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deletedMay 22, 2023·edited May 22, 2023
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Aligning regulations and jurisdiction is a headache but a solvable one

Maintaining peace is a bigger problem, it should be analyzed from the perspective of modern warfare. My guess is that there nation-scale still makes sense, but progressively less so

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May 20, 2023·edited May 20, 2023

There have been times/places where everything was city-states (classical Greece, renaissance Italy, the Holy Roman Empire, Sengoku period Japan), and they were not good times/places to live.

I don't know how strongly that argues against what Jane Jacobs actually said, but to me it's a pretty strong argument against the "everything should be a city-state" point that the review suggests she almost said.

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Renaissance historian Ada Palmer has a nice essay touching on the difference between a cultural golden age and a period you'd necessarily want to live.

https://www.exurbe.com/black-death-covid-and-why-we-keep-telling-the-myth-of-a-renaissance-golden-age-and-bad-middle-ages/

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I'm a bit wary of trusting a post that makes dramatic claims such as a gradual but severe drop in quality of life over the 1200s-1500s period without sources.

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That's pretty standard history though.

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[citation needed]

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My fave is The Great Wave by Hackett Fisher who covers the period along with others. You could try The Third Horseman or anything else on the Black Death and its relationship to the Renaissance.

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I've never read anything about the period to the contrary... as one instance Tuchman's "A Distant Mirror" drives the point home across every dimension that the 14th century in Europe was just a bad, bad time.

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The 14th century is generally not considered part of the Renaissance.

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I think the relevant question would be "were they better than contemporaneous, larger, more centralized entities like Persia, etc."

Comparing the city states of ancient Greece to modern nations is not going to be very informative.

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As the reviewer him/herself said, the city-states were constantly at war against each other, with obviously negative consequences for their citizens' quality of life. If you lived in a large state such as Persia, you might be oppressed by a despot, but you might also be less likely to be killed in battle or starve to death when a rival city-state lays siege to your city-state, so... the centralized states might come out ahead on the less-likely-to-die-a-brutal-death metric?

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May 20, 2023·edited May 20, 2023

Most everywhere was constantly at war with each other back then. It isn't obvious to me that citizens of Greek city states were more likely to die or starve than Persian citizens. Life sucked back then.

I could tell an equally compelling story as you have just outlined bout why the Greek city states were better and it would be just as unsupported by evidence.

-edit- This sounded a little more aggressive/snarky than I intended. What I was trying to convey is that that's certainly possible, but so is the converse. Finding out what the actual answer is would be interesting.

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No worries!

You are correct; my post was pure speculation. On second thought, you're right that size does not guarantee stability/non-violence. China has been huge for multiple centuries, and it's had its share of violence due to both rebellions/civil wars and Mongol invasions.

What we need is a Steven Pinker-style analysis: was the rate of violent death per capita in ancient history higher in large nations/empires or in small city-states?

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I think perhaps Greek cities and Sengoku era Japanese cities were sufficiently different (i.e. not quite technologically able to have the level of trading and manufacturing centers that Jacobs considers important for the city dynamics) than the more modern city states that Jacobs is thinking of. But yes, starting perhaps with imperial Athens, you start getting the city-hinterlands+trade dynamic (rather than just a Greek-era city with its surrounding farms).

To the question of "quality of life," I do think however that there is good evidence that Renaissance Italian city states (especially Venice), the free cities of the Holy Roman Empire (particularly in the north) and the essentially city-provinces of the Low Countries DID in fact have higher quality of life (and better along a lot of other features) than not only the primarily agrarian/herding populations of everywhere else, but the cities of the large empires.

To specifically the question of how much violence, my understanding of the Greek city-state era wars is that they were constant but not very destructive - they didn't have good siege equipment and most cities had walls, and so the "wars" were often decided usually in 1 day somewhat-ceremonial battles with relatively low casualties (and no longer campaigns where disease/starvation would set in, until things like the Peloponesian War), and didn't usually result in destruction for the losing city.

I am pretty sure that simply by definition, the existence of a city: lots of people living relatively densely together implies a lower level of violence that what researchers/archeologists theorize/see in pre-city life, which seems to have have rampant intra- and inter-group violence. The process that allows a group to have a non-currently-on-fire city probably necessitates a central (within the confines of the city anyway) authority that suppresses violence and certain cultural (self-domestication) changes to tolerate that. I don't know if Pinker or other similar researchers have compared urban to non-urban violence, the #'s I've seen are usually (no doubt to Jacobs' dismay) at the nation-level, but you might be able to proxy by comparing countries we knew to have relatively higher urban populations.

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That is the complete opposite impression of city-state warring that I've gotten from the writing of Bret Devereaux. Even if your city walls repel all attacks, a war is destructive to everyone and everything around it, meaning the undefended villages of the peasantry and their farmland. Not just from enemy forces, but (and perhaps especially) from defending forces as well.

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Is that what we need? As mentioned, city-states and empires in ancient history are not a good comparison for the modern world. We seem to have gotten pretty good at not going to war with each other as much. Would that change if we go back to smaller nations, now that the mutual benefits of peaceful trade are obvious to most? If not, that undercuts one of the largest downsides of city-states.

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We've got good at not going to war with each other as much because we live under a (mostly benevolent) hegemony. This requires a hegemon, which must be a large state.

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Just to flag: tracking relative death rates between urban and rural areas from violence is a problem that is hard even today. Entire teams of political scientists have devoted their careers to this.

Why does this happen? Urban areas are more likely to have monuments, histories, chronicles, newspapers, etc. to record news of deaths

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There is also the theory that the reason European weapons and sailing technology eclipsed Chinese, was that European countries had been in a state of conflict with each other for centuries, spurring competitive development, while China had recently entered an era of peace and had no peer rivals until the Europeans showed up.

So while the peace of the Ming dynasty might have been nice for the people then, in the long term it disadvantaged their descendants.

Or so that theory goes.

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True, but the states in this context were not necessarily city states. The biggest gap in European warmaking came with Napoleonic wars and absolutist nation states. At the same time, the theory claims that the Chinese were able to keep pace when they had two or three larger states infighting, e.g. Song vs Xia vs Liao

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Weapons, maybe; sailing technology, not so much, because even in a divided China most warfare would be land-based and so wouldn't spur advances in navigation or boat-building. I suspect the real reason why Europe pulled ahead in sailing terms is simply that foreign trade was more important in Europe than in was in East Asia, where merchants were generally frowned on and international trade was conducted in a limited manner under the pretense of "gift exchanges".

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I believe the story is the Chinese intentionally abandoned building big ocean-going vessels because rising merchant economic and political power posed a threat to the existing elite:

"From 1405 to 1433, large fleets commanded by Admiral Zheng He – under the auspices of the Yongle Emperor of the Ming dynasty – traveled to the Indian Ocean seven times. This attempt did not lead China to global expansion, as the Confucian bureaucracy under the next emperor reversed the policy of open exploration and by 1500, it became a capital offence to build a seagoing junk with more than two masts.[18] Chinese merchants became content trading with already existing tributary states nearby and abroad. To them, traveling far east into the Pacific Ocean represented entering a broad wasteland of water with uncertain benefits of trade."

https://en.wikipedia.org/wiki/Chinese_exploration

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Also Europe has wildly more coast and more usable coast for seafaring than China. China has mostly river based trade. Europe has an insane amount of coastline and invagination.

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I don't know if it is still en vogue, but the explanation for why China's development didn't keep up with the industrializing West was a 'high level equilibrium trap'.

Basically, China's production systems were advanced enough without significant mechanization, that there was no benefit (and therefore incentive) to going through the early awkward stages of industrialization.

But I think that centralization still would have had to play a role. In a more decentralized environment, -someone- would have had the right conditions and made the jump, and then everyone else would have to do so too to stay competitive.

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I think that is too simple. Take Germany before 1871, which the review brings up. It consisted of a huge number of tiny states. But those were not constantly at war with each other. At least not more than big states were at this time.

But it was a severely underdeveloped region of Europe. And then quite suddenly, after the unification of 1871, Germany got a huge and long-lasting economic boom which brought it among the top industrialized and powerful European nations within just 40 years.

The problem was not that the petty states were at war with each other. It's that economy of scale was impossible in petty states, that you had to cross dozens of borders with customs within 100km. And don't underestimate that you had no unified regulations. Apart from the currencies, there was no unified time. You had hundreds of different "time zones", and train rides were ridiculously complicated for that reasons.

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Germany was technologically advanced but politically fragmented. It was noted for its innovations in mining, manufacturing and materials. The lack of political unity held it back. There were dozens of tolls along the Rhine raising the cost of shipping. Napoleon reduced the number of administrative districts from over 240 to a bit over 90 when he invaded.

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This is what I was thinking while reading the review. It feels like Jacobs is comfortable leaning on contradictory ideas so long as she can think up an anecdote in her mind to tell a just-so story, but doesn't spend much time on counter-examples. Germany is a great example of when unification worked wonders. The US left the British Empire, sure, when there was a 6-month communications delay, but seems to have thrived in a nation covering a whole continent after that. It seems to me that her ideas about nations were already empirically wrong when she wrote them.

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I'm relistening to Mike Duncan's revolutions podcast and especially the Haitian revolution makes me wonder how much would be different if there had been Twitter and Email during the French Revolution

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Excellent podcast.

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Don’t people generally view classical Greece and renaissance Italy as golden ages though? The problem they highlight (particularly Italy), is the threat of larger neighbours; you may not be interested in empire, but empire is interested in you.

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Yeah, but at least in case of renaissance Italy, it's because they judged them based on historical artifacts, and historical artifacts were produced by the wealthy and their artist proteges. Once you start reconstructing human health, economy, etc., what emerges is a consistent picture of decline, and the artifacts stop being a symbol of flourishing, and start being one of wealthy elite siphoning all resources and squandering them on vanity projects (and war).

The Netherlands were no bigger than Italian states when they defeated a much larger Spain and became the next economic powerhouse of Europe. (Nor was, say, Switzerland.) Size wasn't decisive, asabiyyah was.

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There is also the fact that Constantinople fell to the Turks only once, so the influx of scholars and manuscripts and technical know how that it brought about was not a renewable resource.

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Have you got a source for decline in Italy in the renaissance?

