This book using a very curious format; it is quite brief, and structured as a didactic dialogue, which isn't a form I've seen used any time recently. (Douglas Hofstadter's Gödel, Escher, Bach is perhaps the only time I've seen anything similar.) It is, however, a fairly effective way of communicating an argument succinctly and simply, and rebuking counterarguments.
Many of the economic theories in the book can be found in more detail in Jane Jacobs' other books, although they are presented in a simple and direct manner here. The interesting part of this book is her comparison between economics and ecology, recasting economics itself in a different light. Her analogies can appear glib at the outset, but they usually reflect a fair bit of thought, and typically stand up to examination.
The three principal ideas that I gleaned from this book were
And no, this doesn't apply to sustainable transportation much. But I want to understand economics reasonably well before trusting it enough in transportation analyses.
Some interesting comments on monopolies, tangential to the main thrust of the book, but echoed again later with more insight.
"What about monopolies?" asked Hortense. "Wouldn't it be good development policy to avoid monopolies?"
"Yes, because by monopolizing various fields of work, they monopolize generalities of various kinds, the way postal systems, for instance, monopolized mail services until recently."
"But isn't there such a thing as natural monopoly?" protested Armbruster.
"The only one I can think of is the sun," said Hiram. "It holds a monopoly on the basic source of light, but the sun doesn't prevent us from kindling fires and switching on lightbulbs—"
Cutting Hiram short, Kate protested, "Organisms don't scruple to suppress competitors. Black walnut trees exude juglone, a herbicide that suppresses undergrowth. Knapweed devastates ranches. Besides poisoning livestock, it emits a herbicide that inhibits other plants. What about wolves and bird, when they stake claims to territories?"
"Juglone may be an adaptation to thwart parasites rather than to monopolize resources," Hiram replied. "At any rate, natural herbicides aren't very effective for establishing monopolies. Black walnuts don't dominate earth's forests today and never did, even before their wood was recognized as unusually valuable. As for wolves and blue jays, they're analogous to landowners who post their fields against hunters and warn that trespassers will be prosecuted. An economic monopoly controls a market or a commodity."
"As if hummingbirds prevented bees from taking nectar and distributing pollen in orchards," said Hortense, "and argued that the restriction was natural because nature had raised orchard blossoms aloft."
"Development depends heavily on testing adaptations against competition," said Hiram. "It's fair to say that nature abhors monopoly, Armbruster."
"I take your point that monopolies suppress opportunities for development," said Armbruster. "But I wonder if monopolies can be dismissed as simply as that. Black walnuts or knapweed—perhaps they wouldn't get a foothold, would be extinct by now, if they didn't have a herbicide advantage. What I'm really concerned about, of course, is economic monopolies. At the time they're instituted, monopolistic enterprises are often quick, bright, daring, and creative. There was a time when postal systems were quick and bright, and so were transit systems, believe it or not. Many an electric utility, streetcar line, telephone system, railroad, and subway line has gotten up and running because it had protection against competitors. What's more, here's an economic justification: It can be more efficient to capitalize a monopoly than to disperse and dissipate available capital among competitors, who are undercutting each other and some of whom are bound to fail."
"Whatever the justifications for monopolies to start with," said Hortense, "they all end up dumbed-down, elderly, and hard to get rid of. Why should the holder of a transit-route franchise—who probably got it through corruption in the first place... but, corrupt or not, why should that holder be sheltered indefinitely from free competition with respect to vehicles, fares, hiring policies, and services? Think of how much litigation, aggravation, and time it took before the monopoly grips of the electric and telephone companies could be broken. Worse, think about the struggles of conquered people to throw off monopolies on salt, matches, and everything else that their conquerors wanted to buy or sell."
"You mean like the Hudson's Bay Company and the Dutch East India Company?" asked Armbruster.
"Typical of imperial economies," said Hiram, "and definitely not good advertisements for development. Hortense has a point. But Armbruster has one, too. Patent protection, which is a grant of monopoly protecting the holder of rights to an invention from competitors using that invention, recognizes Armbruster's point that protection from competition can be useful to development of something new, but patents also recognize Hortense's point, as they grant protection for only a limited period.
