This book review presents one of the most stunningly brilliant ideas I have ever come across.
Ever since Adam Smith published The Wealth of Nations — and arguably even before — economists have assumed that nations are the natural, top-level structure by which an economy can be understood. The author of the book, however, proposes that cities are the natural, top-level form of economy. In fact, she argues that nations and empires fail because their rulers don’t know or understand this basic truth and therefore make destructive economic decisions.
As I understand it, the author’s proposal is partly definitional. You simply change the economic taxonomy to culminate with cities instead of nations. Thus, an individual person represents an economy in microcosm; a group of individuals engaged in trade represents the next level of organizational complexity; then large conglomerations of people all trading with one another — cities — are the ultimate level of organizational complexity.
Beyond that, basic economic processes are no longer observable in any meaningful way. In effect, a nation may be conceived of for economic purposes as a collection of cities, but the conception is illusory. It is merely theoretical.
In this scheme, national currencies tend to obscure the informational signals that city economies need to continually adapt to the changing world in which they exist. The mechanisms are the various forms of inflation and deflation which occur due to forces outside of an individual city — another line of demarcation that sets a real city economy apart from an imaginary national one.
Overall, cities become sustainable when they begin to produce goods they otherwise would have to import. They become prosperous when they begin to produce more goods than they need. They inevitably become poor whenever leaders try to control the creation and distribution of goods within them.
The idea that cities, not nations, are the ultimate economic unit strikes me as highly useful. This is not to say that nations have no economic reality. Rather, it is to clarify the boundaries of direct observation.
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