Cities and The Wealth of Nations
By: Wight Martindale
This is a review of a book that was written over 20 years ago by an eccentric lover of cities, a social activist concerned with preserving city neighborhoods, a woman adored by the N.Y. Times, yet today not much studied or consulted. This is a book about the 1930s and about today, so I am looking at it afresh.
The book’s first chapter is titled “Fool’s Paradise,” and its thesis is that the science of macro-economics—large scale economics—is a shambles, and for all the right reasons. It has never been able to predict the future or to fix problems once they develop. Keynesians brought us the stagflation of the 1980s, monetarists brought us excessive government deficits and high unemployment, and the proud Marxist economies, it turns out, could survive only on Western capital.
But government bureaucrats love grand plans and sweeping claims because they are useful in taking authority and satisfying their natural desire for power and control. Forget economic schools, she concludes. We are on our own.
This message, it seems clear, should be directed to the present “long-run” economic activists now dominating the economic debate in Washington. In a word, they spend too much of our money and they have no idea what the economic results will be. What they lack is humility, always a virtue in public life.
Her second big idea is “transactions of decline.” These are economic activities we can tolerate only for short periods of time and they include endless subsidizing of poor cities or sections of a country by the productive sections of the country, excessive military expenditures, promotion of trade with only the poorest and dependent nearby nations (she calls this “international advanced-backward trade”), high tax rates, and big deficit financing.
But this is what governments love most. She concludes, “Transactions of decline, no matter which guise they take, are not remedies for stagflation and don’t address causes of poverty, yet transactions of decline are precisely what national governments have become well fitted to deliver, and what empires and nations aspiring to empire must deliver.”
Jane Jacobs would probably not be impressed today by our desire to recreate the economic solutions of the 1930s. She writes, “If, a century from now, historians seek a date for the beginnings of Japanese decline, 1977 will serve as well as any. A comparable date for the United States would be 1933.” All this gives us a good idea about what she does not like.
But what does Jane Jacobs affirm? First, she thinks we should recognize that nations are inherently unstable economic systems. Even the best of them will go awry from time to time. Second, productive centers (which she identifies as “cities” in the best sense) need ample, unhampered, volatile trade with other cities or productive centers.
She believes that rapid expansion will inevitably produce downturns in business cycles, and that they should be self-correcting. London had to pass from an industrial city in the 19th century to a financial capital in the 20th, but healthy cities do this. That is, they do this if they are not drained too much by transactions of decline.
This is the problem which turned Russian and Chinese central planning economics into such a disaster. Whatever wealth Chairman Mao could create in one area was immediately transferred as a subsidy to another, poorer area. Thus, what resulted was slow growth everywhere in a veiled attempt to hold together an old empire at all costs. Preserving the old sovereignties is not a formula for progress.
Her final conclusion is that we should eschew overly-ambitious activism, be a bit more humble, and let personal preferences—which may not coincide with grand national priorities—take their course. “The Japanese have always done better when they drifted in an empirical, practical fashion,” she writes. They do less well when they attempt to operate by “resolute purpose” and “determined will.” Economic development has to be open-ended rather than goal-oriented, she believes. Forget industrial strategies, targets, and national goals.
And don’t rule out personal vanity and the desire for luxury as an economic driver. Ancient metallurgy, ceramics, and glass, she reminds us, started with a desire to produce luxury and decorative goods. Rockets were made for fun before they had a military use or led to space travel. The first successful railroad was an amusement ride in London. Tennis rackets, fishing rods, and golf clubs were the first applications of lightweight composites, fiberglass, and boron. Video games preceded personal computers for workaday use.
Scientists, she notes, are used to the idea that discoveries are often the unanticipated by-products of other intentions. It is the same in economic drift, which must be allowed to operate freely. The first oil wells were drilled to get lamp fuels, which were quickly made obsolete by electricity, but other uses for petroleum kept turning up.
Our best strategy is to make economic drift easier. When the courts broke up the Bell Telephone system monopoly, new products multiplied instantly.
Jacobs leaves us with a cautionary tale of two cities. The first city is Boston, which in the mid-20th century found itself without its traditional textile, footwear, and traditional manufacturing businesses. What followed was the decision of a few men to attract scientific innovators and new businesses, and to foster creativity in whatever forms it happened to appear. It worked.
The other city is Washington, D.C. This is a city that thrives on transactions of decline–the transfer of wealth, subsidies, grants, and the like. The resulting economic activity—which does include jobs, new construction, and bureaucratic busy-ness—looks like prosperity but it is not. Rather, she concludes, it cloaks the shrinkage, obsolescence, and impoverishment of the city’s other functions. Such a city appears to be growing, but at length it will reveal itself as being a surprisingly inert, backward, and pitiable place. “So it was with Lisbon, Madrid, Istanbul. So it is gradually becoming, one suspects, with London, Paris, Stockholm…”
She does not go farther. She does not include Washington, or New York, or Philadelphia, or California, or any of the other areas of America now in such grave social and financial disarray.
But we do, and we need not close our eyes to them.