"Standardizations are also stultifiers of development," Hiram went on. "I don't mean standardized goals, necessarily, but rather standardized means."
"Give us an example," said Armbruster.
"We want and need standards for results of sewage treatment," Hiram replied. "But it's folly to want standardized methods for reaching those results. To prescribe methods automatically blocks development of better methods. This principle, by the way, applies to all manner of activities. Windows don't demand standard frames. As my grandmother Jenny used to say, `There are more ways to kill a cat than choking it to death on butter'—a folk saying that suffered a glitch in translation, no doubt."
[pp. 34-37]
This chapter is probably the core of the book: recasting economic growth with an ecology-inspired framework.
"So an ecosystem can be thought of as a conduit through which energy passes, with many or few transformations of energy/matter during its trip through the conduit. The interesting question is what happens in the conduit.
"In some ecosystems, not much happens. Sunlight falling on a desert barren of life heats sands and rocks, but when night falls, even that quantity of temporarily retained energy radiates outward. In this case, the passage of energy is swift, simple, and vanishing, leaving no evidence of the passage. [...]
"Contrast that with energy flow through a well-developed forest ecosystem. In the forest, energy flow is anything but swift and simple, because of the diverse and roundabout ways that the system's web of teeming, interdependent organisms uses energy. Once sunlight is captured in the conduit, it's not only converted but repeatedly reconverted, combined and recombined, cycled and recycled, as energy/matter is passed around from organism to organism. Energy flow through an intricate conduit of this kind is dilatory and digressive. It leaves behind, in complex webs of life, ample evidence of its passage.
"No other terrestrial ecosystem can compete with tropical rain forests in sheer variety of species. At first thought, it seems as if the tropics' warmth throughout the year and the blazing power of tropical sunlight must be responsible for the abundance. However, when a tropical forest is cleared, the soil bakes and hardens. Rainfall also turns destructive, leaching minerals out of soil no longer interlaced with roots and protected by forest canopy. For those reasons, crop yields are typically mediocre, dwindling so rapidly that after a few years the land is hardly worth planting. Merely in themselves, sun and rain, and even atmosphere and soil, don't account for either biomass expansion or biomass variety."
"What's the mysterious answer then?" asked Armbruster.
"It isn't really mysterious. The answer is the forest's multiple uses of energy received within its conduit before the energy is finally discharged from the system. Multiple energy use requires diverse, interdependent users. The principle can be stated like this: Expansion depends on capturing and using transient energy. The more different means a system possesses for recapturing, using, and passing around energy before its discharge from the system, the larger are the cumulative consequences of the energy it receives.
[pp. 46-47, Ref: [1] and an article in Science, Nov. 7, 1997 by W.F. Laurance and T.E. Lovejoy.]
"Whether fiddled with or left alone, some economies obdurately refuse to expand to meet either their people's needs or their people's potential as workers. Others expand with so much sporadic vigor that guest workers or immigrants are invited [...]. London booms, while much of northern England languishes in long-term depression. Almost every country of any size suffers persistent regional inequalities.
[...]
From the depths of his chair, Murray spoke up. "Hiram told me about biomass expansion, the same as he's explained it to you. Then he asked me how settlements—towns cities, or any settlements—expand their economies. I told him that the root cause of expansion was competitively successful export work, which I'd been taught and still believed at the time."
"Do you mean foreign exports?" asked Kate.
"Any exports, foreign or domestic. Any kind, too. Common sense tells us that if a town's truck factory expands its workforce to five thousand jobs from a previous three thousand, the town will enjoy expanded sales of clothing and groceries; more schoolteachers are needed, and another half dozen doctors. [...]
"Common sense and observation also tell us that if a settlement loses net export jobs, other sales and jobs in the place will dwindle. Subtract all export jobs from a settlement—that can happen to a town or village when a mine shuts down, a fishery fails, or a factory closes—and probably all other jobs in the place disappear too: ghost town.
