Book summary “The economy of cities”: summary

Introduction

You live in a world shaped by cities, yet economic theory struggles to explain how cities actually grow. You might assume that agricultural expansion came first, feeding early human settlements and giving rise to urban trade. Jane Jacobs demonstrates that this standard sequence is entirely backwards. Cities start first and create rural development later through dynamic internal mechanisms.

City economic growth operates through the reciprocating systems of export generation and import replacement, driven by the unique inefficiencies and trial-and-error mechanisms of urban centers rather than rural agricultural foundations.

You will explore how cities generate new work, why urban inefficiencies drive innovation, and how import replacement fuels massive economic expansion. The book answers fundamental questions about urban economies:

• How do cities spark economic life before rural surpluses exist?
• Why do new industries emerge as offshoots of older work?
• How do crowded urban spaces transform economic inefficiencies into productive assets?

1. Cities First and Rural Development Later

Conventional theory assumes that agriculture built cities, but economic history shows the exact opposite: city economies create and build rural economies.

Scholars across economics, history, and anthropology generally assume that cities rest upon a rural agricultural base. Jane Jacobs argues that this is a pre-dogmatic error akin to spontaneous generation. In reality, agriculture and rural work are directly built upon city economies. New goods, services, and techniques are first created in cities and only later transplanted to the countryside.

The Dogma of Agricultural Primacy

The persistence of the dogma of agricultural primacy stems historically from Adam Smith. In the 1775 publication year of The Wealth of Nations, he reported that commercial nations had the most advanced agriculture. Because his intellectual era believed the earth was created around 5,000 B.C., he could not ask how agriculture arose. He treated agriculture as a given and invented an imaginary chain of causes where agriculture gave rise to commerce and industry. Karl Marx and modern economists adopted this error without question.

Adam Smith used the backward agriculture of agricultural Poland contrasted with commercial England to illustrate the ties between industry and farming. Rural areas cannot achieve high productivity without urban inputs such as fertilizers, machines, electric power, refrigeration, and scientific research. Japan serves as a clear illustration of this principle. Before World War II, Japan imported a full quarter of its consumed rice due to insufficient agricultural output. By 1960, after receiving vast amounts of city-developed fertilizers, machines, and research, Japanese farms supplied all domestic rice while producing abundant food for a 25 percent larger population compared to pre-war Japan.

The City Origins of Agriculture

Animal husbandry and grain cultivation originated inside pre-agricultural cities as urban stewards managed imported wild animals and mingled diverse wild seeds. Pre-agricultural cities engaged in vast trade networks, importing nonperishable wild foods such as live animals and hard grass seeds in exchange for industrial materials like obsidian. At the 8,500 B.C. population of New Obsidian numbering about two thousand persons, local obsidian trading began around 9,000 B.C. Urban animal stewards managed these imports by slaughtering difficult beasts and preserving docile females, accidentally establishing breeding stock. In early Egyptian cities of the Old Kingdom, wild animals were experimentally managed, such as hyenas being force-fed for slaughter, mongooses tamed to kill rats, and gazelles herded.

Simultaneously, seed stewards stored and mingled diverse wild seeds together, resulting in inevitable crosses, hybrids, and mutations that attentive householders selected for high yields. Çatal Hüyük proves that a dense city of craftsmen and merchants existed before farming villages, possessing advanced arts, trade, and a combination of wild and cultivated foods. Occupied from 7,000 to 6,000 B.C., Çatal Hüyük spanned 32 acres densely covered by mud-brick buildings. James Mellaart discovered this site while searching for the parent culture of a younger farming village around the approximate date of fires in 6,500 B.C. that charred and preserved ancient grains.

Agricultural villages emerged when growing pre-agricultural cities needed to transplant space-demanding activities like pasturage into the rural hinterland. Cities solved this by spinning off herds and herdsmen to distant grazing areas, creating specialized orphaned villages that functioned like company towns. If a parent city was destroyed, these villages lost their seed sources and technology, potentially degenerating into nomadic herding peoples. What appears to be indigenous rural work is frequently city work transplanted to the countryside for lower labor costs or better access to space. Mrs. Ida Rosenthal invented the brassiere in New York in the 1920s and manufactured it there and in Hoboken before transplanting production to rural West Virginia to lower labor costs. Major medieval and eighteenth-century agricultural improvements, such as crop rotation and fodder crops, began near cities and spread outward along trade routes. European agriculture stagnated after the fall of Rome, leaving medieval peasants half-starved with primitive wooden tools. The three-field system of crop rotation used 3 fields or plots constituting the rotation unit in the three-field system:

• Plant wheat or rye on a given plot the first year.
• Plant oats, barley, peas, or beans the second year.
• Allow the land to lie fallow the third year under the three-field system.
• Plant fodder crops such as alfalfa, clover, or sainfoin in the former fallow year.

