Wealth Creation Feb 21, 2001 (44 of 47 found this helpful)
"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.
Specialization and Adaptation Nov 13, 1998 (27 of 28 found this helpful)
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.
Dated in some particulars but not as a whole Oct 19, 2004 (10 of 11 found this helpful)
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.