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May 22, 2023·edited May 22, 2023

...if you don't mind a book (in particular, one with a final chapter titled "Conclusion: The Fundamental Incompatibility of Market Economies with Long-Run Prosperity"), "The Invisible Hand?" by Bas Van Bavel has an entire chapter on it.

Edit: Now that I think of it, the entire book is essentially one big counterpoint/complement for Jane Jacobs' ideas, as much of it is about the cities' growth impoverishing the countryside and eventually destroying the foundations of their own well-being.

For example - one of the trends, in Italian cities in particular, was their specialization in luxury goods - which amounted to import substitution a rebours - replacing a thriving industry capable of serving the local population with an export-oriented vestige. This makes sense, nominally, luxury goods are more profitable, they justify higher wages necessary for a place with a higher cost of living, etc. It still amounts to de-industrialization and leads to economic decline.

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Golden age of what? Culturally, they were golden ages. Politically, they were disasters. Interstate anarchy makes for good fantasy fiction, but it is hell to live under. One of the reason for Rome's success was that it offered allies and even former enemies a square deal, an idea anathema to the ancient Greeks. An extended treaty negotiation lacks the drama of a good battle scene.

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Depends on what you're looking for? Slaughter and patronage of high culture is probably not what the man on the street wants.

"In Italy for thirty years under the Borgias, they had warfare, terror, murder, and bloodshed, but they produced Michelangelo, Leonardo da Vinci, and the Renaissance. In Switzerland, they had brotherly love, they had five hundred years of democracy and peace, and what did that produce? The cuckoo clock."

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Not sure if I'd choose anywhere else BESIDES classical greece during the time period -- i mean, obviously it would be bad if you were a slave, but slavery was everywhere

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"everything should be a city-state". Ideally, yes. Ideally they shouldn't have armies nor even weapons, or anything that saps resources from noble goals.

But it's like nobody asks "why do nation and multi-nation states arise"? and the answer to me is "to protect you against other states".

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Yep. There was an essay I read a while back talking about how after the invention of the cannon, small European states essentially became militarily non-viable. In the Middle Ages, castles and walled cities could withstand a siege for months or even years when the only tactics they had to worry about were big rocks being hurled into the walls or tunnels being dug underneath them, and thus a small state could often withstand attacks from much larger ones, but cannons changed the equation for good. As war become more and more of an industrial endeavor over the next few centuries, this promoted further state consolidation, because being able to marshal more resources more quickly became a key to victory.

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The world would be amazing if we didn't need to worry about "might makes right" and criminals. Lets just pretend they don't exist!

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It seems like one way to ease the lack of feedback to cities that Jacobs points out is a YIMBY-like openness to internal migration. It’s certainly not as effective as currency feedback in terms of helping places, but it seems like it’s relatively effective at helping people: your city is failing, so move to a city that’s not failing!

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True enough, but that ignores the stickiness of location. People are really resistant to moving for many reasons, not least of which is the non-liquidity of housing, but also including existing networks of family and friends.

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It also doesn't fix the city (city region?). Ideally we would have a uniform spread of thriving, dynamic cities around the globe, not just a half-dozen megalopolis areas and everything else poor resource-extraction areas.

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So the Census actually has fairly good data on this! https://www.census.gov/data/tables/time-series/demo/geographic-mobility/historic.html

It varies quite a bit by year, but on average, over the last 10 years, 60-65% of moves have been within the same county. The is lower than I'd thought - I'd have guess 75% of moves were with in the same area.

There is also a data set on the distance people moved if they moved inter county. These are the buckets and the median % for each since 2005:

Less than 50 miles - 40.1

50 to 199 miles - 21.3

200 to 499 miles - 14.5

500 miles or more - 24.6

There is a note in the data that numbers before 2005 are less reliable (not sure why). There doesn't appear too much fluctuation in the numbers and surprisingly, you wouldn't really know covid happened just looking at this data set.

Anyway. It's definitely true that people want to stay in the place they live, but that's not true of everyone who moves. And we have to wonder, if certain desirable cities were cheaper, would more people move there? Or the converse, if certain undesirable areas were less desirable because of lack of support of being in a "good" city-state, would more people move. I dont know. Its an interesting question.

I think the answer to the second question is that way more people would move. We can look at immigration to US for evidence of this. The US standing in for the desirable city state and latin america and other developing countries standing in for the less desirable city states. The answer to the first question is less clear - we'd more city level data before starting to generate good hypotheses.

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I think that's an underrated plus for the United States historically. People were more likely to move than jobs rather than staying in their region, although I think geographical mobility has declined over the last few decades.

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Internal migration poses a lot of the same problems that migration between countries does. (Ethnic/cultural change, exacerbation of existing inequality, overcrowding, "brain drain" from rural areas or from economically declining cities). This is especially the case in a country like India that includes many different ethno-national groups: mass migration, if it happened on a large scale, could change the ethnic and linguistic composition like Madras or Bangalore. (It *doesn't* happen as much as other countries, probably partly because of the language barriers, which I think is good).

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Why do you consider brain drain a problem? To me it seems like an obviously good thing that brains move from where demand for them is low to where demand for them is high.

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This was great, it introduced an idea that I hadn't heard of/considered before and that seems at least somewhat compelling. My guess about at least part of why her ideas may not have caught hold as strongly in mainstream economics is a lack of quantitative predictions. Modern Economics (for both better and worse) is built on a foundation of math and quantitative analysis. It's great to have a good idea, but then you need to figure out a way to make testable hypotheses using data you can actually collect. If you can't do that, then you aren't going to get more than a shrug.

But assuming for a moment that this is all 100% correct, it does imply a somewhat depressing conclusion: Human flourishing seems to be self limiting (at least in the rate of increase) due to the combination of the economic reality that smaller, more dynamic entities are what drive growth, but human psychology leads to ever greater agglomeration and centralization. When societies become successful, they are driven to kill the very thing that gave them their success.

I hope she is at least wrong in part, because I'm quite skeptical that we will overcome the psychological part anytime soon.

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Tantalizingly, the biggest reasons for centralization were a) language, and b) contract enforcement. If AI solves the first and blockchain the second, small might actually become efficient again....

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How will blockchain solve contract enforcement? If you pay me to deliver you apples, and I pocket your payment and don’t deliver apples, how are you helped by our contract being on the blockchain? How about if the blockchain says you own a house but I am squatting in it. Will the blockchain come kick me out?

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May 20, 2023·edited May 20, 2023

Don't be obnoxious, that's a bullshit counterargument and you know it.

> If you pay me to deliver you apples, and I pocket your payment and don’t deliver apples, how are you helped by our contract being [recorded by law]? How about if the [law] says you own a house but I am squatting in it. Will the [law] come kick me out?

I have replaced 'blockchain' with 'law' and left these literally precisely the same in all relevant aspects. Enforcement still needs to be done, and is entirely independent of how the system for dispute resolution of contracts functions.

Large polities result (usually) in large homogeneous systems of law for resolving contracts, which means that contracts can be made across long distances and the proper resolution of disputes stays unambiguous. Smart contracts, decentralized or otherwise, can replace this function of large polities.

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May 20, 2023·edited May 20, 2023

My point was that you need a meatspace authority that handles enforcement. That means you need a state. Blockchain can't replace it. And what counts as a contract is whatever the enforcement authority will enforce.

Sure, lots of different sovereign authorities could choose to enforce the same smart contracts. They could also choose to enforce the same dumb contracts, or follow the same legal code. I don't see how blockchain is any kind of difference in kind here.

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No one was at any point claiming smart contracts, or anything else, would replace the state. City-states are still states.

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May 20, 2023·edited May 20, 2023

The comment by Earnest Prabhakar to which I responded (with the argument that you characterized as obnoxious) literally claimed that blockchain was going to solve the problem of contract enforcement.

*You* don’t seem to be making this claim but ‘no one’ is flatly false. Also in *your* utopia of city states - what prevents them from being gobbled up by larger states?

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Meatspace authority does not equal "state".

A couple of enforcer bots on a DAO will do

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Enforcer bots don't exist, not currently and not in the near term. And they won't have meatspace authority unless the men with guns stand aside and let them go about their business.

If you are saying `skynet plus terminators can replace the state,' well, duh.

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Not sure why you're getting such vitriol. Solved is to strong (but then again I would hardly say the current legal framework has solved it either), but blockchain does open up a lot of options around escrow kinds of setups and reputational tracking that are difficult otherwise without a trusted, strong 3rd party.

For example in the apples case they payment can be provably placed on the blockchain in a smart contract that is only released when both parties sign off on the transaction (or in tranches, or whatever other schedule with mutual agreement) or by default if the fail to dispute the transaction. Depending on how we want the incentives to land there could be small cost to dispute or we can rely on reputational effects to be incentive enough to come to an agreement. In the failed case the payment is burned and both parties end up worse off. Or they could also agree on 3rd party to adjudicate disputes (or even several) that could release the funds to one party or the other, etc.

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there won't be any physical houses. all houses will be in the metaverse, which itself will be governed through blockchains

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Uhhuh.

The kind of responses I've been getting makes me uncertain whether you are taking the piss or really mean this.

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HA, if we have a smart contracts then it is impossible for either of us to lose money. We will just write it into the contract that we both come out ahead and the magic of blockchain will make it so!

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is there any theory that says language and contract enforcement are what created / is maintaining centralization? On the creation side, seems to me that countries/empires mostly got built through military might, that language only became centralized as a consequence rather than cause of centralized military/government power, and that similarly uniform contract enforcement was rendered only necessary because the unified political power wanted to integrate the economy. As for maintenance, sure language and contract laws are part of what binds nations together, but I'd be hard pressed to cite them as the top 2 pieces of mortar, nor do I think that if you resolved these two everything would just naturally dissolve.

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There’s plenty of historical evidence that linguistic grouping (literally “nations”) preceded political union (literally “nation-state”). On the other hand, it is certainly fair to claim that contract enforcement is just part of being a state, not really a cause for union. My point is merely that to “displace” a centralized union, an alliance of city states would need -some- mechanism to provide neutral contract enforcement between them, and blockchain -could- help with that.

