role as the toxic waste dump of your body and your brain cells call dibs on your body's sugar supply. Your muscles accept commands even if they have to dip into anaerobic reserves.
A city often does better as a tributary within a powerful nation than as an independent entity. Interstate anarchy, you and what army, can be expensive. When the Egyptian branch of Alexander's broken empire neared collapse around 200BC, Rome was called and effectively took over. This had a cost to the cities of the Eastern Mediterranean, but they still did better under Roman rule than in constant warfare. It isn't always about armies. The EU with its euro provides an export moat for Germany. Germany alone would have an expensive currency, but sharing its currency with the rest of Europe puts a lid on euro exchange rates making it hard to undercut Germany with a cheap currency.
Jacobs focused on cities and did a lot of important and original thinking. Still, her focus was limited. Look at what I call the Crystalization of Europe. For a long time after the Roman collapse, it was effectively a continent of city states each with a backwater. Then, after the Black Death, Western Europe began to crystalize with powerful cities accumulating empires. It started in Spain and Portugal, but then spread east to England and France and finally to Italy and Germany. Each crystalization built a nation, imposed a national culture and language, and then built an external empire. Given the forces involved, I would not be surprised if this happened elsewhere as well.
Like General Relativity, Jacobs theory of cities was a breakthrough but incomplete. So much of economics starts with a political theory (h/t to Joan Robinson) and tries to wedge the real world into it often ignoring basic accounting that is obvious to even a street vendor. Jacobs started with observations and came up with a theory that lined up with experience and simple concepts of accounting.
Question: if Japan is so overwhelmingly doninated by Tokyo that there’s a good case to be made for rough parity between Tokyo-centric concerns and Japan-wide ones, why did Jacobs make a prediction of decline in the 1990s? Seems hard to chalk that up to the kind of principal-agent type problem that characterizes her viewpoint.
First, I found the book review engaging and compelling throughout, so thank you for this! As I am digesting it, I find myself convinced by the economic arguments, though frustrated that's the only lens brought to viewing development.
It seems so obvious that there are other necessary criteria for economic development that are not touched on, primarily security. City-states had this phenomenon (let's say it's correlated but maybe it's causation) where warrior societies would spawn that decide simply let's take their stuff. That has all sorts of implications for coordination between cities, security investments, and insider/outsider views of who a city might feel comfortable paying tribute/taxes to.
Similarly, currency and state-sanctioned violence are downstream of the legal system, which in turn is downstream of cultural values. I struggle just remembering state-level legal distinctions when driving across borders, and I have to imagine city-state level distinctions were constant sources of misunderstandings, frustrations, and abuse (think: Ohio targeting out-of-state speeders for tickets on steroids). I would imagine that to regulate city-states to certain sizes, only to be out-competed by regions that could provide more consistency over more domains where security and some culturally-shared view of fairness was sufficient for commerce to proceed.
This is one of those books that I would file under 1970s weirdness. (Yes, I know, technically it was published in 1980, but it was written in the 1970s.) You could write some crazy stuff back then and still be published and respectable.
The idea that nations should be broken up into city-states is just so deligtfully kooky, I don't even really want to dunk on it. It's like dunking on a clown. Plus, if we could get SF into its own nation and build a wall around it, it might be worth crashing the economy and plunging society into a dark age.
You know. Pros and cons.
I do feel compelled to point out, though, that the story of the 20th century is to a large extent the story of cities becoming less and less relevant. It used to be that factories and industry were located in cities. But as transportation networks matured and environmental concerns proliferated, the idea of having heavy industry in cities became a bit silly. Now the triple whammy of increasing crime rates, skyrocketing costs of living, and the COVID-era forced work-from-home orders are starting to do the same for commercial activity in cities.
There are increasingly few economic reasons to live in a city. Increasingly it is just a lifestyle choice.
"If any of these separatists got their way, we can be sure that the new nation of Quebec, Scotland, or Catalonia would then oppose further separatism in the strongest terms."
One of the funniest things about the recent Catalan push for separatism is "Tabarnia", a satirical mirror of the Catalan independence movement which demands independence for the Tabarnian region *of* Catalonia from the larger polity. The independence activists went *insane with rage* at the demands and claims of the Tabarnienses even though these were deliberately exactly identical to the activists' own claims visavi Spain.
Another thing: as for her political/ideological affiliation, Jane Jacobs was evidently an advanced Taoist master. Consider for example:
Small countries with few people are best.
Give them all of the things they want,
and they will see that they do not need them.
Teach them that death is a serious thing,
and to be content to never leave their homes.
Even though they have plenty
of horses, wagons and boats,
they won’t feel that they need to use them.
Even if they have weapons and shields,
they will keep them out of sight.
Let people enjoy the simple technologies,
let them enjoy their food,
let them make their own clothes,
let them be content with their own homes,
and delight in the customs that they cherish.
