Sunday, September 29, 2013

A Jacobian Theory on the Origin of the Market & the State

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Jane Jacobs was an American-Canadian journalist, author, and activist best known for her work on urban studies. Her best known work, The Death & Life of Great American Cities, should be of interest of libertarians everywhere. Her concepts such as, “eyes on the street,” describe a spontaneous order familiar to Hayek’s essay “The Use of Knowledge in Society.” For this, Jeff Riggenbach has dubbed Jacobs the ultimate libertarian outsider. Her second book The Economy of Cities, although not as famous as her first work, should still be of interest. Where American Cities focuses on the interconnecting variables of what makes a city work, The Economy of Cities broadens this horizon to include historic origins and some basic “Jacobian” economic principles.

“Jacobian” principles are based on conjectures and lack the rigorous deductive method of the Austrian school. Jacobs conjectures, however, cast a interesting light on how human beings went from hunter-gatherers to settling down and farming. Whereas most Austrians use the Robinson Crusoe example to illustrate basic praxeological principles, Jacobs uses a hypothetical city to explain her idea of economic growth.
“Cities first – rural development later,” Jacobs begins The Economy of Cities. And from that point her entire theory rests on the idea that cities originated before agricultural communities. Her interpretation of historic examples seem to uphold this view, but it’s her conjectures about the hypothetical “New Obsidian” that really gives the theory a push.
A tribe, or tribes, of hunter-gatherers settle by a depository of obsidian. Obsidian is a black volcanic metal that is excellent for cutting into animal hide and defending oneself. Surviving on the bare necessities, these hunter-gatherers would have been smart to settle by this quarry. Jacobs assumes that eventually they did and thus the first permanent human settlement. Other hunter-gatherer tribes passing by would have been smart to either trade their goods for obsidian or (if allowed) join the settled tribe. Any aggression would have met in failure as the settlement had the home-turf advantage of knowing the geography and a steady supply of obsidian.
Individuals of New Obsidian still have their tribal roles to play – some must gather edible plants while some hunt for animals. But now others patrol the territory and others mine obsidian. Within the city, individuals are now manipulating obsidian to suit the needs of the hunters and gatherers. They are in effect creating capital goods. Just as the Robinson Crusoe example points out: a capital good like a stick allows for the collection of more berries. Whereas a female gatherer of New Obsidian may have only been able to collect 50 berries a day, by trading 25 berries for a stick created by a New Obsidianian, she can now collect 150 berries a day. Both parities, as well as the community as a whole, have a higher standard of living than they otherwise would have had.
Since New Obsidian needs to feed itself, it’s likely that most of the traded goods both inside and outside the city would have been nonperishable foods such as edible seeds and live animals. The market for animal husbandry would develop, as would the innovation on edible seeds. Since only individuals act, mixing seeds would produce plants (such as edible grains) that are only available in certain markets. But as the recipe catches on and trade develops, more settlements can produce grains and the array of possibilities increase.
New Obsidian also grows richer by trading outside the community. Jacobs assumes that if people settled around obsidian, then others must have settled around copper, fine shells, limestone, etc. The settled tribes, realizing that exchange makes them richer than war, travel with their goods and trade with other settled tribes. This process allows for products in New Obsidian that otherwise wouldn’t exist. A neighbouring settlement may barter bags for obsidian. The residents of New Obsidian may copy the bags and start producing their own. Eventually the bags may be exported to other settlements, especially since the individuals who have come for obsidian would like something to carry it back in. Eventually bags may give way to baskets and baskets to backpacks.
The Jacobian idea is that a city begins because of a staple export. As it imports new goods because its staple export, it begins to innovate and invent on the new imports which become exports themselves. This process is dependent on individual action, voluntary trade and private property rights. Although Jacobs didn’t use these phrases, it’s impossible to comprehend how else New Obsidian may have come to be. While Murray Rothbard’s Man, Economy & State will remain the end-all-be-all of economics, Jane Jacobs’ Economy of Cities stands as a particular breed. An expansion on the Robinson Crusoe concept that may help explain the origins of the state.
Although Jacobs doesn’t dwell on this point, given her perspective of how markets form, I have my own “Jacobian” theory. As Hoppe is found of saying, the state is such an absurd concept, it’s a wonder if ever got off the ground. Perhaps it’s best to look at the hypothetical New Obsidian for answers.
In hunter-gatherer times, the leaders of the tribes were male. Obsidian would likely be homesteaded by the strongest males. These are also the men that would patrol the territory against aggressors. As the market of New Obsidian develops and trade with foreign settlements become more prominent, the need for obsidian becomes less relevant. The natural leaders of New Obsidian lose their power as more tribes incorporate into the community and as trading and innovating leads to a situation where obsidian is no longer needed or desired.
Fearing their loss of power, the obsidian-owners use their historic position as the leaders to set up a mandatory payment for protection against unfriendly tribes and/or animal predators. They also claim to protect against fraud. If the obsidian-owners are also backed by the elders or religious leaders of the tribe, their position is strengthened.
Or perhaps obsidian doesn’t diminish in trade but becomes more relevant. Then maybe the owners will demand a higher price than what the market has established. Eventually when barter gives way to money, the obsidian-owners will bypass trading their goods altogether and just demand money.
Whatever the origins of the state, I believe they must be developed through the Jacobian theory of the origins of the city. For if Jane Jacobs is right, then the origins of the city are really just the origins of the market. As her work doesn’t contradict anything Mises or Rothbard wrote (it merely complements it in a less rigorous way), I don’t see how agricultural communities could have developed before city-markets. And if city-markets came first, then it is futile to look for the origins of the state in a hypothetical agricultural community that never actually existed.

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