Cities and the Wealth of Nations: Principles of Economic Life

Jacobs, Jane

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.

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