Although the next country is close enough
that they can hear their roosters crowing and dogs barking,
they are content never to visit each other
all of the days of their life.
and
Why is it so hard to rule?
Because people are so clever.
Rulers who try to use cleverness
Cheat the country.
Those who rule without cleverness
Are a blessing to the land.
These are the two alternatives.
And lots more where that came from.
Excellent review of a non excellent book.
The argument is that the Tokyo based central government is unproductively subsidizing the rest of the country thus both spending its own economic surplus and undermining the growth of other regions that themselves could be more robust regional city economies. Or the Tokyo metro area’s integration is good, but the national reliance on Tokyo is bad.
Is it that impossible to induce "import replacement" for cities that are within larger nations? Why can't Montreal do import replacement today, and why would it be able to if Quebec separated from Canada? Is it just the currency feedback loops? In that case what if Quebec stayed within Canada, but was given its own currency?
"It is why nations and empires always centralize everything into one large city, whether that’s Paris, London, Tokyo, or Toronto, or ancient Rome: that city, being the largest, is simply the only one for which national-level currency feedback works fine."
Which is why Washington D.C. is the largest city in the US.
I mean, it could be that one of the reasons why the US has become so economically dysfunctional is that the national-level currency feedback doesn't work for anywhere. The government is centralized in DC, while the financial sector is centralized in NYC.
I see many people are arguing about the failings of her theory in regards to "import replacement", "stagflation", whether a city really is the best unit to analyse wealth, and on the "currency feed back loop" thing.
All of those things are outside my expertise, so I'm grateful people are pointing out those problems. But what *really* caught my attention here is her model in regards to economic forces radiating from a city and the rural regions affected by it. No one seems to be talking about it, and I find myself curious if there is any validity to it, and would be grateful if someone with the apropriate expertise could comment on it.
>But it is not the process of a few weeks.
I was being sarcastic.
This is my first time reading about import replacement, and I gather that it's largely known as a bad theory. I'd like to know if there's a similar theory that's more specific, which is more well respected?
As I understand, import replacement is an argument in favor of specialization within the city (relatively to the rural surroundings), but for generalization within the nation.
But on the national level, there's a balance to be struck between extreme specialization, and extreme generalization. With extreme specialization the country gets a globally competitive product to base their economy on, so they can import everything else - but it's fragile to put all eggs in one basket (not to mention that you miss the synergistic effects of having many industries).
With extreme generalization, the country imports nothing and might as well have closed borders, and thus it's a sure recipe to fall behind globally, which will bite your ass eventually (is North Korea a fair example?).
I don't know what "import replacement" is most often criticised for, but I'd guess it's that when it's taken to its extreme, the country (or the city) misses out on the positive effects of specialization and trade outside the city? In other words, when a country does it, it misses out on the positive effects of globalisation?
In conclusion: replace half the imports!
Am I missing it completely?
Would separation even be necessary? If we can somehow figure out which area belongs to a city area like she claims with scotland and london, we must have some certain metrics to determine this. Couldnt these be used to figure out which areas would need to switch it up? Using metrics instead of currencies as a guide.
"They were making the classic mistake of treating poverty as a mystery and wealth as a given, when in fact poverty is the normal order of things and wealth, when it does occur, is what warrants an explanation."
I recently heard an argument going much the opposite way, that up until 'The Wealth of Nations' everyone took *poverty* as the given, and its fresh perspective was to suggest that sustainably increased wealth was in fact possible. Malthus and Ricardo, after all, saw poverty as the natural state of mankind. Adam Smith meanwhile needed to investigate this new weird thing, increasing wealth.
> the answer is obviously going to be cities.
>
> Jacobs doesn’t actually give a clear argument why. Maybe that was in her previous book, The Economy of Cities. So far as I can see, her reasoning is, ironically, a bit tautological: “all developing economic life depends on city economies; it depends on them by definition because, wherever economic life is developing, the very process itself creates cities and has probably always done so.
If you want a non-tautological argument for or against this, you should look to "The Dawn of Everything: A New History of Humanity" by David Graeber and David Wengrow. You can have a high population density without any centralized power. You can have highly organized bureaucracy without high population density. The universal use of "city" hides a bunch of wrong assumptions about what's necessary for social organization.
Maybe the book itself is different, but after reading this review, I don't feel like I have a nuts-and-bolts understanding how growth works in Jacobs' view. A standard introductory economics textbook will talk about things like specialization and division of labor, gains from trade, and savings and investment. These factors explain where the things that are necessary for growth come from. Here it sounds like people just decide to make factories, and so they do.
> All empires eventually collapse. This is not what we would expect if empires were a good economic arrangement. If they only ever got wealthier and wealthier, they wouldn’t disintegrate into various separatist factions or end in foreign conquest.
