The Economy of Cities: Jane Jacob's Overlooked Economic Classic.

• Author: Ikeda, Sanford

More than a decade after her death in 2006, there is still no urbanist better known today than Jane Jacobs. Her forceful, penetrating critique of midcentury urban planning in the United States has had a profound and lasting impact globally. No surprise, then, that urbanists around the world in 2011 celebrated the fiftieth anniversary of the publication of her book The Death and Life of Great American Cities, lauded by some as among the one hundred most influential books of the twentieth century. (1) And in 2016 on the one hundredth anniversary of Jacobs's birth, there were books, biographies, symposia, lectures, special journal issues, and documentary films honoring her life and work.

The year 2019 marked another Jacobs milestone: the fiftieth anniversary of the publication of what Jacobs considered her favorite book among those she wrote, The Economy of Cities. (2) But it is a book that few of even her most devoted followers have studied or even read, perhaps because it is more "technical" (as discussed later) than Death and Life and more explicitly concerned with economics. Indeed, as she related to me in conversation, she believed her main intellectual contribution to be in the field of economic theory. The Economy of Cities, Jacobs announced in the book, is "my effort to develop a theory of city economic growth" (1969a, 3).

Unlike typical contributions to this area by more conventional economists, her exposition in The Economy of Cities contains no mathematical models, although there are a few schematic "equations" and several useful diagrams. It is full of relevant anecdotes and examples but has none of what most economists today would call "data." Nevertheless, I believe her ideas and insights remain fresh and relevant. They are fresh where they depart from the mainstream economist's focus on efficiency and equilibrium, and they are relevant for thinking about economic development based on innovation. Indeed, her ideas caught the attention of the Nobel Laureate in economics Robert Lucas, who wrote:

Or, putting the question in a better way: Is g = 0.4 [where g > 0 implies externalities of human capital exist] consistent with other evidence? But what other evidence? I do not know the answer to this question, but it is so central that I want to spend some time thinking about where the answer may be found. In doing so, I will be following very closely the lead of Jane Jacobs, whose remarkable book The Economy of Cities (1969) seems to me mainly and convincingly concerned (though she does not use this terminology) with the external effects of human capital. (1988, 37, emphasis original) "Considerations such as these," Lucas commented, "do not easily lend themselves to quantification. Here again I find Jacobs's work highly suggestive. Her emphasis on the role of cities in economic growth stems from the observation that a city, economically, is like the nucleus of an atom: If we postulate only the usual list of economic forces, cities should fly apart. The theory of production contains nothing to hold a city together" (Lucas 1988, 38).

In the same year that The Economy of Cities was published, her article "Strategies for Helping Cities" (1969b), which was essentially a precis of the book, appeared in American Economic Review, one of the leading journals in economics. With the exception of Edward Glaeser, (3) however, I am unaware of any other leading economist who has seriously followed up on her article or on Lucas's observations about her, at least as far as cities are concerned.

Where The Death and Life of Great American Cities essentially concerns the nature and significance of living cities and why appreciating these things demands a radical reorientation and reform of urban planning, The Economy of Cities concerns the nature and mechanics of city-based innovation and economic development, in which the dynamic processes of exporting and importing constitute "two interlocking reciprocating systems" (Jacobs 1969a, 234).

The final chapter of Death and Life, "The Kind of Problem a City Is," naturally segues into the first chapter of The Economy of Cities, "Cities First, Rural Development Later." The former is an explicit characterization of cities as a problem of "organized complexity," by which Jacobs means a problem in which a number of variables interact with one another to generate an orderly but unpredictable pattern and that involves "dealing simultaneously with a sizable number of factors which are interrelated into an organic whole" (1961, 432). The final chapter of Death and Life articulates and justifies her approach to studying and understanding living cities as complex systems.

The Economy of Cities, Chapter 1: "Cities First, Rural Development Later"

The first chapter of The Economy of Cities illustrates the book's essential lesson--how organized complexity emerges, including both the city itself and the processes that arise within it--which the rest of the book generalizes to explain all urban-based economic development. In contradiction to received archaeological history, the chapter hypothesizes that large, complex settlements, not farming villages, must have been the origin of agriculture. But more important than this hypothesis, which may be right or wrong, are the two narratives the chapter contains that explain how organized complexity spontaneously emerges as the unintended consequence of purposeful, self-interested activity by resourceful traders, merchants, and entrepreneurs. Jacobs argues that long-term and economically sustainable development takes place through innovation, or what she terms "new work," and that the conditions found in large, complex, and diverse urban settlements (which is another connection to Death and Life) are needed for that "new work" to take place.

In my opinion, from the perspective of social theory, chapter 22 in Death and Life and chapter 1 in The Economy of Cities are among the most important chapters she has written.

First, chapter 1 argues that the first true cities--Jacobs defines a true city as "[a] settlement that consistently generates its economic growth from its own local economy" (1969a, 262)--originated in Neolithic times as a consequence of resourceful hunter-gatherers with different endowments finding ways and places to engage in trade. To illustrate her thesis, Jacobs hypothesizes that a fictitious settlement, New Obsidian (inspired by the real ancient settlement Catal Huyuk in southern Turkey), emerges when hunter-gatherers from various locations with different resource endowments congregate to trade raw obsidian, goats, grains, and in time the crafts (such as leather pouches and jewelry) that accompany this trade. The peaceful clustering and eventual settlement of geographically and socially distant persons with diverse backgrounds offer unprecedented gains from trade and other forms of peaceful association, which in time attract still more people and increase the size, density, and diversity of New Obsidian. Those who have settled there generate new exports based on the increasingly complex division of labor (DOL) in New Obsidian, enabling them to buy more and novel imports. Producer and consumer goods that support exports (such as leather pouches) are well placed to become exports themselves, which, if they overcompensate for old exports that are lost in competition with other settlements, will increase exports overall. This increase in exports in turn allows a greater volume of imports, including more novel imports, which local entrepreneurs (although Jacobs does not use this term) may in time replace.

Jacobs details these processes in subsequent chapters of The Economy of Cities. The point here is that even though each person involved in this dynamic may deliberately plan with greater or lesser care every stage of his or her activities, the initial establishment and later growth of the city (in population, population diversity and density, and economic wealth) is not the result of an overall design.

Second, Jacobs explains in chapter 1 how the conditions created by density and diversity of a large settlement create an ideal environment for innovation. In one of her illustrations, some of the hunter-gatherers in New Obsidian...