Perhaps a better metaphor is that, if the US didn’t have to worry about foreign wars, it would have remained a loose (and squabbling!) collection of independent states. However, once it unified, a (mostly) common legal framework boosted large-scale economic development. The hope is that it might be possible to get most of the economic benefit without the downsides of centralization.

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There is also plenty of historical evidence of the exact opposite. More in fact.

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Not so. If the EU kept a lot of regulatory unity but abandoned the Euro and went back to small currencies, that would be fine and get most of the benefits. So you can get centralization with economic growth, if you understand what you need.

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Saying that (urban, free-market) import replacement has "approximately nothing" to do with (national, government-encouraged) import substitution doesn't seem right. I mean yeah there's an important distinction between the two but they're clearly related...

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And both of them are diametrically opposed to the ideas of specialization and comparative advantage.

I can see that there is _some_ sanity to the idea of import replacement. A decent sized city should have e.g. car repair businesses rather than shipping malfunctioning cars to the nearest other city that _does_ have a car repair shop. Shipping costs still matter for some things (and they used to matter far more in centuries past). Having a person "at the scene" makes sense for some things.

But

- Some import replacement is flat out impossible. *Elements* are not distributed uniformly and invariably in amounts and concentrations which are economical to mine. Should New York City try to mine its own copper within its borders?

- Some industrial infrastructure has _immense_ capital costs and makes no sense to duplicate in each city. Should each city have its own 7 nm integrated circuit fabrication facility? Or satellite launch capability?

- Some enterprises make no sense to replicate at all. Should variants of Windows be coded in each city?

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The efficiency of specialization is a tradeoff against resiliency and robustness, case in point : a single ship stuck at the suez canal for less than a week had made the entire world shit its pants and prices worldwide starting to rise.

The cult of efficiency goes against decades of good engineering practice, which advocates always leaving slack and safety margins for when the inevitable unexpected happens.

Your points are all somewhat true (mostly just 1 and 2 though), but they are more like necessary evils, not things to be celebrated and accepted, and certainly not things to be replicated elsewhere. They are unfortunate facts of the world to be grudgingly tolerated and worked around.

(1) Yes, natural elements are not evenly distributed. But does it matter ? Do tuna cans have to be made of <element 1> when they can equally well be made of <element 2> ? Is it necessary to use the wood-dependent pencils when your city don't have forests, instead of just pens (which, I assume, can be made out of glass, plastic, metal, most anything that

can contain ink. And I assume ink is not a problem).

I don't know how much the authors (of both the book and the review) look at it like that, but I see Import-Replacement as a gradual and spectrum-ish process. That is, if you start buying <thing> from the country next door instead of from another continent, that's still Import Replacement to some degree. If the cities within a country (or within a language or within a shared culture, because countries are fake as the book says) start buying from each other, better still.

If instead of importing pencils for X million dollars, you instead import pens for X/2 million dollars (because they are cheaper to make, break less, etc...), that's still Import Replacement, you replaced X/2 million dollars worth of what you import. If you have glass/metal factories, you can start manufacturing the bodies of the pens and then fill them with imported ink that only cost you X/10, now you replaced (9/10)X million dollars. Then you can start manufacturing the ink itself out of imported chemical that only cost you X/100, and on and on and on. The natural end state of this is that you manufacture everything from the atoms upwards. You don't need to reach this state, you can stop short at compounds and above, or you can go beyond the atom (manufacture atoms themselves from sub-atomic materials you got from other atoms) when/if the tech gets crazy and transhumanistic enough.

But the point is, the scarce atoms that your land was born without is the only true hard limit imposed on you, most everything else is just how much you are willing to lazy it out.

(2) Those things are usually a sliding scale of complexity. To take your first example, your circuit fabs don't have to be all 7 nm, they can be 50 or 100 or 500. The chip in your fridge doesn't have to be a cutting edge super-duper fucktronic-8000 capable of running GTA V, it just has to be the bare minimum that can run the limited software required of it. So don't build a 7 nm fab, build a 500 nm fab, which is early 90s tech. When you want the latest laptops and smartphones, go for the imported 7 nm stuff, for everything else, stop fetshizing needless electronization and miniaturizing. As a matter of fact, this will actually save you from the cringe-worthy disaster that is the "IoT" trend, where even the godforsaken sex toys have wifi in them. Needless internet connectivity everywhere, needless displays everywhere, needless dog-slow UIs everywhere, "Touch Screen Menus" at restaurants because why the fuck not. All of this is because of how utterly easy it is to electronize something.

As for satellite launches, that's actually an example of (1) not (2) : Most favorable satellite launch sites are at special geographies, like the equator-near USA states (Florida, Texas) and also Kazakhstan (former USSR) for some reason, I forgot the physical reason why but it's something to do with Earth's rotation. Satellite rockets are actually not that hard, they are just ICBMs that never hit a target, their historical lineage makes that very clear. Any country that has developed or bought ICBMs by whatever means or expertise necessary could potentially, theoretically, launch a satellite, if geography wasn't a problem.

But again, how often do you really want to launch a satellite ? It's okay to never Import-Replace something that was never really a noticeable part of your budgetary.

(3) Yes, Windows should be open source, and I should be free to specialize it however the duck I want. Not only each city should have their own version of windows, each **Family** or **Person** should make their own version of Windows, or at any rate should have the freedom to do so. Windows isn't like that of course, which is one reason why it should be thrown in the garbage heap, replaced by Linux, the clearly superior alternative. With Linux, (3) is not an absurdity, it's a truism.

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Thanks very much for the detailed comment. It will take me a while to respond.

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Thanks vey much!

Yes, the Ever Given jam of the Suez Canal is a good example of the disadvantages of trade. Nonetheless, such incidents are uncommon. Both efficiency and robustness are valuable goals. I, personally, tend to be risk-averse, and would prefer to see more emphasis placed on robustness, but I don't control the tradeoffs.

Note also that locality is not always the more robust choice. Yes, it avoids the hazards of shipping. But other hazards may dominate. Hypothetically, suppose that 10 cities consume widgets, and one widget-stamping machine can supply one city's need for widgets. If production is centralized in one city, that city can keep one spare widget-stamping machine on hand for 10% of their total capital cost. If each city independently maintains its own widget-stamping machine, then keeping one spare machine doubles their capital cost - and they may well decide not to keep a spare. In this case, the centralized "imported" option with one spare on hand is more robust than the local case.

Re elements: "Do tuna cans have to be made of <element 1> when they can equally well be made of <element 2> ?" Does happen, but I think it is more the exception than the rule. E.g. if one needs an unreactive liquid metal at room temperative, one's choices are mercury. If one needs a replacement optical amplifier compatible with the existing fiber optic communications infrastructure, one's choices for the amplifying atoms are erbium. In biology, if one wants to grow a green plant, the central atom in chlorophyll has to be magnesium. If one wants B12 to avoid pernicious anemia, the central atom has to be cobalt. If one want to maintain a healthy thyroid, one needs iodine as an integral part of the hormones it secretes. In each of these cases, no other element can be substituted.

I agree that import replacement is a spectrum-ish process. In the extreme case, one could argue for each individual to be self-sufficient. This maximizes the range of skills that each individual has, and, by the same token, it maximizes the range of skill that each individual _must_ have. "Jack of all trades, master of none." If one pursues autarky on a larger scale - municipal, national, or continental, one allows more specialization and better mastery of the particular skills one specializes in, but increases dependence on people specializing on different skills, with vulnerability to transport interruptions or breakdowns in agreements. You mention, as part of the spectrum, moving imports from intercontinental to intracontinental international, to intranational interurban, to intraurban. Yes, the physical length of the supply chain shrinks with each of these moves, but, again, this requires shoehorning all of the skills required into a smaller and smaller group of people. I'm a bit skeptical of your pen example. Bringing a larger fraction of the cost of a pen into a city doesn't necessarily mitigate the risk of a cutoff of a critical component, even if that component is only a small part of the cost of goods.

Re 500 nm IC fabs: I took a look at https://en.wikipedia.org/wiki/List_of_semiconductor_fabrication_plants and I'm honestly not sure what to make of what I see. TSMC has, as I expected, astoundingly expensive, productive, and high-tech fabs, e.g. Fab 18 (P1-P3), costing 17.08 billion dollars, processing 120,000 wafers/month, and achieving 5nm channel lengths. I honestly wasn't expecting anyone to be running anything with feature sizes an order of magnitude larger, but there are some e.g. Intel's Fab 68, costing 2.5 billion, processing 30,000–52,000 wafers/month with a feature size of 65nm. As I said, I'm not sure what to make of this. An order of magnitude in linear size implies a two order of magnitude loss in devices per unit area. Yeah, the cost to build it was a factor of 7 lower, but it still seems strange that it can compete with a fab with a hundred times its device density. Given that it exists and is still running, I'm not sure what that implies for wanting each city to have a non-bleeding-edge IC fab.

Re electronizing: Why the hostility? I'm not a fan of IoT for household stuff. I tend to refer to internet-connected fridges and thermostats as "hacker-ready". But electronics has its uses. For instance, I bought a really cheap digital kitchen scale that turns out to have part-per-thousand accuracy. Part of this is probably because a cheap microprocessor can internally calibrate a cheap, probably rather nonlinear force sensor and correct for it, and correct for where on the measuring plate a weight is positioned. Why denigrate this?

Re operating systems

I should have been clearer. What I had in mind was each city having programmers who coded an OS from scratch themselves. Why solve a problem that has already been solved by someone else, when the solution can be either cheaply or freely copied? I've used both Windows and Linux, and I've compiled lots of code over the years, but I've never had a need to recompile Linux, let alone modify its source code. Even forgetting a _fully_ local, coded-from-scratch OS for a city and considering just modifications to Linux source code - how often do people really want to do this? If e.g. one changes how 'ls' works - um, do you really want any otherwise-sharable shell script to break?

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May 21, 2023·edited May 21, 2023

>Thanks vey much!

You're welcome, Jeff. Please don't take my hostility the wrong way, it's not directed at you, it's directed at the lazy corporations who keep shoving badly secured computers into our devices (which work perfectly good without computers), I hate the kool-aid behaviour and the copy-cat imitation, and I hate that people uncritically see it as "progress!!!" and "more computers!!!" and not as the big big problem it is.