This seems a bit simplistic... empire collapse is related to an enormous array of factors. Sometimes they're economic, but related to very empire-specific factors, like the accumulation of wealth in religious temples in Bagan. But they may also be related to climate, as happened to the Maya, as well as with the Bronze Age collapse. Or there might be new technological development which shifts the balance of power (Bronze Age collapse again). Or there's a succession crisis, or plague, or some other factor. None of these tell you much about what the optimal area for a single connected economic area is.
edit: Forgot to mention, that free trade is generally considered an incredible economic boon to all entities involved. The fact that the US Constitution forbids states from passing tariffs means that the entire US can freely move goods and services around (well, mostly) and probably contributed to is developing into such a rich and powerful country. (On the other hand, its size is probably also contributing to its current political disfunction, but that's not an economic problem).
As an Atlantic Canadian with a father who grew up in suburban Montreal in the 50s through 70s, I feel like this review is targeted at me in some ways.
Two things are notable about Atlantic Canada that line up very nicely with the theories Jacobs describes - it has one decent urban center (Halifax, in Nova Scotia) when it really should have two (PEI is too small to really have one for the purposes of this discussion). Why? Because in New Brunswick, there are three cities - Saint John, Fredericton, and Moncton. Moncton exists to be a railroad crossroads and with government funding, Fredericton exists entirely to be the capital, and Saint John has actual industry etc. But the government has never liked Saint John, so instead of one big city and two small ones there are three cities of roughly similar scales. It is very dumb.
Second, Atlantic Canada used to be the economic heartland of Canada. But the various local industries got bought out or expanded west. And once the Atlantic Canadian operations were branch plants, they were more vulnerable to being shut down. Basically, Atlantic Canada transitioned from being a network of its own cities and industry to being the outsourced industries of cities outside Atlantic Canada. And then, unsurprisingly, those eventually went away.
(To be fair, Atlantic Canada has also just been hurt by the passage of time. PEI, for example, used to have a very solid industrial base in brickmaking and wooden ship-building. It is fair to say demand for both has declined, even locally, and transitioning to other industries is not necessarily straightforward. Though, really, the bit where it is economically viable to buy bricks from China vs locally also explains a lot).
I am almost certain that she is wrong about separation being the answer - separation does not preclude poverty. People and capital are still perfectly capable of abandoning one region for another, even across borders.
On the currency side, I think there's a bit of a trap in that having a smaller currency could usually be helpful but having the most important currency is even more helpful. Like, Italy would be better off with it's own currency than with using the Euro, but would be even better off if the Euro some day replaced the dollar as the worlds reserve currency. That would create incentive to plow on hoping to eventually take the number one spot.
Interesting stuff, and I love TDALOGAC, but doesn't the city economics thing fail empirically in a pretty obvious way? In the US, New York, Los Angeles, Phoenix, Miami, the San Francisco metropolis, Atlanta, and various other cities all seem to be doing very well. And cities do specialize in different industries to some extent and trade with each other, much more than countries trade internationally. This all basically seems to work well, which Jacobs' theory would predict is impossible.
Similarly, in Germany, to my limited knowledge, Berlin, Hamburg, Munich, Frankfurt, and so on all seem fine.
So, I think it's an interesting lens. Yes, cities should be a more important unit of economic analysis, and they need to produce something valuable to prosper. But in fact they do prosper, and Jacobs' analysis ultimately fails pretty badly.
Thanks - this is great! I still have somehow never read Jacob’s, despite being a huge fan of urbanism generally. I’ve seen her ideology as being most closely tied to that of Friedrich Hayek, who is usually thought of as a libertarian of sorts. I hadn’t heard as much about the rest of the economic and political work of hers that makes this even more clear than Death and Life.
I always think that cities are an underappreciated unit of analysis, and nations are an overemphasized one. I would have thought there are better ways to make unions work (and that the EU has an interesting mix of unity and laxity that avoids some of the problems she mentions).
In this view and in realty, the endless outsourcing and neoliberal pyramid scheme style capitalism has indeed impoverished and hollowed out the economies of western nations where these ideas were applied. A growing National economy with a rising gdp does nothing and tells us nothing useful about the direction a nation is going.
I’d rather be richer in a flat economy than poorer in a richer gdp. Wealth concentration is extreme and wages have been flat in a permanent recession for workers in almost all places in the USA for over 50 years. Forget gdp as your city and your job prospects crumble. Who cares of so,e billionaire gets minted from your old job which was outsourced to China. or mexico? Some rich guy got richer in New York or London, and we should what? Celebrate from our impoverished hovels as all the wealth is extracted into the stock exchange? No thanks. Any economist priest will be happy to tell me ‘it doesn’t work that way according to my religion’ but it doesn’t matter what those dog mouths of the elite say or think, people know their lives are much much worse and getting worse still as their cities crumble due to outsourcing.
