Before we can correct what we think is wrong with a city, we need an appropriate standard of what is right. That standard of rightness in turn depends on our understanding how the thing we are trying to fix is supposed to work.
In this regard I’m afraid neither standard macroeconomics nor microeconomics is much help at all.
In traditional macroeconomics, too much important detail is lost in its pre-occupation with aggregates and averages. For example, standard macroeconomic theory treats capital as homogeneous, and so makes no distinction between a hammer and a harbor, except that a harbor may be the equivalent of many, many hammers. Such an approach is too blunt an instrument for getting to the level of detail needed to appreciate the complex time-structure of capital of an economy, let alone to tell us what would be necessary to promote that structure (Lachmann 1978). Jacobs expressed antipathy toward macroeconomics.
Macro-economics—large-scale economics—is the branch of learning entrusted with the theory and practice of understanding and fostering national and international economies. It is a shambles. Its undoing was the good fortune of having been believed in and acted upon in a big way (Jacobs 1984: 6-7)
Earlier in this Chapter we saw that, unlike a living city, a nation-state is not a natural unit of economic analysis. In Jacobs’s words:
Nations are political and military entities, and so are blocs of nations. But it doesn’t necessarily follow from this that they are also the basic, salient entities of economic life or that they are particularly useful for probing the mysteries of economic structure, the reasons for rise and decline of wealth. Indeed, the failure of national governments and blocs of nations to force economic life to do their bidding suggests some sort of essential irrelevance (Jacobs 1984: 31-32).
The limitations of standard microeconomics are in some sense even more severe. Efforts to make cities run more efficiently, for example, when “efficient” means something more than simply “the way I want to see things done,” run up against a deep conceptual problem (Ikeda 2010). Strictly speaking, an action is efficient when a person achieves a given end with the least costly of all available means. In other words, if you know what the most valuable end that you could be pursuing is, and if you know what the correct value of each of the possible means to achieve that end are, then your choices have a very good chance of being efficient. It would simply be a matter of matching the known, least-cost means to the known, highest-valued ends. But if you lack knowledge of any part of that ends-means framework, if your knowledge is not perfect, it would be impossible to tell whether any particular ends-means combination is efficient or inefficient. You can’t compare a given outcome with an ideal outcome if you don’t know what that ideal outcome might be. Efficiency might be appropriate in Louis Wirth’s 3-variable city but useless in a Jacobsian system of organized complexity.
The starting point of Jacobs or of Hayek or of Israel Kirzner (1973) is that a person is aware of only a small portion of the total amount of information she needs for the successful completion of her plans. Also, people make mistakes, plans conflict. Again, the social processes in cities are precisely what facilitate the discovery of conflicts and errors as well as harness the knowledge needed for their resolution.
Real markets are never efficient and neither are real cities. But the good news is that, given the nature of the trial-and-error process, we wouldn’t want them to be. As Jacobs puts it:
But I propose to argue that these grave and real deficiencies are necessary to economic development and thus are exactly what make cities uniquely valuable to economic life. By this, I do not mean that cities are economically valuable in spite of their inefficiency and impracticality but rather because they are inefficient and impractical (1969: 86).
To someone trained in standard economics that sounds paradoxical. If you understand why a city cannot be a work of art, however, it’s common sense.
A living city works by effectively combining what I call the “4 Ds,” diversity and density to generate discovery and development. Without going too deeply into what a normative standard consistent with promoting creative discovery would look like, I’ll just say that it would focus on whether the rules of the game empower creativity, more so than on trying to prevent the gales of dark destruction. The focus would be on what keeps creation ahead of destruction, and definitely not on how closely the outcomes we can measure match the ideal outcomes that we can only imagine.
[In this space I’ll be posting quotes, ideas, and excerpts relating to a book I’m writing (thus far untitled), which I might describe as “What I have learned from the economic and social theory of Jane Jacobs.” My hope is to get thoughtful, informed feedback that will be useful in shaping the book.]