Duby and Mandrou note that fodder crops were grown in city gardens of France for at least a century before being adopted into rural farming. As cities develop, they stop buying certain raw materials from the countryside, effectively subtracting old work from rural economies. An old ghost town up the Hudson River once survived by shipping natural ice to New York City until the city began producing artificial ice for itself.

2. How New Work and Innovations Begin

Economic development occurs not by repeating old work, but by adding new kinds of goods and services as logical extensions to specific fragments of older work.

Innovations and new economic activities do not emerge from thin air. They require parent work. When a new activity is added, it is not attached to the whole of the older work. It attaches specifically to a single fragment or task within it. Mrs. Ida Rosenthal, a custom dressmaker in New York dissatisfied with how dresses hung, began experimenting with undergarments during dress fitting. That work resulted in the invention of the brassiere.

The process of economic innovation can be expressed through a formula:

• $D + A \rightarrow nD$;
• an added activity on an existing division of labor generates a multitude of new divisions.

Existing divisions of labor multiply into more divisions of labor because intervening added activities yield new sums of work to be divided. This expands the complexity of the economy far beyond the initial tasks. In New Obsidian, animal husbandry could have arisen by adding the custody and breeding of animals to the older work of managing wild animals before slaughter.

The Logic of Adding New Work

The logic of adding new work to old is rooted in materials, skills, or specific problems. It relies on the parent work rather than abstract categories or immediate customer desires. Because this logic cuts across established industrial categories, bureaucratic planning and guilds stifle innovation. Founded in 1902, Minnesota Mining and Manufacturing Co. initially dug and influenced abrasive sand for metal castings. It produced substandard sandpaper, which led the company to brew new adhesives. That work ultimately spawned a family of tapes including masking tape and Scotch tape.

Imitation serves as a rapid shortcut to manufacturing. Repairing imported goods frequently provides the necessary parent work for eventually producing those same goods locally. Rather than transplanting a foreign factory wholesale, local repairmen fabricate replacement parts. They naturally transition into assembly and full manufacturing without massive initial capital costs. Japanese bicycle repair shops in Tokyo began making replacement parts because imported spare parts were expensive. That work led to local bicycle manufacturing and provided a pattern for companies like Sony.

Many economically creative enterprises start when employees leave large firms to carry out specific tasks on their own. This breakaway mechanism starts by serving small organizations and then branches out into new devices and services. The publishers of American Heritage and Scientific American both broke away from Time, Inc. to start their own publishing ventures.

Stagnant economies drop old methods when new ones arrive. Developing economies incorporate new technology to transform obsolete items, preserving underlying craftsmanship for new uses. Traditional Japanese kimonos were conserved and made popular again among modern young women through simplified designs, synthetic fibers, and zippers. By 1960, more people knew how to shoe horses than in the 1920s due to veterinary training.

Imitation and the Infertility of Large Organizations

Large economic organizations are inherently sterile at generating new goods and services from their own internal divisions of labor.

The divisions of labor inside a massive enterprise serve internal corporate needs rather than independent external markets. Any new work added to them creates incoherence. Consequently, large firms typically buy already established companies or rely on narrow research and development departments. American Machine and Foundry saved itself from shrinking by purchasing thirteen smaller companies producing diverse goods like home power tools and electrical relays. By 1963, Litton Industries became the hundredth largest industrial corporation in the US after purchasing thirty-nine companies.

Adam Smith erred in attributing economic development and innovation to the division of labor itself. He mistook an organizational efficiency tool for a generative source of new work. Division of labor merely organizes work that has already been created through the addition of new activities. Adam Smith described how ten men in a pin factory divided the work of making pins into about eighteen distinct operations to produce thousands of pins per day. The ten men turned out 12 pounds of pins in a day, which meant 4800 pieces apiece. Pin making itself was not created by dividing labor, but by adding pin making as a complex innovation to the older work of bristle making.