>Note also that locality is not always the more robust choice.

Ok, fair, noted. I do think that locality is always the freedom-maximizing Moloch-minimizing option though. Like, to put it very bluntly, you just open yourself to so much shit when you depend on people. And I hate that the direction of history always goes against that, always towards the ugly, oppressive, giant, ant-like colonies of insignificant humans, and never towards beautiful, consensual, small, and human-like groups of humans who matter. Even the Internet, the thing we once "Declared its Independence", devolved to the same thing.

>Bringing a larger fraction of the cost of a pen into a city doesn't necessarily mitigate the risk of a cutoff of a critical component

Hmmm, how so ? If you import 5 different things from 5 places, then any problem at any of the 5 places can disrupt you. If you import just 1 thing, only a disruption at that particular thing's source can disrupt you.

Ok, I'm making a lot of implicit assumptions here (that 1 thing == 1 source, and that all sources are roughly equally likely or at least comparely likely to be disrupted), but they are not completely unreasonable assumptions, and they are satisfied in practice reasonably often.

>Why the hostility?

Because corporations keep taking choice from me. If they just offered **The option** of buying computer-enabled things, I would have made fun of that, yes, but I would respect their dedication to serve many different tastes. Right now they are just "Fuck you, we're going to put 75 computers in your product, and you're going to like it and give us money". Look at the sad state of Smart TVs, we're stuck with inferior, bloated, proprietary, insecure pieces of shit that probably spy on us with abandon, and you can't go back to "Good old TVs", there is no good old now. Do you want this to be the state of all other things ?

Computers are awesome, okay ? That much I very much agree on. I have read SciFi and I do want to live in a world where widespread computation and networked devices make everything easier. The thing is, I don't trust corporations to run the computers. I don't trust their quality, their security, their motives, their everything. "IoT" should have stayed a scifi concept till people with better intention and competence implement it, the moment consumer corporations learned about it, it turned to shit.

>Why solve a problem that has already been solved by someone else, when the solution can be either cheaply or freely copied?

Robustness. Remember LeftPad ? It's an extreme example, I admit. But multiple people all depending on 1 thing is legitimately a scary thing, even if that thing is as rock solid as Linux.

Re-Inventing the wheel is a time honored tradition of programming. Remember when some XML advocate was like "Why reinvent the wheel" at json and the people who did json replied at his blog "The nice thing about reinventing the wheel is you can actually get a round one this time". Reinventing the wheel is educational and mind-changing.

I agree that the vast majority of time you are better off choosing some thing that already works, and this is all pretty tangential to the main ideas and I don't think that JJ would have seriously argued against Open Source if she was aware of the culture. I'm not sure it's a fair rephrasing of her idea that "Everything should be made from scratch", Software is special. But even in software, you're better off reinventing a wheel from time to time.

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"it's directed at the lazy corporations who keep shoving badly secured computers into our devices (which work perfectly good without computers)" That's a good point. My late wife and I purchased a toaster oven about 2 years ago. It has a dozen buttons, a dial that serves three different functions (and is also a button for one function). I'd wanted one with a temperature control connected to a dumb thermostat and an on/off switch. I _think_ we searched for the simplest one, but couldn't find a simpler one. At least it isn't connected to the internet. Still, featuritis bit it pretty hard.

"Ok, fair, noted. I do think that locality is always the freedom-maximizing Moloch-minimizing option though. Like, to put it very bluntly, you just open yourself to so much shit when you depend on people." I agree that depending on other people is risky, and I even agree that the risk goes up somewhat with distance, but I don't think it goes up very fast with distance. I just bought a cheap magnetic stirrer from China, which arrived and worked with no problems. I also transferred some money between two sibling credit unions within the United States (which is also where I am) and it took 33 emails and 6 phone calls to get that straightened out. "beautiful, consensual, small, and human-like groups of humans who matter" - on an urban scale plenty of human interactions are non-consensual, hence "You can't fight city hall." Maybe Dunbar-number-sized bands of 150 people avoid this, but cities are typically 10,000 times this size.

"If you import 5 different things from 5 places, then any problem at any of the 5 places can disrupt you. If you import just 1 thing, only a disruption at that particular thing's source can disrupt you" Ok, you are considering a case where the disruption is roughly equally probable and equally disruptive for the 5 parts, and I agree with your analysis for that case. I had in mind a case where one part is particularly critical (e.g. a bleeding edge microprocessor or an ultra low noise first stage amplifier) and everything else can be supplied from an alternate source.

"The thing is, I don't trust corporations to run the computers. I don't trust their quality, their security, their motives, their everything." That's fair. About the only case where I trust any organization is where I have a live option to switch easily to their competition, and where working out which one actually offers the better deal isn't a monumental task. This is rare.

"Remember LeftPad ?" Ok, though if LeftPad had actually been copied into the code using it, it wouldn't have been an external dependency, and the mess wouldn't have happened. It is also a kind-of weird case in terms of the type of problem and the types of organizations involved. A namespace collision. An open source developer colliding with a company (I never did figure out who claimed the "Kik" trigram first...). The open source developer unpublishing his code. If the whole thing had happened in a single city and both developers had been open source it isn't clear that it would have been any cleaner, though I _do_ agree that if LeftPad itself had been independently implemented then the mess wouldn't have happened (or if it was physically copied rather than referenced - but then maintenance needs to track down copies...).

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Our toaster has only two dials and somehow 15 different functions, and does none of them well.

Just put some more goddamn buttons on it you idiots. You are totally breaking the device in the name of having an I-phone UI.

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I think you are just wildly underselling how much on a day-to-day basis people choose efficiency over robustness when given the choice.

It is all well and good to say "wouldn't you rather live in a more sefl-reliant1990s Denver where the chance of total economic collapse was .01% instead of a 2020s Denver where the chance of total economic collapse is .1%"?

"No."

"Come on 1990s computer sand cars aren't that much worse? if you zoom out enough it is basically the same exact thing"

"Yes they are and Yes I will notice"

And I agree with you in some ways to be clear. I do think we push too hard towards efficiency at the cost of all else. But it is a hard thing to actually fight.

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I was wondering about why the import replacement should work at all. Is it all about transportation costs? If so, it could explain why it makes sense to produce iron tools in Boston rather that in London, but maybe not so if the tools are produced in a nearby city.

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Transportation costs (and hazards) indeed. Probably also hazards of agreements failing (your supplier's rulers just declared war on your rulers, and honoring the contract is now "trading with the enemy"). To a small extent broadening the set of natural hazards one is subject to: You need parts from 21 suppliers spread across half the world and are now much more interested in earthquakes or violent weather in _all_ of their locations.

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intuitively, it seems like import replacement works better with higher shipping costs and higher communications/agreement costs. If shipping costs are very low, and it is easy to specify exactly what you want and get it from a distant provider, then it's going to be pretty hard for a local company to take over that production. On the other hand, if shipping costs are high, and it's difficult to get the distant provider to listen to your specific needs, there's an opening for a local business that will be more responsive, and that will be able to save you on shipping costs.

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Basically agreed. With low enough shipping costs "https://www.amazon.com/World-Flat-History-Twenty-first-Century/dp/0374292884". And this is _mostly_ the direction of recent history. Unfortunately, my rulers and China's rulers have been growling at each other a lot, which can screw up agreements with distant producers.

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May 22, 2023·edited May 22, 2023

It clicked for me immediately, although I can see why it might not be universal.

E.g if you are Boston, buying tools from Europe - you need those tools. Going without is not optional - without the tools (presumably used for farming and construction) you'd starve. No matter how much you get screwed on the price, you will buy those tools. If they send you crap tools, well, you're stuffed. If you want a specific kind of tool to work for your own environment, they're not gonna develop it for you specifically unless you pay a lot, and if they do you'll be charged a premium.

Applied to a vital import, it's a bit akin to rent - as long as you need it, you are at mercy of the producer of this good.

In the Boston example, starting their own foundry and making their tools is a bit like buying a house - suddenly, they are no longer at the mercy of their tool suppliers. If you want a particular kind of tool that the Europeans don't need, you can just develop it yourself. Obviously the business can still screw the customer, but poaching a blacksmith to start a competing business from Boston to Boston is much easier than Europe to Boston.

It's sorta like the teach a man to fish parable.

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Yes, although those disadvantages of imports decrease a lot in cases where there are multiple potential suppliers. You still don't get tools for your local environment, but if you can buy generic iron tools from London or Stockholm or Berlin the case for making them in Boston gets weaker.

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I think it's also an alignment of interests, for the case of keeping production of tools in Boston specifically. It's totally possible for all the tool-makers in Europe to realise that hey, actually, we can form a cartel and keep the price for tools artificially high. (Modern equivalents - pharmaceutical companies banding together to protect their right to price life saving medicines, OPEC for oil production).

If your producers of vital goods are local, it's much easier to force them to capitulate to your demands against their own interests. E.g oil and gas companies operating in Australia often have a quota they need to sell on the domestic market as a condition of production, which keeps the natural gas you need for domestic and industrial use cheap. For geographically bound natural resources, you can bully an overseas company into this kind of thing. For manufactured import goods, you usually can't, e.g how in most socialised healthcare systems the government is paying the likes of Pfizer, Novartis etc the difference between what the consumer pays and what the companies demand - that being said Eli Lilly is based in the US and the US is just letting them charge whatever to patients, so it's both a can and a want issue).

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Ok, yes that could happen. One of the best-documented cartels, https://en.wikipedia.org/wiki/Phoebus_cartel included both US and European companies and made the lifetime of light bulbs artificially short for consumers in all their areas. So, like your example of Eli Lilly, the local potential remedy actually failed.

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If I'm understanding Jane correctly, it's not about costs at all, at least not directly. It's about the natural tendency for economic corrections when a balance of trade is too one-sided. Using Boston as a cheap source of raw resources and a market for finished goods is great for London, but bad for Boston. London gets richer, Boston remains poor. Inasmuch as Boston continues to exist, there is considerable pressure to develop replacement options for London-produced goods. From a worldwide perspective, the most productive use is for Boston to remain poor and London to get even richer. This is not good for Boston, though, or the people that live there.