"So, logically enough, economists call local jobs `multiplier' jobs, distinguishing them from jobs devoted directly to export work."
[...]
"... [T]he conventional idea has been that export work drives or leads a settlement's economic expansion. And a total national economy is quantitatively the sum of net expansion of shrinkage in its whole sum of settlements. If we want to carry that still further, the global economy is quantitatively the sum of net expansion or shrinkage in the whole sum of countries. Which is why so much economic hope rests in free trade: more trade, more exporting; more exporting, more multiplier jobs."
"I suppose this doesn't satisfy you, Hiram," said Armbruster. "For you, it's probably too far removed from the convoluted ways that biomass expands. But it satisfies me. It's straightforward. It accords with common sense and observation. So what's the problem?"
"That's what I thought, too," said Murray. "I took it for granted, for decades. But export-multiplier ratios are not as neat and tidy as I've made them sound. When they're looked at critically, the ratios can be puzzling. Hiram asked me questions about them for which I couldn't find satisfactory answers. Ratios vary more widely than one would suppose if there's such a direct cause-and-effect relationship. They also vary significantly from time to time in the same place, without clear reasons. Still worse, ratios can contradict the theory itself. For instance, in Los Angeles at a time when export work declined precipitously, other jobs didn't decline in response. They increased stupendously, faster than jobs were increasing in any other settlement in America at the time. This was in the 1940s, starting near the end of the war. The anomaly can't be dismissed as some weird California thing. Back in Shakespeare's time, for instance, London's economy was behaving just as irrationally. On the other hand, Detroit's ratio decreased while its automotive export work boomed.
"Every contradiction can be rationalized as a special case. So can all the other anomalies. But a process that is thought to be systematic and ordained, almost like the cause-and-effect workings of a machine, but obviously isn't all that mechanistic, is a process that invites intellectual suspicion.
"Let's face it, I said to myself," Murray continued. "This export-led idea of expansion is actually only a hypothesis, even if it's sufficiently entrenched to be considered a theory. Maybe it's wrong, or else so partial a truth that it's as misleading as it is illuminating. I stopped dismissing Hiram's biomass information as irrelevant. This was economic heresy! I kept an open mind while I turned ecosystems and biomasses around in my head, even if I couldn't grasp their application to the economies of settlements."
Hiram now cut in: "Then one night, late, he called up and sang out, `I've got it! I really think I've got it.' You tell them, Pop."
"The thought came to me," said Murray, "that we were looking at the wrong end of settlements' energy conduits. What are exports? End products of a settlement's economy, that's what. They're discharges of economic energy. To be sure, they become imports in some other place, but at the location where they've been produced, they escape from a settlement's energy/matter economic conduit. A discharge."
Armbruster attempted to speak, but Murray waved him to silence. "I know it sounds outrageous, Armbruster, but hold it until I finish. Discharged energy doesn't—and can't—also suffice as driving energy. If it could, the result would be a perpetual-motion contrivance." Armbruster began furiously scribbling on a notepad, snorting occasionally, but Murray ignored him and plowed on. "At that point in my thinking, I looked up perpetual motion in the encyclopedia. Sure enough, inventors and backers of perpetual-motion devices attempted to force their equipments discharged energy to double back and drive the next turn of the wheel, or the next change of water level in a container, or whatever other motion was required to keep the thing in operation. The schemes were ingenious and they sounded as plausible as the dickens. Think of the fuel that could be saved if they worked! But none of them worked. Willy-nilly, they discharged energy in their operations, and the discharges that escaped as discharges were unavailable as power for driving the contraptions."
"Even a prize Jersey cow can't survive by merely drinking her own milk," said Kate. "That's fundamental. It's an iron law of nature that every organism and every machine needs infusions of new energy from outside itself or it comes to a halt."