3. The Valuable Inefficiencies of Cities

While towns and small settlements excel at efficient production, cities are messy hubs of trial and error. Operating efficiency is a sequel to earlier development work. High production efficiency often directly opposes the conditions needed for innovation.

The operational inefficiencies and impracticalities of big cities are not flaws, but the essential preconditions for economic development and the birth of new work.

Manchester focused on the extreme efficiency of immense textile mills and fell into long-term stagnation. Birmingham muddled along with small, fragmented, and overlapping household trades that continuously added new work and maintained economic vitality.

High specialization and efficiency turn cities into company towns that inevitably stagnate because they suppress worker breakaways and new development. Ancient Mohenjo-daro and Harappā mass-produced standardized bricks and pottery with terrible efficiency around 2,500 B.C., but completely halted development work. Similarly, George Eastman turned Rochester into an efficient company town where breakaways dwindled.

The true formula for economic growth must explicitly account for the messy process of trial and error. Jane Jacobs writes this as $D + nTE + A \to nD$. When an attempt to add new work fails, the result is merely abandoned trial and error without producing new divisions of labor.

Inefficiency as a Development Engine

In highly developed economies, cities will transform into vast, rich mines of raw materials through comprehensive waste recycling. Unlike natural mines that deplete over time, city mines become richer the longer you exploit them. A St. Petersburg, Florida plant processes unsorted garbage into inert soil-conditioning compost after removing metal via a magnetic separator. The facility receives a municipal fee of $3 per ton while selling the recovered scrap and compost. The largest Japanese trash-baling machine handles 3,000 tons in a twenty-four-hour day, while the smallest handles 150 tons.

Consumer-serving city enterprises flourish most prolifically when specific conditions are met simultaneously:

• mingling different primary uses such as residences and working places to insure people use streets on different schedules while drawing on common consumer goods and services;
• providing small and short blocks;
• intimately mingling buildings of differing ages, types, sizes, and conditions of upkeep;
• maintaining high concentrations of people.

Cities as Mines and Population Realities

Chronic urban problems are not symptoms of technological progress, but direct evidence of economic stagnation. When societies fail to introduce new goods and services to counter practical problems, evils accumulate and worsen. Equipment that sets up canceling sound patterns or eliminates vibrations to combat mechanical noise was feasible as early as 1955 but went entirely undeveloped.

Overpopulation does not cause poverty, and birth control is quackery when prescribed as a cure for economic stagnation. McDowell County in West Virginia saw its population drop from 97,000 to 60,000 by 1965, yet the remaining residents grew even poorer and had to be supported by charity.

4. The Mighty Force of Import Replacement

City economic growth operates through two major reciprocating systems involving export generation and import replacement. When a city replaces its imports with local production, it frees up capital to buy new kinds of imports, causing an absolute expansion of its economy.

Import replacement is not just moving production from one place to another.

When you manufacture goods locally, the cost drops because only raw materials need to be imported. This savings allows you to shift imports to entirely new goods and services, expanding total economic activity. At the end of the nineteenth century, Tokyo imported bicycles, but repairmen soon began making replacement parts, then assembling whole new bicycles locally, replacing the imported finished goods.

The Import-Replacing Multiplier Effect

The multiplier effect generated by import replacement is far more potent than export growth because all shifted imports directly expand the local economy. A portion of earned imports in export growth goes back into producing exports, but import replacement adds all shifted imports entirely into the local consumer and producer economy. This leads to a rounding out of local services, financial institutions, and diverse manufacturing. Scranton, Pennsylvania, rounded itself out between 1905 and 1920 by locally producing former humdrum imports like beer and mattresses, while also adding a zoo, a museum, hospitals, department stores, and a trolley-car system. Chicago multiplied almost by seven between 1845 and 1855, growing from 12,000 to 80,000 population.

Explosive City Growth and Parentage

Massive loss of export work can be fully counterbalanced by rapid local import replacement, driving your city's growth even during severe export declines. Following World War II, Los Angeles suffered massive layoffs and export contractions in aircraft, shipbuilding, and petroleum. Despite this, the city experienced a massive boom because small new enterprises sprang up in garages and lofts to replace former imports, creating more jobs than ever before.

In Los Angeles, aircraft jobs declined from 210,000 in 1944 to 60,000 at the end of 1945, and shipbuilding dropped from 90,000 to 18,000, yet the city's overall economy expanded due to intense local import replacement. One-eighth of all new US businesses in the late 1940s started in Los Angeles.