Things which are objectively bad for common peope such as National disasters, wars, and financialisation where wealth is hyper concentrated into non productive Wall Street hands into soaring stock markets divorced from reality…are all in fact very very good for the gdp numbers. This false image and the ideology and cult of economists with their high priests in the central banks who issue decrees out of one side of their mouth and praise the non existent free markets out of the other side of their mouths are nothing but a self serving ideology and cult of kleptocracy and plutocracy to take from everyone and give to themselves.
The rise or fall of gdp can mean many things with a lot of them being bad things for regular people. While a cities focus is seemingly far superior, it is not fool proof either, but is a far better indicator of true prosperity for the common people. Sentiment, scale, interconnectedness, and the concept of feedback in general works better at a smaller scale. You don’t need a think tank to run polls which are framed to support their ideology to run a city, the sentiment and state of affairs is clear enough. One can only be so out of touch and blind to the streets they live on.
I’d say the failure of modern cities has to do with the extraction and the isolationist practices of the elites who run them from afar. No longer do the elites run businesses locally, go to school or university locally, or even live locally except in extremely isolated elite enclaves. Funny that…the poor in ghettoes and the rich in enclaves. When you cut off true feedback, you ruin everything.
What we have now is rampant cannibalism and the war of cities and powers. Forget National horses, nyc is at war with Detroit and it won the war. The most corrupt places such as New York wield National taxes and power to steal, and extract from other cities. Nyc is a vampire city which has consumed other cities and disrupted the virtuous prosperity loop of import replacement. Now we see cities like Detroit were taken over by stock markers, a most vile creation, and the wealth from Detroit was extracted.
Your well paid blue collar job and rich import reducing economy was stolen and turned into a long forgotten bonus or stock bump for some uncaring fsr away elite in nyc who have a great reason and academy of ideas to explain to you why you should be happy they stole from you and accept it was a ‘law of economical thst they take your prosperity and you suffer. The moment a cheaper mine to strip became an option, it was taken. Far away from the city minded elite of Ford who realised the simple idea that he wanted his own workers to be able to afford the cars produced locally.
Globalism is a worse cancer than nationalism and has destroyed the foundation of prosperity. Jacobs may not have out it in such blunt terms, but this is the simple and easy to observe truth. Prosperity is based on your local relationships. The jobs you can get around you, price of the house down the street or the cost of groceries or the crime rate in your neighbourhood are what makes life good or bad. Not the far flung idiotic data on National rental price trends which mean nothing as your city and suburban can be doing something else entirely.
So, the reason the "conurbation" became Toronto instead of Montreal is like this.
Before the war, Canada had been conceived as basically a British empire resource extraction zone. It did undergo fits and starts of independent industrial and commercial development, but Canadian elites generally preferred the resource extraction model and extensive rather than intensive growth. Economic development lagged and Canada, while it continued to experience mass immigration, actually needed the immigrants just to maintain the existing population levels given outflows to, mostly, the United States.
After the war, and especially after the Suez Crisis, it was obvious to everyone that the extractive development model was at an end. (Note that it was NOT extractive in terms of extractive institutions, except of course in our apartheid-like Indian Act ghettoes. We had a relatively clean system, but it was like that of Montana or Alaska today, only kept clean from the outside pressure.) So we had to restructure our economy, which meant a lot of stuff closed, a lot of stuff opened, and there was just a need to do big reshuffles of corporate structures anyway, including of physical corporate office spaces.
Simultaneously, Quebec was undergoing a revolutionary transformation akin in many ways to the American Black struggle that was occurring, including in the bad ways, such as inner city disorder and corresponding "English flight." Even down to Jewish businesses being driven out or boycotted as oppressors, that kind of thing. People were looking around at New York City, at Paris. The world political system as a whole just seemed very unstable. Decamping a few hundred miles up the St Lawrence Seaway to the shores of Lake Ontario just made every kind of sense in the world. Actually, the corporate headquarters that are even left in Montreal are mainly state-owned enterprises; quasi-state-owned-enterprises; there under some sort of semi-corrupt regulatory deal; etc. Something like Ubisoft Montréal, pbuh, is much more the model for development in that city going forward.
"Optimum currency area" is a modern research field, and certainly doesn't seem to think that the city is the optimal currency area.
https://en.wikipedia.org/wiki/Optimum_currency_area
Something about the idea of moving towards the city state seemed wrong to me and it's borders. The problem is borders. The US has several cities that are fairly equivalently nice places to live and you can fluidly move between them without worrying about immigration and work visas. That's great for wotkers. What if you're not born in LA but you want to make movies? What if you're born in LA but want to do Biotech? Mobility is great for talented people with specific passions.