"If exports are a settlement's economic discharges, then what are its received infusions of economic energy?" Murray asked rhetorically. "Imports! Besieging armies and blockading navies have always known that. So obvious, but until I began thinking about settlements' economies as instances of natural energy-flow I couldn't see that imports came in at the receiving end of their conduits, exports left at the discharge end, and the interesting question was what went on within the conduits."
"False analogies!" sputtered Armbruster, unable to contain his scorn. "An ecosystem gets its sunlight free, for nothing. But a settlement has to earn its imports with export work. So it's absurd for you to construe exports as something lost to settlements' economies! They aren't lost, because payments for exports buy imports. I don't care how prize Jersey cows survive or what the laws of thermodynamics say. Exports are clearly the driving force, because they buy imports and support multiplier jobs to boot. Payments from customers come to more than the cost of materials going into exports and upkeep of the labor producing them. Payments, Murray! And before money, people bartered goods for exports. There's your infusion of economic energy from outside—payments!" He glanced at his pad. "Oh, and here's the clincher. According to your logic-chopping about energy flow and discharged exports, settlements would have to start their economic lives with imports—before they worked up a way to earn them! Absurd! How could they do that?"
"You're right about that last point," said Murray. "It's the first major question that our energy-flow hypothesis had to address. I myself was at a loss to answer the question you just posed, Armbruster. How might one account for imports first and exports only subsequently? Hiram supplied the answer. You explain, Hiram, how a settlement obtains imports before it earns them with exports."
"I want an answer that goes deeper than a claim that settlements can get imports for start-up on credit or charity," said Armbruster. "Economic life predates foreign-aid programs, investments of multinational corporations, and political pork barrels. Those are relatively recent froth on economic life. Besides, they fail as often as they succeed. They're probably even a drain on economies."
Hiram, finally getting in a word, said, "Seeds and embryos get started in life with free, unearned energy/matter contained in eggs, gifts that start their development, gifts from—"
"Of course!" Kate interrupted. "The egg's stock of initial starter energy! I should have thought of that myself. A settlement's initial imports are as unearned as sunlight, Armbruster. They arrive across time instead of across space."
"What on earth are you talking about?" asked Armbruster.
"Natural resources," said Hiram with a grin. "Every settlement starts with at least one useful resource, maybe several, already in place as a gift from nature. It's a inheritance from earth's past development and expansion. If a resource or a combination of resources weren't there already, neither would a settlement be there."
[pp. 48-54]
"This energy-flow hypothesis of economic expansion explains why countries whose settlements are overwhelmingly rural are invariably poor, no matter how small or how large their exports and imports may be," said Murray. "It also explains why the richest—which means the most expanded—economies are diverse economies. The practical link between economic development and economic expansion is economic diversity. Here's the principle, which applies to both ecosystems and the economies of settlements: Diverse ensembles expand in a rich environment, which is created by the diverse use and reuse of received energy."
[pp. 62-63]
This chapter is mostly a repeat of The Economy of Cities [4].
This chapter is quite interesting, and delves into four methods ecosystems and economies use to maintain stability: bifurcations, positive-feedback loops, negative-feedback controls, and emergency adaptations. In particular, I find it interesting to think of government policy in terms of feedback effects. As a computer engineer/scientist, it's naturally nice to see Jacobs give a nod to a few people in my field, too.
"Would you define bifurcations, then?" asked Hortense, who had begun to perk up.
"The word means `fork,' like a fork in the road. It's a term chaos theorists use. Mathematicians call the same kinds of events discontinuities. Here the correction principle: A system's instabilities of some sort can have become so serious that for it to continue operating as it has been is not a practical option. It must make a radical change-take a fork in the road, travel into new territory.
[pp. 86-87, Ref: [2,3]]
"It's impossible to imagine how either ecosystems or economies could fend off collapse in the absence of beneficient loops," said Hiram. "Positive-feedback loops are the very structure, the very context, within which bifurcations and diversity can energy; positive-feedback loops permit biomass expansion and economic expansion without loss of dynamic stability; in fact, they enhance both dynamism and stability."
[...]