This goes back to the ducats - where if they are too expensive people will look for alternatives that are cheaper. When they are cheap, other localities would like to buy more goods from them which increases their sales and boosts their economies.

Incidentally, if you recall the crisis in Greece a few years ago, it was fundamentally a problem of the Euro (shared currency). Because Germany and France were on the same currency as Greece, the Greeks could not revalue (that's a bit of an oversimplification, but it happens naturally) their currency to make their goods cheaper. German goods should have been more expensive, but with the shared currency the value of that currency is automatically the same anywhere that uses it. The same is true in the US (Jane used the Detroit example) between high value areas that are rich (New York, etc.) and poor areas like rural Alabama.

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I read it as decreasing external dependency by climbing the tech tree. If you learn how to fix a leaky pipe, you don't need to blow all your disposable income on a plumber. Similarly, if you learn how to blacksmith, you don't need to blow all your tax revenue on imported iron.

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I don't think it needs to apply to all industries and products to be meaningful.

London may have had an advantage in providing complex goods because of capital investment and network effects. The question for Boston is did it have an advantage providing goods to Boston. While Boston didn't have the capital goods or the human capital they also didn't have to deal with shoppingy. Boston may be worse then other cities at producing a good bit still be the best at producing that good for Boston consumers.

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Jane is directly contradicting the idea of comparative advantage. When Boston starts making tools, they will be inferior in every relevant respect. They will be cheaper because London's prices are inflated by the trade imbalance. London being rich, they will charge more for the same goods. Bostonians being poor, they are willing to make and sell the goods for less, opening a new market. This is how China/Taiwan/Korea and other rapidly developing nations did it. They started industries to sell goods much cheaper because their costs (including but not limited to wages) were so much lower. GM in 1980 was paying $18.44/hour for autoworkers, which is about $150,000 inflation adjusted today. There was apparently a lot of contention about how much Japanese workers were actually making (union negotiations resulted in people on both sides offering counterclaims and such), but I think the rate for the Japanese was about $8-12/hour. By that point the Japanese cars were also very high quality, which is why there was so much consternation about the imports in the early 80s. Detroit didn't adjust, and the city collapsed. The city once had a population of over 1.8 million, which has dropped to 632,000 and still shrinking today.

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The idea that is being sought is that of dynamic comparative advantage. Specialisation and trade based on it make us all richer right now. But a city/region/country wants to move up the value chain and have comparative advantage in 'better' things.

The argument here seems to be that this process relies on dynamic cities. I don't think it is just that but it could be part of the picture.

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I think it's an interesting point that your example of sensible import replacement is actually about services, not goods. The cost of transporting goods these days is mostly pretty low. But you can't transport dental services, you either need to go to a dentist in your town or you need to make the long trek to a town with a dentist.

It's hard to imagine a small remote town these days being transformed by the arrival of a tool factory, but easy to imagine one being transformed by the arrival of a supermarket.

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Good point! Many Thanks!

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May 21, 2023·edited May 21, 2023

The point of import replacement seems to me that successful dynamic cities don't replace _all_ imports but they do replace _some_ (progressively more and more), which is entirely in line with specialization and comparative advantage. Big cities both import and export a great deal of varied goods, but they don't entirely depend on the basic tech/services from the outside. I agree that the review didn't emphasize this point, plausibly leading to confusion.

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_Do_ successful dynamic cities replace more and more imports? Or do they grow in other ways - particularly if shipping costs are low, and they don't have a comparative advantage in producing an import. E.g. Silicon Valley uses plenty of paper, but I'm not aware of them having or planning to add a paper mill.

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(review author here)

Yeah, I agree this is something useful to emphasize. I don't think Jacobs says anywhere that cities should become self-sufficient and that specialization is bad. But to get to a point where a city can develop new specializations and meaningfully contribute to trade with other advanced cities, it needs to be economically dynamic, which is difficult to achieve and according to Jacobs is only attainable if you do a large degree of import replacement first.

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When you strip the thesis down this much then "Duluth" is a dynamic/advanced city.

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My interpretation of Jacobs’ view of import substitution is that it’s kind of just a fancy name for the emergent phenomenon of the situation where transaction costs result in comparative advantage for localized production. Might still be worth naming the phenomenon for purposes of development economics but it seems like it’s kind of just tacking a name on to a higher-level phenomenon / high level of abstraction of basic microeconomic predictions.

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I think it's much more about a balanced trading balance and harvesting the value added by production and generating high value jobs at the same time.

I think the review is quite clear that replacing imports is important especially when you have a export deficit or are exporting mostly raw materials. This is not about being self sufficient, but about realizing when it is time to diversify (find and fill a new market). Doing so is easiest in a market that already exists locally without local competitors. So in the hard time of starting you have the benefits of local trust and less shipping costs, plus the potential to export later when you made it to become competitive.

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(review author here)

I think you're right that this is awkwardly worded, but I meant to put the distinction in strong terms because it seems to be a very common misinterpretation of Jacobs's ideas. In fact you can see this misinterpretation occur many times right here in the comments, which suggests I haven't made the distinction clear enough. "Import replacement" according to Jacobs is something that *happens*, not something that you *do*, but people interpret her as suggesting that governments should take actions to do it, which as far as I understand is the opposite of what she says (in fact she brings up how trying to do import substitution in Uruguay was a disaster).

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author

Could you solve this without separatism by having each city issue its own currency?

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IANAE (I Am Not An Economist), so this is pulled directly out of my backside, but I see a *lot* of problems with this.

Our federal government doesn't just issue currency; it does complex maneuvers to maintain the value of that currency, based on analysis I don't even pretend to understand. Can such sophisticated apparatus be successfully created at the level of each city? And if it can't, then what? If Chicago's currency crashes, do we just say, "Well, looks like Chicago is f**ked, that's the price they pay for having an independent currency"?

When you say *each city* has its own currency, do you mean every single city, or is there a size cutoff? If there is a size cutoff, what happens to smaller towns - do they share the currency of the large city nearest to them? And if so, doesn't that recreate the problem Jane Jacobs was complaining about? If Bumblecluck, Illinois, population 5,000, shares its currency with Chicago, then Bumblecluck is artificially sheltered by Chicago's economic success (or unfairly crushed by Chicago's failure).

Also, wouldn't this make traveling around the US a pain? Imagine having to do currency exchange every time you want to fly to an academic conference in Boston or visit extended family in Ohio. It would suck!

Also also, since you're proposing that all these cities with their different currencies are still part of one country, presumably all residents would still have to pay federal taxes. How would that work? Let's say you live in San Antonio - do you pay your taxes in San Antonio dillos*, or in DC dollars? If you earn San Antonio dillos but owe your federal taxes in DC dollars, what conversion rate do you use? What happens to the value of the DC dollar in April, when millions of Americans suddenly have to convert their San Antonio dillos and Cleveland buckeyes and Seattle salmons and Boston beaners and so on into DC dollars in order to pay their federal taxes?

This idea, while appealing at first, seems to me to be a fustercluck of epic proportions. Again, IANAE, if there are any economists among our commenters, please tell me where I'm wrong!

*an affectionate nickname for the San Antonio currency based on the armadillo on the one-dillo coin.

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Sounds like fun :)

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I do recall a lot of problems back when the EU adopted the Euro. Different countries, when shorn of the ability to manipulate their own currency, had serious problems involving trade and deficits.

Possibly we just notice the problems involved in a transition, no matter which way it goes. But it should be possible to go back to that example, look at the problems, and come up with theories on what would happen if it all suddenly reversed.

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You make a good point about the Euro, but this is the opposite of what Scott proposes. If we unwound the Euro, we would go back to the standard model of one nation-state = one currency. Scott is proposing one nation-state = many currencies, one for each (major) city. It's as if Berlin and Hamburg and Cologne were each to get a different currency.

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Doesn't it sort of depend on how much we consider the EU to be a single entitiy? As in, the problems Berlin and Hamburg and Cologne faced under the Deutsche Mark, should be a smaller version of the problems Paris and Rome and Madrid face under the Euro?

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Whereas before adopting the Euro...it had the currency changing problem.

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Good news! Computers are really good at currency exchange.

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Sure, but pricing FOREX risk into every contract gets old fast.

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"When you say *each city* has its own currency, do you mean every single city, or is there a size cutoff?"

One data point in our current, nation-based world: Liechtenstein uses the Swiss franc as its currency, rather than a currency of its own.

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The thing is, if you've "pegged your currency" to some other currency, you can change your mind when it stops working well. It often doesn't happen, but it can be done. (OTOH, trade agreements can make this difficult.)

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May 21, 2023·edited May 21, 2023

As Patrick McKenzie likes to say, "a currency peg is a story, with an arbitrary beginning and middle, and the ending '...and then it broke'."

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I mean that is the story of every single human artifact or institution. It is hardly a knock down argument against it.

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May 31, 2023·edited May 31, 2023

True, but some institutions are longer-lasting than others, and break less catastrophically. I think his point was "a currency peg is an attempt to say that one thing is the same as a thing that is fundamentally not the same thing; if you put a lot of effort into maintaining that fiction you can keep it going for a while, but eventually reality will catch up with you." But I liked his phrasing better.

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Interesting, I didn't know that.

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Many Thanks! I suspected, but didn't know, it till I looked up Liechtenstein a few minutes ago.

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"Moving from the krone to the franc: In 1924, the Principality of Liechtenstein turned its back on the Austrian krone and adopted Switzerland’s national currency, somewhat clandestinely at first and then officially."

https://blog.nationalmuseum.ch/en/2022/01/swiss-franc-in-liechtenstein/

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Many Thanks!

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"Montenegro is a country in South-Eastern Europe, which is neither a member of the European Union (EU) nor the Eurozone; it does not have a formal monetary agreement with the EU either. However, it is one of the two territories (along with Kosovo) that has unilaterally adopted the euro[a] in 2002 as its de facto domestic currency."

https://en.wikipedia.org/wiki/Montenegro_and_the_euro

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And they aren't a member of the EU, though they are a member of the EEA trading treaty. And presumably they could change their currency if they thought it was worth the bother. Which make it not an argument against the proposed idea. or at least not really.

This makes me wonder whether there would be a way of addressing this problem by having a nation issue several different currencies...but how should the differences between them be structured. Should it be based on something like a stock exchange? Who do you want to invest your savings in?