Your own country can be clever about allowing the immigration you need to get access to passionate, talented people from elsewhere, but that can't guarantee your own people will be accepted elsewhere on similar terms. This is why Brexit felt like such a loss for people in the UK: they lost access to vast swaths of opportunity.
Worse, immigration is hard for democracies because so much of what makes democracies functional depends on the collective power of voters, but non-voters don't have power. As someone who dealt with marriage-based immigration in the US I can confidently say that most of the harm is not maliciousness but rather simple bureaucratic bitrot thanks to a structurally-guaranteed lack of supervision by voters. The bias towards big countries or supernational entities like the EU could come from the tendency of democracies to let immigration get annoying.
Some sophisticated global treaty on the right to immigrate could make it easier to contemplate secession: it would allow the antifragility benefits of Brexit without the heartbreak.
This states that import substitution industrialization has "approximately nothing to do with" import replacement, due to the first being a policy and the second a (possible) phenomenon, that's fine, but it does seem to me that Jacob's argument lends some credence to the policy.
If "import replacement" is indeed such an indispensable path toward growth and we can expect it to be difficult for especially undeveloped places, it would seem like interventions to encourage it would be a natural step. Not "draining away funds" and separatism seem considerably more round-about methods.
And just fyi, the evidence against import substitution industrialization isn't nearly as strong as it may seem, it likely only coincided with the debt crisis and it's not as if rejecting it for completely free trade is the undisputed path toward growth, the story is much more complicated. For an actual economist, look to: https://rodrik.typepad.com/dani_rodriks_weblog/2007/08/does-import-sub.html
Full political separatism seems like a very dramatic solution for the problem she identifies. If the problem is having a shared currency, why not just stop having one? It wouldn't be that inconvenient either, in my experience modern payment networks can handle foreign currencies at low costs and with very little friction. By contrast full political separation introduces a myriad of costs and frictions that are worth a lot to avoid. And hard as it is to imagine every city (or state, or province) issuing its own currency, it's surely much easier than to imagine every city (or state, or province) becoming fully independent.
For people who like this sort of thing, ie books that care more about intellectual rigor than reaching the “correct” conclusion, read Bertrand Russell’s _The Practice and Theory of Bolshevism_ (1920).
It’s kinda amazing how much he got right so early — and the reasons he got it right are especially important given the double-think one is expected to engage in as part of Woke.
"But Detroit exports might not go down in the first place if their currency is not being inflated by being part of a larger currency that's highly in demand, right? Like what happened to manufacturing in the UK after finance got big."
Right, that's Dutch Disease. Norway parked their oil profits in a sovereign wealth fund, which has stocks and bonds and other financial assets that are supposed to increase in value over time, and their currency stayed relatively stable and they didn't have this problem. In your proposed UK situation, the countryside and small cities have a different currency than London, and the value of the London Pound increases when their financial services become more in demand, and this is deflation ( because prices are going down). Deflation is what happened to bitcoin, and everybody goes nuts about the London Pound, saying to buy and hold. Londoners don't want to spend their LPs, because the price will probably go up, so they start to treat the LP like a financial asset, and use something else, perhaps British Pounds, as their day to day currency for transactions. Eventually the bubble pops, etc etc.
Alternatively, London could implement a massive stimulus plan while the London central bank eases quantitatively. This would counter deflation and hold the currency value steady. Entrepeneurs will borrow money in London and start businesses there, attracting employees from the countryside, and hollowing out manufacturing, which is the same result as with a unified currency.
The main point is: currencies should fluctuate as little as possible, while financial assets can vary. If you achieve stability, then the differences between currencies are mostly fictive and they're just different denominations of the same thing.
"Internal devaluation is a lot harder than an exchange rate that automatically adjusts." From psychological and political perspectives, you're right that there's a huge difference, because if your nominal wages are steady then you can pretend nothing is happening. From an economic perspective, your real wages have decreased either way.
"But might it not be better if the pain is diluted among all of Detroit rather than concentrated into one specific industry?"
... maybe? ? It's not obvious to me either way. I guess high interest rates would hit construction, and domestic car sales, and decrease entrepreneurship, and impose austerity. The effects of high interest rates are not spread evenly. Are they better or worse? I don't know. Maybe you could say that a Detroit Dollar with high interest rates would keep Detroit together but stagnant, while the US dollar with low interest rates would disperse Detroitians to areas with more opportunity. That sounds more like a tradeoff and matter of preference, rather than the Detroit Dollar being a win-win.
This reminds me of an essay by a contributor to Palladium Mag who argued that a federal government only works for nations with powerful cities (which in Jacobs terms, would be cities with regions), citing that for example New York attracts finance, Seattle attracts some high tech, and so on. The same happens in Germany, especially with Frankfurt on finance and the south with automobile industry.
Maybe nations should periodically redraw regional borders according to city regions and get separate statistics on them.
