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Cities and the Wealth of Nations

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

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

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

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

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

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

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

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

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

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

It is true that the opening chapter of this book sounds dated, but the book as a whole still stands up well.

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

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

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

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

In The Death and Life of American Cities, Jane Jacobs demonstrated with clarity, intelligence and righteous indignation that city planners had for decades -- going on a century, in fact -- misunderstood the virtues that cities possessed, and hadn't understood why people wanted to live in them. According to Jacobs, all of orthodox city planning was built around the belief that what city dwellers most wanted was to leave the city and live in a suburb or on a farm. So they bulldozed blighted neighborhood after blighted neighborhood and replaced them with parks. When many of those parks themselves became blighted, filled with the familiar sight of the homeless and drug users, orthodox city planners could only scratch their heads; that simply wasn't supposed to happen. If anything, this only confirmed cities' incorrigibility. So they wiped out sizable sections of major American cities and built freeways out; clearly people would prefer to be elsewhere. The millions who continued to live in American cities were an inconvenient datum.

In Cities and the Wealth of Nations, Jacobs claims that national governments repeat the same misunderstandings of their cities on a larger -- and possibly more tragic -- scale. At this larger level, they believe that they can produce economic activity just anywhere. Struggling farmland? Dam up their rivers, build schools, give them tax breaks, and invite foreign companies to build factories there. Wait a few years and watch a million economic flowers bloom.

City planners believed -- and maybe still do believe -- that a city was just a defective pasture. According to Jacobs, national planners likewise believe that a city could thrive anywhere. So they build cargo-cult cities and pray that the same thing which animates their real cities will turn their farmland into the next New York. But of course that normally fails. A real city has a good reason for being there; a cargo-cult city does not. People aren't fooled. They want real cities.

Jacobs wants to recast all of macroeconomics using these insights and others, and has the rhetorical skills to convince at least one non-economist that she's on to something. All the dynamism in a national economy, says Jacobs, comes from its cities. Even the vaunted "heartland" of the United States only survives because cities have brought industrial technologies to their farms. If you want to understand why a nation succeeds or fails, says Jacobs, look to its cities. The title of her book is no accident: she wants to yank economics off the track that it's been on ever since Adam Smith.

As I consider the problems of our current economy and all the opinions and advice offered up about it, I keep remembering this book. I read it many years ago, but it is as relevant now as then. In fact I think it's amazing that more people don't seem to know about it. Jane Jacobs described what happened to the U.S. economy, before it happened. When I first read it, it struck me as a sort of cautionary tale. Now I realize it was prophesy. When the capital class of our nation exported our jobs, it also exported the necessary technology and management expertise. She tells us that it's an old story with rarely a good outcome for the people exporting their special skills, technologies and expertise. She explains that those things are really all there is to distinguish one place or people from another. The bright spot is her belief that city regions are really the drivers of economies and that nations are less important. So, for those of us in vibrant and exciting regions of this country, we need to understand that it is critical to maintain our edge and realize that our true competitors are not other countries but other city regions.

Some of your other reviewers have said that they believe this book is outdated.

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

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

The answer, for this book, is decidedly afirmative.

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

Jane Jacobs does everything well in this text, as in all the others which I have read. Given the publication date and the continued application of the text to current problems, it would seem invaluable for laymen and economists alike. I have read the text twice and it is both engaging, fluid and erudite without becoming myopic. This as well as all her writing, are truly geared to the thinking, reflective lay public and not those exclusively trained in economics. Everyone should read this book to better understand our economic culture and civilization. She may perhaps be scorned by some for being simplistic, but nowhere is her text lacking precision, nor have significant portions of her text become any less applicable today than when it was written.