I think (with computers) it *MIGHT* be possible to create a system like that that's better than the current system. But this doesn't mean the system created *would* be better.

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May 20, 2023·edited May 20, 2023

"And presumably they could change their currency if they thought it was worth the bother."

Yup. My point in citing this data point is that Liechtenstein _didn't_ find it worth the bother to create their own currency. I agree that computers make it easier to maintain a new currency now than in past centuries. I suspect that there are still tradeoffs. If nothing else, a currency for a tiny nation is going to have fewer people holding it and a thinner market than a major currency. At some point, mere statistical fluctuations will become a problem. ( "The currency was fine till the one investor with 10% of the foreign holdings of it had a manic episode..." )

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>Also, wouldn't this make traveling around the US a pain?

If we're imagining something as radical as all major US cities having their own currencies, I don't think it's a stretch to assume currency exchange would look much more seamless than what we currently have.

>taxes

Just simplify the tax code to the extent that rEfUnDs no longer exist, and the IRS can do a conversion every time it receives a withholding or estimated payment. (Again, we are in fantasy land anyways)

But yeah I have no idea how we'd get there from here.

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When different banks in the US issued their own bank notes prior to the establishment of greenbacks, it was typically fairly seamless to exchange notes between different banks in New England via the Suffolk System. And that was without the information technology we have today. So I suspect it wouldn't be that much of a problem.

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People here have not responded well to this in the past but all of this can pretty simply be accomplished using crypto currency which has pretty effective solved the "how do I nearly seamlessly convert between different currencies which fluctuate in relative value problem". From your perspective as a consumer the price of the goods themselves would change while staying in your local denomination. There are all sorts of tax schemes that could work but I thought some of the benefit would be further federalization.

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The legacy financial system handles this pretty well too - I've been able to use my British debit and credit cards abroad without problems for as long as I can remember.

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This does rely on a lot more moving parts though while a colored coins/fungible token based solution can do it all atomically with better transparency and lower fees. The legacy financial system relies on a lot of complicated deals between banks in different regions for settlement that would only get more complicated if you multiplied the number of currencies.

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>lower fees.

Sure it can...

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ethereum L2s have fees so low they aren't worth considering, thousandths of a penny. Legacy banking institutions have a lot of surprising moving parts. Most traditional cards in my experience chart around a 3% transaction fee. I understand the well has been poisoned by a hundred thousand shills but not everyone interested in crypto is trying to scam you.

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Yeah, lots of good points here. My biggest gripes are the following (actual economist here, though monetary economics has never been my forte):

0. I am probably strawmanning the argument of the book here, so please tell me where I get it wrong, but if we take this idea to the level of states, it would suggest that developing countries should let their exchange rates slide (even help them, if there are forces going against it) and the real economy will sort itself out. I think we all agree that growth is more complicated than that. Yes, it is possible that there are some countries that are held back _only_ by a stupid exchange rate regime, but still, come on.

1. Wages and rents (the prices of labor and land, two main factors of production) are already lower in Detroit than in SF. So if you want to start a business that uses lots of labor and land, you are already kind of getting the right price signals from Detroit. Yes, I am ignoring the role that capital plays here in the production, but more on that later.

2. The idea that exchange rate movements help trade balances to correct themselves is of course not new and admittedly a clever one, but it is kind of a special case. Nowadays, the flows that govern exchange rates are not those of goods, but those of financial investments. Granted, I cannot quote figures here, but it I guess it is quite easy to do some rudimentary research here. So if you want the FX->trade balance idea to work, you need to make sure that the "price signal" sent by low Detroit export of goods is not muddied up by foreigners using their NY or DC dollars to buy up cheap Detroit land or high-yield Detroit bonds. (Federal taxation is just one example of this, although the most important from a historical point of view and the hardest to get rid of). Which bring us to...

3. ... capital controls and other regulatory issues? Detroit will probably have to set up their own Fed, even just to manage their own financial system, and it will have to commit strict floating of the Detroit dollar and very probably stopping the engineers working in all those new Detroit factories to save in Florida dollars (where they want to retire or in, gasp, Canadian dollars (which in general will offer some protection against exchange rate fluctuations). I think it is a very hard sell politically, especially that monetary policy has just gotten drastically closer the average voter.

There is probably a lot of things that I have gotten wrong/omitted, but I guess the point I am trying to make is that the existence of the exchange rate channel is not the panacea that some people might make it out to be.

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Isn't intentionally deflating the value of their money something China has been repeatedly accused of? That is, creating an artificial advantage in exports by making their people poorer? Or, more to their situation, keeping them from gaining the benefits of the increased trade in order to build their industrial capacity instead.

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Yes several Asian countries very specifically did this. Use exchange rates to keep your boot on the throat of domestic consumption so that the surplus from your export economy can be poured back into economic development instead of "wasted" on consumption of consumer goods/services.

And it is generally great economic policy if you just care about growing the economy and not "fairness" or whatever.

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During the first half of the 19th century individual U.S. banks issued their own currencies. Hundreds of them, and it definitely did create some of the problems that you're anticipating with city currencies.

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RE: taxes, each locality would definitely have to pay taxes in their local currency or nobody would actually use the local currencies. In the modern post-gold-standard world of fiat currency, the only thing besides inertia that keeps the currency valuable is that the government requires you to pay your taxes with it. If federal taxes were in DC dollars, everyone would keep using them for day-to-day transactions as well.

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I live in a country with less people than Chicago and that has a completely independent currency. A few years ago it was the 10th most traded currency in the world, it has dropped a few places since then though. The place hasn't exploded and in fact is considered to be notably stable.

I note also that small EU countries like Czechia pay their confederal taxes despite not using the Euro. They seem fine.

So, yes, you are wrong about this.

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I think she might agree it would help, if each city region (when it got to a sufficient GDP) started its own (crypto?) currency.

But you'd still have the problem that they're bound by the national policy. If they want to change their laws or tax policy to redirect $ to building that local industry, or spend less on "transactions of decline", they would be non-sovereign and therefore unable to do so. (Obviously some level of federalism that let them control that AND their own coins, could work!)

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Why not a separate cryptocurrency for each *individual*? Let's assume that it would be technically easy, like not even much programming required, because all those currencies would reuse the same few algorithms only with different constants. Let's assume everyone would have a simple application that would support all these currencies, and could simply convert from and to any. If you are in a shop, your augmented reality glasses automatically translate all the prices into your currency based on current exchange rates. In other words, let's assume away all the friction that is typically involved in currency exchange.

How would this look like? I have no idea, seriously, it just seems interesting to follow the idea to its extreme and see exactly where it breaks.

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Individuals are too small to pick up more than one or two industries to a useful level. The theory seems to go, if a city imports too little so it’s currency goes down, locals stop being able to afford things from other cities, but that removes external competition as a barrier to business. There’s no reason to encourage internal business within an individual.

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Ah. I guess individuals do not need price signals in the form of private currency, because they already have sufficient price signals in the form of "how much money do I have".

So the hypothetical smallest unit that could benefit from (a hypothetical frictionless) currency could be a family. Like, my kids could get their pocket money in our private currency, and when the family budget is tight, I could simply update the exchange ratio of the private currency to euro. Which from my kids' perspective would mean that the chocolate is more expensive, however the opportunities to make money by mowing the neighbor's lawn are more attractive. (I would need to think longer about exactly this would work.)

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The other benefit of balanced trade is that the currency itself is regulated by supply and demand, not just widgets. If the US has a trade deficit, that means dollars are leaving the US, which floods the foreign market with dollars, which causes demand for the dollar to weaken, which increases the friction on the outflow of dollars. the system is self-stabilizing.

If your kids are only receiving an allowance from you, the currency flows in only one direction. And then you have none of the benefits and all of the complexity of managing a currency.

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I think every person having their own currency would be exactly the same as everyone having 1 currency, just instead of everyone varying by how much currency they had (you have 100 dollars, I have 1) everyone would vary based on the worth of their currency (your Villiam-bucks would be worth 100 of my Brian-pesos), and would largely be the same result (minus the transaction costs of converting.)

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May 31, 2023·edited May 31, 2023

If every person had their own currency, it would be a de facto return some form of barter system. It's nonsense for a Walmart employee to have a personal currency. How would they get paid and/or pay others?

The importance of transaction costs feels like it's being overlooked here, and something that's so thoroughly overlooked by Jacobs that it's part of what takes her into such bizarre territory. The whole reason for currency is to reduce transaction costs.

Reductions in various transaction costs is the argument for having cities, and it's the argument for having countries. I'm not sure if it's just the reviewer's oversight, or that of Jacobs herself, but the omission of an open discussion of how transaction costs would be impacted in many of the proposed 'solutions' makes it impossible to see the obvious tradeoffs those policies are asking people to undergo. Nearly every proposal seeks to increase transaction costs on everyone.

Indeed, Ronald Coase famously debated people who misinterpreted his Nobel-winning work, noting that they were omitting the all-important factor of transaction costs in their discussions. Transaction costs are what gave Uber the edge over taxis, why people choose chain hotels over local motels, and they're why Europe went to a common currency.

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I think in this case it was just a thought experiment where the (very high - as you point out) transaction costs would be ignored.

In terms of real proposals, I think both Jacobs and the Optimal Currency Area theory people would pick a size much larger than 1 (or even 100,000 people) person for each currency. The size of the units either proposes are pretty big, such that after enacting such a regime (magically?) there would probably be fewer total currencies in the world, potentially reducing transaction costs, but possibly increasing them as most of the small currencies currently in existence don't handle a lot of transactions.

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At that point we're not arguing about whether there are transaction costs, just how much. There has to be some point in the conversation where a real economist would start talking about tradeoffs.

What do you give up when you start implementing Jacobs' ideas? What's the magnitude of the cost vs. the benefit, and who pays that? Is the trade worth it? I don't think it is for most of the proposals presented in the review.

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> Why not a separate cryptocurrency for each *individual*?

That may or may not be a good idea in reality, but it sounds like a great premise for an SF story!

(My favourite SF story on these lines, Ken MacLeod's *Newton's Wake*, sadly didn't go into details about the reputation-based post-capitalist economy. "How am I paying for all this?" "Don't worry about it, your credit and interest are high.")