"Positive feedback is treacherous. Remember that responses to it intensify and reinforce. They can intensify unstable or otherwise destructive situations as automatically and reliably as they intensify stabilizing and constructive situations. Then we call the loops vicious circles. For instance, suppose that an animal falls sick or is wounded and thus becomes incapable of finding food for the time being. Lack of food further weakens the animal; it becomes even less capable of finding food; so it further weakens; and so on. Even if it isn't put out of its misery by a predator, that malign loop ends in the animal's death, its collapse. In this case, a formerly benign self-refueling loop has gone into reverse, even though it still operates as a positive response, a reinforcing response, to the new situation the feedback reports."
"Vicious circles are dead ends, because instead of correcting an instability reported by the system, they intensify it," said Hiram. "The area of the North Atlantic off Newfoundland, called the Grand Banks, supported fishermen and their communities and supplied food to Europeans and North Americans for more than three centuries. The cod seemed inexhaustible as catches increased year after year, averaging half a million tons annually during the first half of the twentieth century. Then soaring rapidly, catches reached three times that amount annually during the late 1960s.
"After that, catches began to decline and the size of individual fish to decrease, and cod prices rose. The international fishing industry responded to the feedback on creeping scarcity and rising prices by investing in larger fishing trawlers and bigger nets. When catches rapidly diminished further, the response was to comb the sea with still bigger and more efficient nets, and so on, until the Grand Banks cod fishery utterly collapsed in 1992. No more cod. This was a horrendous economic and social disaster for Newfoundland fishermen and fish-plant workers and their communities, to say nothing of an ecological disaster, whose ramifications are still unknown."
"The trouble wasn't the feedback information but the response to it," said Kate. "The correct response would have been to let up on catches when they started to diminish."
[...]
"Vicious circles and their ultimately futile costs aren't necessarily clear while they're in the making," said Hiram. "Take this example. During rush hour, some roads became congested, the information fed back in the form of traffic jams and longer travel times. On the one hand, this could be taken to mean that cars and trucks were being depended upon too heavily and that alternate means were needed to help move people and goods—or perhaps that unnecessary transport was overburdening the system because zoning regulations separated everyday conveniences and work from residences. But on the other hand, congestion could as logically be taken to mean that existing roads and streets were inadequate, in which case a logical response was to widen streets and build more roads.
"The second of these two possible responses won out. But since bigger and better roads and faster speeds on them encouraged more use of cars and also greater numbers of cars, congestion built up again, requiring more street widening, more roads, more highways, more parking spaces, and so on. The result of enormous expenditures and effort has been that cars still crawl at some twelve miles an hour during lengthening rush hours.
"This road-traffic vicious circle is intersected and intensified by others. The car-suburban sprawl vicious circle makes transit routes expensive and otherwise impractical; therefore, cars are even more necessary; therefore people who can't afford cars are required to support them regardless, intensifying the road-traffic loop. It's also intensified by the falling-transit-ridership and falling-transit-service loop. As riders and fare incomes drop, transit services are reduced; therefore, more riders and fares are lost; therefore, service is reduced; and so on—to the point of collapse, meaning the disappearance of former transit services."
"Except for the animal that progressively grows too weak or sick to find nourishment for itself, all your examples of vicious circles are owing to greed or mistaken logic," said Armbruster. "Doesn't the rest of nature generate vicious circles without aid from us?"
"Vicious circles are damaging but self-terminating," said Hiram. "Even the road-traffic loop can't continue intensifying indefinitely. When vicious circles appear in the rest of nature, which is less given to temporizing with them than we are, they vanish, because they self-destruct like the sick animal."
[pp. 94-99]
Murray spoke up. "During the Great Depression, the English economist John Maynard Keynes proposed that governments compensate for bank credit which had dried up by undertaking their own investment programs and that they compensate for lack of individuals' purchasing power by transfer payments. Keynes was a demand-side economist, meaning he believed demand leads supply to generate economic activity and expansion. His idea was that governments could even out economic instabilities by means of deficit financing in hard times and debt-reducing budget surpluses in good times. In effect, he was trying to invent a new negative-feedback control, which he hoped would keep the vessel on course. Many governments did adopt deficit financing for hard times, but then anachronistically they hung on to it, good times or bad, creating the vicious circle of intractable indebtedness that I mentioned earlier today."