New cities do not arise by spontaneous generation. Every new city inherits its economic spark and finds its initial expanding markets in older, established cities. Detroit found an expanding market for its early flour exports in the West Indies, which in turn was driven by growing demand in London for West Indian products like rum and limes.

5. Capital, Corporations, and Future Cities

Development capital originates locally as a specialized producers good within vibrant city economies, financing innovations through unorthodox organizations while shifting toward differentiated production and service-led organization.

Financing Development

Capital for economic development arises through the same processes and in the same places as other producers goods and services. Financial organizations begin either as breakaways from older monetary institutions or by adding financial work to existing trade. Because larger cities contain a vast variety of unique financial goods, their suppliers of capital naturally become exporters to smaller cities and newly growing industrial centers.

American Research and Development was formed in Boston in 1946 to finance new enterprises, and by the early 1950s it was exporting capital to finance electronics manufacturers in Long Island. Tracerlab was founded in late 1945 by three Harvard scientists packaging radioactive isotopes. After being rejected by traditional Boston and New York bankers and asked for fifty-one percent voting stock by Wall Street investors, they received $150,000 from American Research and Development without surrendering control.

You can trace the fundamental processes of export generation across the business histories of exporting organizations:

• Add the export work to other people's local work.
• Add the export work to different local work of their own.
• Export their own local work.

Generalized and bureaucratized banks routinely finance tired old enterprises or charlatans while dismissing genuinely new and unproved goods and services. Union Bank & Trust in Los Angeles, which acted as a singular place of welcome for early garment manufacturers in the 1920s and 1930s, functioned essentially as a specialized garment makers bank.

Social discrimination and legal barriers in cities create profound economic blocks by preventing marginalized people from developing their work and starting enterprises. Dr. Thomas Matthew organized a free bus service using twenty-five-cent bonds to transport workers to his interracial hospital in Jamaica, Queens, and later in Harlem, only to be shut down by a city government injunction in 1968. When economic development is neglected, saved capital becomes an embarrassment of riches spent on unproductive purposes, serving as a prelude to stagnation. Charleston before the Civil War and Detroit today export extraordinary amounts of capital while failing to develop new local goods and services.

Differentiated Production and Future Patterns

City economic growth is driven by two interlocking reciprocating systems based on export generation and import replacement, symbolized by the formula D + A leading to nD. Differentiated production, which exploits diverse market needs rather than common denominators, is becoming the dominant form of manufacturing over mass production. In garment making, early mass production was exemplified by Ellen Demorest producing standardized hoop skirts in the 1860s, whereas modern clothing relies on differentiated production that offers vast variety.

In future developing economies, service organizations will become the predominant organizing force that instigates manufacturing and other economic activities.

Just as trade once organized manufacturing, and manufacturing later organized other activities, services such as computer programming and data analysis now dictate the design and production of the machines they use. Office machines like computers are acquired as an appendage to analytical and programming services rather than being bought as standalone equipment.

The primary economic conflict in society is between well-established economic activities and emerging new economic activities, rather than simply between owners and employees. Labor unions and school boards fiercely oppose grassroots community control of education because changes threaten their established positions. Developing and economically vigorous future cities will be more intricate, comprehensive, and diversified rather than simplified or bureaucratized.

10 Key Ideas

1. Economic history demonstrates that city economies create and build rural economies rather than resting upon a rural agricultural base.
2. Animal husbandry and grain cultivation originated inside pre-agricultural cities as urban stewards managed imported wild animals and mingled diverse wild seeds.
3. Economic development occurs by adding new kinds of goods and services as logical extensions to specific fragments of older work.
4. Large economic organizations are inherently sterile at generating new goods and services from their own internal divisions of labor.
5. The operational inefficiencies and impracticalities of big cities are essential preconditions for economic development and the birth of new work.
6. When a city replaces its imports with local production, it frees up capital to buy new kinds of imports, causing an absolute expansion of its economy.
7. The multiplier effect generated by import replacement is far more potent than export growth because all shifted imports directly expand the local economy.
8. Massive loss of export work can be fully counterbalanced by rapid local import replacement, driving a city's growth even during severe export declines.
9. Capital for economic development arises locally as a specialized producers good within vibrant city economies, financing innovations through unorthodox organizations.
10. In future developing economies, service organizations will become the predominant organizing force that instigates manufacturing and other economic activities.