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I'm not a finance guy, but I wonder to what degree some financial asset that cashes out to a "share" of the city itself would serve this purpose, without supplanting the Dollar (or whatever) itself. Like some kind of bond or something.

It does occur to me that the closest thing to a "share" in the city itself (if the city does well, I do well) would just be real estate... but that makes for a poor currency.

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I'm also not a finance guy, but if I understand the argument correctly, currency changes only affect people whose incomes are denominated in that currency. So just creating the financial asset alone wouldn't change anything.

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Incomes or expenses. If the city government charged a Georgist LVT denominated in their local currency, that'd compel businesses interested in the best locations to obtain said currency, a hassle which they'd likely find ways to pass on to their customers.

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John Law tried something like this with the French Louisiana territory (structuring a currency as an equity rather than a debt instrument). It ended terribly although the only author I’ve read who discusses it chalks it up to external conspiracy by French banking interests as much or more to any internal flaws.

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dollars are just bonds with a maturity of 0, and bonds are just dollars with a maturity above 0. Central banks are called banks because buying a bond is equivalent to depositing money in a local bank, if you squint.

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REIT shares are fairly tradeable, and there are a bunch of projects trying to tokenise real estate. If you did manage to create a frictionless currency backed by real estate assets in a single city, what do you think would happen?

I wonder if it would be kept in line just below the national currency, just because it's less liquid and otherwise there's arbitrage opportunities

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Also not an economist, but I'm interested in international trade.

All the different cities would need an overarching currency to trade between each other, a national reserve currency I guess.

You could have that currency be the US dollar and have each city-currency pegged to it, but I think that's effectively the same as everyone just using the dollar anyway.

If you wanted to keep the city-currencies sovereign they'd need to have floating exchange rates. In which case it's likely that the national reserve currency would become the city-currency of the most powerful, economically important city. Which would give that city enormous leverage in trade relations between cities, analogous to the position the dollar holds in international trade (the dollar is the main international reserve currency). It'd probably create much larger power imbalances between regions (i.e. different currency zones) than the ones mention in the review.

Cities who's currency held the status of national reserve currency would be in a position to create a commodity by fiat (their own currency) that stays in high demand even if that currency isn't backed by the production of real goods or service, because it's now needed for intra-national trade. Allowing them to run perpetual trade deficits within some limit, i.e. reserving goods and services without providing them in return, effectively extracting tribute from cities lower down the currency hierarchy.

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Some of one, some of the other - I would assume that by law, the national reserve currency would be the USD, which would remain the currency in which national taxes were paid, federal payments disbursed, and Federal Reserve bonds bought and sold. The NYSE might continue to price in USD or might switch to Yorkers or whatever the NYC currency is called. (Initially, Yorkers and USD would probably be de facto pegged, but assuming JJ was right, they would gradually uncorrelate as Angelas and San Francs and Dallars got more meaningful.)

And even if that wasn't true - the USD is the global reserve currency. Why would we expect a national reserve currency to behave differently? And is the global reserve currency being USD actually bad, or extracting tribute from smaller countries? I believe it is not.

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Chat gpt says it does.

"You

Is the US able to practice seignorage in international trade due to the dollar's status as the international reserve currency?

AI

Certainly! The United States has historically benefited from the seigniorage income generated by the global use of the U.S. dollar. Seigniorage is the profit gained by a government from issuing currency. As the world's reserve currency, the U.S. dollar is in high demand and is widely used in global transactions. This has allowed the United States to issue more currency than it would otherwise be able to, providing an additional source of income. Let me know if you have any other questions!"

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I don’t think saying that ChatGPT says something is any more authoritative than saying “some random person on the internet thinks so”.

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I think if you wanted to make this work, national taxes would have to be collected in local currencies. Otherwise there's too little incentive to actually use them instead of just continuing to do everything in USD.

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This is exactly correct.

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First potential failure mode which springs to mind is "company town" scrip, trapping people because it makes low-level trade with the outside world nearly impossible. To avoid that, I'd say the city-level currencies should be purely electronic, with an official exchange rate to some broader nation's paper-and-coin currency, and such exchanges kept as frictionless as possible. Land value taxes, utility bills, and bureaucrat salaries would presumably be denominated in the local currency, but federal obligations wouldn't, so major businesses and the local government itself would both need to keep the rate in mind as part of routine operations.

Maybe mandate that the exchange rate can't stay fixed - say, every week, at exactly four in the morning on Monday, it has to either decrease 20% or increase 25%. When the situation is stable, that means it'll just keep oscillating between the same two values on odd and even numbered weeks, but the possibility of disproportionate windfall from a disruption to that pattern would keep arbitrageurs interested in hunting for clues of potentially unsustainable market imbalances.

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Her argument was pretty strictly based on economics. To the extent that it stripped out both spending on military and on welfare programs. I don't know whether she considered public health. Etc.

As a strictly economic argument I find it quite plausible. This doesn't mean that it's valid in a larger context, which includes non-economic variables.

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Mandating exchange rates by fiat loses you almost all the benefits. The **whole point** of having your own currency is that the exchange rates naturally float and this has salutary effects on the local economy by encouraging import replacement when the economy is weak and the purchasing of imports from other, weaker economies when the local economy is strong.

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Defining an official exchange rate but having it shift at predictable intervals is a deliberate compromise between that long-term benefit, and the short-term convenience of keeping prices predictable - which is important for letting poor people participate at all. If whoever's setting the official rate tries to push it in the direction opposite where it would naturally float, their peg probably gets broken before the end of the week.

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The US economic system is based on ever-increasing debt. This is extremely bad, unless you are the global reserve currency. The US maintains global reserve currency status by being the largest economy, having military dominance, enforcing consistent enough trade and contract law, and indeed, running a massive deficit (issuing a massive amount of bills and bonds which can be held by surplus countries and traded in the world's largest and most liquid market).

The US would be in deep trouble if it transitions away from this arrangement (or maybe more accurately, when we lose global reserve currency status, say in 100 or 200 years, the nation's economy will be devastated).

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Repharse: The US will be in deep troubleas it transitions away from this arrangement.

This transition should be expected to occur within 20 years. Possibly 10. Both China and the EU are acting to weak the US dominance. India too, but that currently looks a distant third. Within 20 years I expect there to be a dominant triad, with the US fading in relative status. (Yeah, this is a pretty uncertain projection. Emerging trends, say AI, or biotech, could totally swamp this. But it's what looks most probable to me. If it's robotics, then Japan could end up the dominant country...it they're lucky and play their cards right.)

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China lacks the confidence of the global market due to poor rule of law (rule of Xi will trump rule of law). That and poor naval/global military projection capability mean that the yuan cannot become the world's reserve currency yet. IMO, the EU will not last.

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Everyone else's economic system is *also* based on increasing debt. They aren't reserve currencies and they are doing just fine. Therefore, I call bullshit.

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I disagree. They are in trouble.

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When everyone is in trouble, nobody is.

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all governments going bankrupt just means nobody wants hard currency and everybody hoards toiletpaper and we get hyperinflation. So.......... stagflation.

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May 20, 2023·edited May 20, 2023

I'm not an economist, but I suspect the answer is that cities should have their own currencies, *in addition* to a national and supranational currency. The idea would be that trade within the city mostly takes place in citycoin, regional import/export is handled by moneychanging/devaluation, and national/international trade is denominated in nationalcoin and maybe pays taxes to the nation directly. So not only could you gauge the relative trade power of cities among each other, but also the gain from nationalism/internationalism directly, via the rate of local vs national coin.

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That's clearly what she's recommending. It definitely has it's points, but I'm not sure it would work. A common currency is a lot of what holds a nation together. Note that Britain, the only EU member with its own currency, and which had a lot of other special privileges, is the only member to have withdrawn.

It probably makes great economic sense, but economics isn't the whole of life. There are non-economic reasons, e.g., to support the military. What's bad is that this tends to get out of control. Similarly for welfare. In the case of welfare, however, I really think that it should be a local matter, and the Supreme Court was wrong when it threw out a residency requirement for assistance. That would allow welfare to be scaled to local needs and capabilities, which is what should happen.

OTOH, it's worth remembering that the State Banks didn't have a great track record. Well, states aren't cities, but they're *closer* to being cities than the US govt. is.

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Britain wasn't the only EU member with its own currency. The Eurozone != EU.

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Who else? Lichtenstein isn't a member of the EU, only of the EEA (if I have that acronym correct).

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Bulgaria, Czech Republic, Denmark, Hungary, Poland, Romania, and Sweden according to the Eurozone wikipedia article.

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Of those Denmark is a good example. The others either aren't a member of the EU or are in the process of adopting the Euro.

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You're wrong. Sweden is a member of the EU and not in the process of adopting EUR.

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I don't even see why the currency is needed. Glasgow or Manchester have the same currency as London but that doesn't mean there is no price feedback. Doing almost anything in Manchester or Glasgow is cheaper than doing it in London.

Why isn't this enough to move business back to regional cities to capitalise on the cheaper prices.

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May 20, 2023·edited May 20, 2023

Because it doesn't encourage Glaswegians and Mancunians to set up their own local businesses, and therefore uses Glasgow or Manchester as a supply region for labor, or an abandoned region like Napizaro.

If there is a Glaswedget currency, everyone in Glasgow has an incentive to purchase goods from within Glasgow, where their money goes further, thus keeping the money in Glasgow, encouraging the formation of local businesses in Glasgow, and in Keynesian terms increasing the funds multiplier rate of stimulus. This creates new economic capacity and new local wealth.

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May 20, 2023·edited May 20, 2023

There's nothing about calling a currency "Glaswedget" that automatically makes it "go further" within Glasgow. The US dollar goes further in places that are not the US, e.g. due to lower labor costs. Sometimes it goes so much further that it makes economic sense to buy stuff cheap in one place, pay to transport it somewhere else and sell it for more there, and we call that trade. This applies whether the buying and selling happens in the same currency or not.

When a Glaswegian decides whether to buy from Glasgow or Manchester, they decide based on the different prices and transportation costs for the two places. The greater distance from Manchester *already* incentivizes Glaswegians to buy local. If they decide to order from Manchester instead, that indicates that there's a price difference large enough to make transportation worth it.