Tangentially relevant video about how the gravity-well of hyper-productive cities can hamper nationwide growth long-term
https://youtu.be/QaL-ocOtooM
People get extremely defensive about this when you want to apply it to the United States, even non-US people are convinced that the only thing preventing the outbreak of world war 3 is the metaphorical boot on the throat of the the rest of the world that the US has. I contend that it is in fact the other way around: if the US broke up then wars and military spending would decrease around the world.
Pretty much the only reason Quebec and indeed other regions on Canada like BC and Alberta stay together is because of the threat that the United States presents. If the US broke up then Quebec would be independent within a decade at the latest. Sure, maybe the US launching a hot war against Canada is unrealistic but if Canada was split up into its Provinces then it's likely that they will be slowly absorbed into the US. Some might say that this has already happened. It's a matter of degrees really, but Canada staying united slows down and limits that process.
There is an optimal size for countries, very roughly more 5 to 50 million people (but it depends a lot on local conditions, like density and natural borders). Every town having its own currency isn't optimal and I'm sceptical of every city too. There is a trade-off between the inefficiency of a sprawling bureaucratic empire and a small town that isn't able to generate sufficient specialisation of its population.
It's hard to say what the optimal size for a state should be but it's clearly neither one world government nor Pitcairn Island (pop. ~50). It's somewhere in the middle, and for my money I'd say 25 million people. Plus or minus to fit into existing geographic and demographic zones.
One thing is for absolute sure though: the existing system is very sub-optimal and it's hard not to think that everyone who supports it (which is most people) are hopelessly biased, somehow thinking that society has reached perfection even though there are new countries forming every decade.
One only needs to look at Iberia to see the absurdities. It contains four sovereign states: Spain, Portugal, Andorra, and Great Britain and Northern Ireland (Gibraltar). A large section of Spain speaks Portuguese (Galicia), somehow everyone thinks Andorra being independent is okay and perfectly viable but Catalonia is not okay. Spain protests British control of Gibraltar mightily while brazenly defending its two colony cities in Morocco.
Redrawing the world's borders into better sized, better optimised states (absorbing some, like Monaco and Djibouti, breaking up others like the US and China) is the single best thing that can be done to improve the world. It would get every sovereign state on an even footing and end (almost all) wars. And most of all it would massively increase trust levels around the world, greatly boosting efficiency (lawyers—AKA trust-substitutes—are expensive).
Interesting ideas. I have added her books on my list. I am not persuaded she is correct, however. It appears you can explain the decline of cities by IQ and how agglomeration effects appear to snowball up to a certain level.
Absent agglomeration benefits, I am skeptical the relative prosperity of today would be possible.
What a banger. Reminds me of Conrad Bastable's type of stuff, though maybe with some of the color toned down to try to be more anonymous 😅
Why would you need seperatism? Sub-national currency regions should enable feedback for the import replacement system she wants.
It’s weird she would be pro-Brexit when the UK already has its own currency separate to the EU’s Euro
Some thoughts on Jacobs generally. In terms of "urban planning" she has a real bad case of "metropolis brain".
Her work is full of ideas and thoughts on urban development that are great for Manhattan Island, and stupid for Atlanta or Denver, much less Green Bay.
It seems like this has also bled over into her reading of economics. Even my wife who is generally all in for her sort of woo, doesn't find it particularly compelling.
In particular I find her contrast between "planned areas" and "organic growth" pretty disingenuous. Almost everyone there is "organic growth" was once a "planned area". It is just not a distinction that cuts of lot of ice in reality. Most places are initially developed according to some specific plan.
And the lovely organic neighborhood you love in 2010 or 1950 was once a planned development 50-100 years before.
Additionally, the hatred of the big urban renewal "projects' she helped spearhead, sort of just completely ignores that they were a solution (and an effective one) to the issue of favellas/shantytowns which were absolutely a feature of the 1930s US.
So you have these housing projects built to solve a problem. They solve it. And then they get trashed because they didn't solve a bunch of other issues (which were serious problems, but just weren't part of the initial scope).
You mean to tell me this giant warren of apartments we built to replace the favellas and provide better more stable housing for their residents isn't as functional and healthy as a 50 year old neighborhood? Who knew!?!?!
The case for separation of Norway/Sweden seems a bit thin to me. Maybe it was a good idea for them politically or socially, but the economic case doesn't hold - at least as presented. Here's an expansion of that OurWorldInData graph, adding in Finland and Denmark to give us an idea of what else was happening regionally:
https://ourworldindata.org/grapher/gdp-per-capita-maddison-2020?tab=chart&time=1875..1975&country=NOR~DNK~SWE~FIN
Everyone experiences the same drops for the world wars. Everyone seems to rebound about the same way. (Except Finland in WWII, oddly, which was directly invaded by Russia and a major source of fighting, but whatever.) Nothing exciting happens in 1905, nothing is different for two countries that doesn't happen to the others. If you're seeing a signal in the noise on this graph, it's because you're squinting hard enough to fool yourself.