[pp. 117-118]
"Fitness as determined by natural selection means that an organism is successful in competing to feed and breed. It also means that the organism must have traits which prevent it from destroying its own habitat, because an indispensable requirement for the organism is an arena in which to feed, breed, and compete.
[...]
"Elephants uproot and trample impressive swaths as they feed and wander. If they were so inclined, they could convert their own habitats to desert—to their own disadvantage.
[...]
"The diligence of bees and ants is habitat-enhancing, not habitat-destroying," said Kate. "You could say the same about the beneficial bacteria in our guts and the symbiotic descendants of bacteria in our cells. On the other hand, a bacterium that kills off its host—before it has a chance to infect another host—kills itself off."
"But as a rule," said Hiram, "evolution equips some of a lethal bacterium's hosts with a mutation that renders the bacterium merely debilitating or even innocuous, and those are the hosts that survive and multiply."
"The most successful predators, large or small, are the ones that graduate to become symbionts in their habitats," said Kate.
"What about plants?" asked Armbruster. "Vines could smother everything—like kudzu, which has strayed out of Asia and is now smothering entire forests in Alabama. In those habitats, kudzu can reign supreme forever, unless human beings get it under control."
"No it can't," said Kate. "It looks successful now, but it's destroying the very habitats in which it seems to have won the prize for fitness. It's living on already accumulated, complex richness in the soil. That's evident from the fact that you don't find kudzu growing on bare rocks or in sterile clay. All plants, like all animals, need communities of other organisms. No one kind of plant extracts from rock or soil everything it requires, including minute quantities of trace elements."
"In other words, you're saying that kudzu in an Alabama shrub land or forest has trapped itself in a vicious circle," said Armbruster. "The more successful it is at squelching other plants, the more it must draw on previously accumulated capital in the soil, leaving less for other plants, and so on. Finally, the capital runs out and the kudzu with it."
"Unless evolution makes it less lethal to its habitat and hence to itself," said Hiram.
"I'm proposing that fitness for survival by natural selection has two faces," said Kate. "The two are equally important. One is competitive success at feeding and breeding. This accounts for natural selection by survival of the fittest according to conventional evolutionary theory. Modern evolutionists have added to this concept the accidents of good and bad luck. The extreme version of the theory of fitness determined by competitive success at breeding is the `selfish gene'—the view that genes are directed by their competitive drive to survive and propagate and that an organism carrying the genes is merely a vehicle for furthering the competitive drive of its genes.
"I'm suggesting this view is too simple. So was Darwin's own narrowing of success to competitive success. It doesn't take into account evolutionary success at habitat maintenance."
[pp. 119-123]
"What I'm pursuing," said Kate, "is the question of whether our species has inborn traits that restrain habitat destruction. On the one hand, it's plausible to think of our ruinous effects on the rest of nature as comparable to the kudzu vine's—smothering and plundering accumulated environmental riches, to our own eventual deterioration and destruction."
[p. 125]
"[A]s human beings, our habitats also consist of our own settlements and the economic ensembles on which they depend. It's no accident that we find the most successful economic enterprises within the most successful economies—not in impoverished economies dominated, say, by all-powerful landlords who end up poor themselves—great at winning the prize as top dogs but rotten at preserving economic habitat.
"I'm not sanguine about evolution having equipped us with inborn traits for preserving economic habitats that—at least in terms of commerce—may be only ten thousand or at most some twenty thousand years old. As a species, we're susceptible to white-collar crime, organized crime, freelance crime, ruthless and exploitative governments, and megalomaniacs, all of which are ready, willing and able to kill the geese that lay the golden eggs to satisfy their own lust for power, fortunes, or vainglory or to impose their own visions of utopia, no matter what economic harm it does to the arenas in which they compete.
[pp. 131-132]