If you now denominate prices in Glaswedgets and Manchesthares, controlled by the cities' respective governments, you're adding risk from exchange rate fluctuations into the mix, because maybe the Glaswegian government decides to massively devalue the Glaswedget and you can no longer get enough Manchesthares to pay your Mancunian supplier, so that further encourages buying local. That might be good for Glasgow – except that this effect relies on the (at least perceived) risk of the Glaswegian government deciding to massively devalue the Glaswedget, which might be very bad for Glasgow!

So I'm not sold on the idea that giving every city control over their own currency is going to be an obvious boon to the local economy.

(Note that at least in the review's portrayal of Jacob's argument, government interventions directly manipulating the value of currency don't feature at all, which means that all effects described are independent of whether it's the cities' own currency or that of some larger state – the feedback mechanism described consists of fluctuations in the relative price of goods that would happen no matter what currency you measure them in, or even if you barter without using currency at all.)

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In principle it may be true that a local currency does not actually strengthen the effect. Empirically, that seems to be false. Divided currencies result in divided centers of economic activity.

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Currency itself is also a commodity, subject to supply and demand. The desire to buy things from Glasgow (with Glaswedgets) is what would drive up demand for the Glaswedget. Unlike Venice however, I don't think Glasgow offers anything uniquely special, so the premium wouldn't be that high.

The petrodollar, on the other hand, has a much stronger reason for its premium.

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When I read this in 2016, my proposal was that each of the US states issue its own currency, and the feds continue to issue USD, where taxes must be paid in USD and federal reserve bonds are bought and sold in USD. This wouldn't fix California (which is Too Damn Big) and would be pretty confusing around NYC (Connecticut, New Jersey, even Philadelphia) and New England (much of NH, CT, and RI are effectively part of the Boston conurbation), but would do a lot of this.

Corollary thought: JJ probably *wouldn't* have been for Brexit. The UK already had a separate currency, and a city which was the economically-defining touchstone for that currency. Sharing regulatory systems with the currency union is not, in principle, a big deal.

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States are even worse than nations as a unit. Cities very often span state borders, in ways that they don’t span national borders quite as often. (St Louis, New York, Philadelphia, Washington, Chicago, Cincinnati, and Portland all span state borders, while only Detroit and San Diego span national borders.)

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Don't forget International Falls!

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I'm a radical decentralist, but I also take seriously the argument that most Caribbean countries are too small to have their own currency:

https://rasheedgriffith.substack.com/p/notes-towards-caribbean-dollarization

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I would go one step further: Could you solve this without different currencies?

My major takeaway is that each city/region needs a balanced economy with balanced imports and exports and a fair share of high value production.

The extra currency is just a tool to generate a feedback loop if (high value) production is too low. Can we generate and communicate this feedback in another way without the drawbacks of different currencies mentioned below?

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Theoretically maybe, but then you get into the problem of centralized decisions in very complicated economies. It's very easy to make mistakes, whereas a separate currency by its very nature will tend to correct the imbalance. People can try to cheat the system (as China was accused of during their growth) but always at a cost. Chinese people stayed poor, which helped keep prices lower for longer and encourage additional industries to be built.

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May 21, 2023·edited May 21, 2023

I'm surprised no one has yet suggested Keynes's idea of Bancor. I still don't know quite how to explain it in full... but the short version is that it's the halfway point between:

"Every nation gets its own currency, things get chaotic."

&

"Every nation has to use the same currency, and sucks to be you if that currency winds up not being right for you."

Bancor is instead the idea that,

"Every nation gets to have its own currency... BUT we'll also have an overarching global currency, for providing a nice simple universal unit of account everyone can use to handle international trade, and to help coordinate the response to international economic issues."

You could run Bancor within a single nation by replacing every instance of "nation" within that description with "city" and "international" with "national":

"Every city gets to have its own currency... BUT we'll also have an overarching national currency, for providing a nice simple universal unit of account everyone can use to handle national trade, and to help coordinate the response to national economic issues."

That would be especially nice for dealing with the issue Jane Jacobs identifies with some cities running perpetual trade surpluses and others running perpetual trade deficits, because the international economic issue Bancor was built around solving was that exact issue: some nations running perpetual trade surpluses and others running perpetual trade deficits. If you want to read more about this, see https://en.wikipedia.org/wiki/Bancor & https://theweek.com/articles/626620/how-john-maynard-keynes-most-radical-idea-could-save-world

(I must admit in all honesty, I am especially biased towards Bancor because it incorporates some Control Theory with its penalties for excessive trade surpluses and deficits - I'd personally prefer more and deeper applications of Control Theory to economics, but it's a nice start. Us engineers will convert everyone to using PID controllers for everything someday, I tell you, anything and everything that requires more balance than just 'playing things by ear' can provide. The math is simple and elegant at heart, not intimidating at all. But until then, I'll settle for advocating for Bancor, and the first steps towards applying Control Theory to economics.)

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Early in the history of the US, different states issued their own currencies (some cities and banks even I believe). It introduces a lot of other challenges, I dont know which way the scale tips once you add it all up.

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Some economists have suggested that the US should at least have a few regional currencies: https://www.chicagofed.org/-/media/publications/working-papers/2001/wp2001-22-pdf.pdf

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My thoughts on reading this were more along the lines of, "is it possible to find some other mechanism to replicate this feedback effect that ISN'T separate currencies?". Currency exchanges are a pain and we all know it. A multiplicity of separate currencies has this effect of increasing value to local purchases vs far purchases, but is there a reason to think that other rules or mechanics couldn't?

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I am by no means an expert on economics, but I was under the impression that "optimum currency areas" were a well-known topic of study with quantitative (testable?) predictions, and that the generally accepted theory in this regard suggests optimal areas larger than single urban areas.

I was a little surprised not to see any reference to this in the article, and whether there is some synthesis possible between Jabobs' ideas and optimum currency area theory.

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this is a good point, I think that theory was solidified after Jacobs' time (I may be wrong). But certainly I think she would agree with it - pointing out that in the EU, having them all use the Euro, when many places in the EU are those city hubs, and others are those hinterlands and "other types of places" she describes, using the same currency makes little sense. (There's the added non-Jacobs wrinkle that beyond that, each of those EU sub-nations can do their own spending policy, which adds another thing that can be out of whack to the monetary policy).

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Not an economist, but at least the articles on Google seem to say that most OCA economists thought the Euro was a good idea, because Europe was an OCA. They are revising their opinions after the Greece incident, but they still seem to support much larger areas than city states.

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I think you are right that they thought that, I am just implying that it was a mistake (and one that Jacobs might have identified) and if they would've thought about it more, there were some big red flags for "all of Europe being an OCA" even beyond Greece. (north vs south Italy, Iberia vs England/France/Germany, West Germany vs ex-East Germany or any other ex-Warsaw Pact country)

I think Jacobs might agree that the OCA size for parts of Europe IS larger than just the city state, and would encompass those "city regions", some of which are larger than some countries that had their own currencies pre-euro.

I think the concept that SamLL is proposing is that OCA and Jacobs' ideas are similar, and I think he is right, with OCA being more of a general theory, and Jacobs' ideas as an explanation of the mechanics of *why* a given region should have one currency - because that region's economy is driven by whichever city is its primary economic engine.

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May 22, 2023·edited May 22, 2023

I did some research on whether Canada was an optimal currency area, around the turn of the century. It actually has very little to do with the author’s concerns. Optimal currency area theory is mostly about monetary policy and whether central bank reactions will be hampered by different regions facing different monetary/economic shocks at the same time. There’s also an exchange rate tie-in, as monetary policy always ties to exchange rates, but It only has a tenuous relationship to long term development economics.

Her argument is basically that the optimal currency area theorists are wrong and long term import substitution is more important in local economic development than effective medium-term monetary policy. Unfortunately she seems to downplay a lot of basic ideas in international economics. It’s always a mistake to take one economic idea (import substitution, productive advantage, labour v capital, competition, effective laws and contract enforcement, costs, government planning, work ethic, scale, technology, education, health, etc.) and make it the most important one for development. It’s easy to see the flaw here: why a city and not a district? Where does the city’s border get drawn? Why not each factory be a city with its own currency? (Which actually existed for many businesses in Canada at one point.) There is a reductio waiting where every “city” produces one thing for export, and the world returns to barter since there are no common currencies. Even if there is a benefit to having a currency for each city, there are also advantages to uniting economies into larger areas. (To be fair, it sounds like in the end she suggests experimenting to see what actually works, which is often good economics.)

Ironically, the evidence I found was that Quebec fit pretty neatly within the Canadian currency union - it was Saskatchewan that really didn’t fit.

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"It’s easy to see the flaw here: why a city and not a district?...Why not each factory be a city with its own currency?"

What if an industry is doomed for some reason besides having too strong a currency? Like I don't know, a town that makes type writers or fax machines. In that case, a declining currency for the whole town would support the growth of new industries, right? One town has enough labor mobility that industry in one part can replace industry in another, which is not nearly as true for an entire country.

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Yes, I think we agree. Labor mobility is one offsetting factor that makes currency unions larger than a single product/business valuable.

Diversification of production also provides a form of insurance against product failure for a region.

I think most economists would argue that there are many other pros to currency unions - enough that going larger than a single city is economically optimal even if labour mobility or import substitution. start to decrease.

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Maybe so, although it's hard to believe that rust belts would not benefit from having their own currency.

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>The prices in a poor country like Portugal or India (her two examples) feel low for an American or Canadian, but they’re high for most Portuguese or Indian people. At the same time, Portugal and India provide too few jobs to their residents. Inflation and unemployment are both perennially high, and none of that feels surprising whatsoever.

This is an egregious mistake. Expensive != inflation.

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You’re completely right of course. I will note that stagflation is indeed common in poor countries - Haiti for example has an unemployment rate of of 14.6% and an inflation rate of 34% - but it’s not a rule and it’s not accurate to describe stagflation as being synonymous to poverty.

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Inflation was not common prior to the rise of central bank fiat currencies. When everyone is using Spanish pieces of eight (still referenced in pirate movies), the only shock to the money supply is if gold is discovered.

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a growing economy need a growing money supply. if you don't grow the money supply you or stop th