When I read the description of Jane Jacobs, erudite, no higher education, engaging writing style, I was reminded of Gershon Legman (although they differ in many other aspects). It appears they were high school classmates in Scranton.
I find this compelling, but I also find it tough to square with the clear existence of the Northeast corridor/megaregion/acela region. If nationhood is imposed from the top by military and political concerns, the Northeast Corridor's status above it's constituent cities, but below it's nation suggests that there is more to the wealth of nations than just cities.
I'm getting to this very late, and only have undergrad econ courses for expertise. But I was left pretty confused on the whole "stagflation as default" and "stagflation as mystery" thing.
What I learned (this was just undergrad!) is that the correlation between inflation and unemployment is dependent on the *cause*. This wasn't obvious in the 70s, but is pretty straightforward now, and fits with the theory.
If the demand curve shifts, inflation and unemployment are inversely correlated. This is hard to do without pictures, but if you know the econ 101 supply/demand curves, imagine the demand one moving to the right (this would represent some kind of stimulus). More people want the same amount of stuff, so producers can charge more (inflation goes up). But also they're producing more, so they hire more (unemployment goes down). And eventually they hit full employment or whatever, so they just need to raise wages, and you end up in roughly the same place for purchasing power -- the costs all went up, but the wages went up roughly in proportion. In the inverse case (the stock market crashes, people lose their savings, so demand shifts left), costs go down, but you're producing less so unemployment goes up, yada yada yada.
But if the *supply* curve shifts left (let's say, by oil shocks in the 70s), the correlation is reversed. There's less to sell, but demand is static, so prices go up (inflation). At the new equilibrium, less is sold, so you need fewer employees, so unemployment also goes up. And the labor market hits a new equilibrium where wages stay the same or go down (stagnation). Ergo, stagflation.
This is obviously the idealized econ model and obviously these things don't respond exactly this way in practice, but my point is the theory holds up, there isn't some stagflation mystery.
On top of that, stagflation means that overall purchasing power goes *down*. It can't decline forever; old society can't be in a perpetual state of stagflation. Old society is just plain old poor -- purchasing power isn't going down, it's just not very high.
What's confusing to me is like...I assume Jane Jacobs knows a lot more about this than I do? So I'm not sure if I'm misunderstanding, or if the terms meant something different than how I learned, or if the modern understanding of what causes this is last-20-years recent and this was a big mystery then that's mostly been debunked.
Contra Jacobs: She says "So Detroit doesn’t get the signal that it should buy less stuff from other cities and replace the missing imports with local production. Instead, it just declines." But that's not true, Detroit *gets less money*, and as a consequence it imports less, which is called decline. And in default, labor becomes cheaper making it profitable to transfer some production from elsewhere to Detroit.
Also, during most of history, really until Nixon took the U.S. off the gold standard, most currencies were pegged to precious metals, so the fact that different cities used different coinage was not significant. (The currencies that were unpegged usually became inflated very quicly and ceased being the basis of trade.)
I think a good example is the euro. It was widely understood at the time that the euro meant that different countries had to have the same monetary policy. And during the European debt crisis, the problem with that became manifest.
In the United States we deal with this via "fiscal transfers"; the parts of the country doing well subsidize the parts doing poorly via the federal budget. There is no official fiscal transfer mechanism in the EU. But I recall during that crisis commentators noting that the Greek government debt was small enough that it could be bailed out without problems, and that there were strangely large and growing balances between the ECB and the national central banks that *could* be interpreted as the Bundesbank financing the Greek government, despite Merkel sternly insisting that the Greeks had to pay their own way.
And the euro hasn't broken up. I suspect that in practice, the costs of differing currencies are greater than the costs of straitjacketing multiple economies into one monetary policy.
This is a great review of two great books. To this contrarian observer, however, a few counterexamples occur, possibly undermining some of Jacobs’ argument.
The reviewer brings up Germany under the Holy Roman Empire (which, as we recall, was neither holy, Roman, nor an empire). It makes a great case study. The entire region was a poor backwater for most of its history, despite being fragmented into a multitude of little states. Its rise only began after the Bismarckian unification, and what a rise it was - Germany went from being one of the poorest regions of Europe to one of the richest in under 30 years. Furthermore, wealth did not become concentrated in the capital city - instead a significant number of regional centers was created, each making large contributions to the imperial economy. Now, it is true that these cities predate the empire - they were the capitals of predecessor states - but given Jacobs’ argument as I understand it, they should have atrophied in favor of Berlin. This obviously did not happen - in fact, Berlin never even became the wealthiest city of the Reich. This structure continues to this day, and while Germany is certainly draining wealth from the rest of the EU, benefits are distributed rather widely in the country.
Germany is not the only example of a multi-city polity. The United States, for one, has several regional conurbation centers, and a capital that is not only relatively economically unimportant but is mostly a receiver of transfers from the rest of the nation. For a time, New York did threaten to become the sole economic center, but the threat was not fulfilled. For this we can perhaps thank old George and his insistence on a Southern capital, but not solely. Just as significantly, the rise first of Chicago and then Los Angeles and the Bay Area appear to fly in the face of Jacobs’ line of argument. Similarly, China, despite being a unified empire for most of the past 2000 years, posesses a number of regional urban centers, some of which, like Shenzhen, are of very recent origin. Once again, the capital is far from the richest city in the country.
Another quibble has to do with Jacobs’ thesis regarding automatic exchange-rate-based economic stabilization is that it only functions if the currencies are commodity-based. Fiat currency disrupts the relationship between surpluses, deficits, and rates because governments gain the ability and the irresistible temptation to create money out of thin air, distorting the feedback mechanism. Furthermore, resulting inflation only enriches asset owners, mostly at the expense of producers who are thereby impoverished. It is such an important factor, as It seems to me, that money-printing ought to be included among Jacobs’ transactions of decline. In point of fact, a significant plurality of empire dissolutions, barring defeat in major wars, did result from significant currency debasements.
Finally, it should be mentioned that a multitude of regions does not necessarily imply diversity of currencies. Today’s global economy is essentially a dollar zone with other currencies struggling for relevance. This, according to Jacobs, should create one-way wealth flow to the issuer, the United States, which is clearly not occurring. In fact, the opposite seems to have been the case - the USA first became wealthy in a much more multi-polar world.
All in all, Jacobs’ argument is mostly convincing but the above issues would have to be taken into account to elevate it to a coherent theory.
Re. this:
"Small size also allows more diversity in cultural and economic matters, and here Jacobs waxes philosophical, pointing out that favoring diversity over uniformity is a recent, post-Enlightenment idea that has not yet been fully embraced in politics.
"We can see analogs everywhere. Europe, split into numerous small countries from the Middle Ages onward, became far more advanced than China, which has been unified more often than not. The city-states of ancient Greece and Renaissance Italy are seen as golden ages of Western civilization, even if they weren’t part of larger political units and therefore constantly went to war with one another."
The kind of diversity that is good in these examples isn't multi-cultural, local diversity. It's basically the opposite: regional isolation, preventing the free mixing of people / tech / arts / languages from different regions. Essentially, segregation. It's an evolutionary phenomenon, displayed by the law of island biogeography, and by the rapid rate of change in dialects in mountainous regions, and in earlier times when transportation was slow. This isolation leads to faster evolution because it prevents the fittest organisms or technologies or music or whatever is evolving from taking over everywhere, which is called premature convergence, and is a huge problem in genetic algorithms. I don't have time to explain what that is; presumably you can google it.
Thank you for this extremely interesting discussion of valuable insights from Jane Jacobs, which tend to be overlooked. One of my own complaints about economic data for years now has been "USA" aggregate data, which is about as helpful as "EU" aggregate data. For example, when discussing property price booms and busts, the USA has 3 distinct types of urban area (identified by Glaeser and others) with widely differing responses to demand inputs for housing. Highly elastic housing supply in many cities, leads to a boom in construction without excessive price inflation. Unfortunately, the urban areas with inelastic housing supply and hence price volatility, are also significant. It is much too complex to discuss the range of implications here, but they are many. This would be a very good example to study, of the differences between cities that evolve their own policy directions and achieve outcomes that are beneficial to them and could be emulated by others.
Just one more point I would like to make, that you might think worth considering, is the difference between positive-sum wealth creation, and zero-sum wealth transfers / economic rent. This is an important factor in the big picture you are discussing. "CITIES" can actually be generators of "primary economic income" from actual positive-sum wealth creation like manufacturing, but the attitudes of elites considering "urban planning" tends to despise these kinds of cities, and regard rent-seeking, wealth-transfer benefitting cities like Global Finance epicenters and Capital cities as the model "because they generate wealth". The tall buildings, apartment living, subways etc are mistaken for "the way to urban success" in a kind of Cargo-cult mentality, while the "urban sprawl" of "urban" economies that actually create wealth, positive-sum, and provide a wide range of opportunities for wealth-creating small entrepreneurs to make a modest start, is despised. Ultimately, it is the latter kind of urban economy that has driven the process of wealth creation that has been spun off into the havens of the economic rent-accumulating sectors in places like New York and London. These latter successes owe a lot to an increased share of wealth in the overall economy, having been captured by banking and finance, for example; or by an ever-bloating administrative State - none of which is good for the common interest.
Germany is an interesting exception in that it has a "system of cities" none of which is the dominant economic rent-seeker from the rest.