Urban EconomicsOrder Between and Within Urban Areas

OverviewCities are a form of spontaneous order formed by the free market for land.

Central Place Theory explains the distribution of cities

Nanocivics explains how and where a city will grow

Clustering explains how and where order will be assumed within a city

The Rank – Size rule is a consistent statistical observation that demonstrates order in urban areas

Urban EconomicsOrder Between and Within Urban Areas

Hayek And CitiesConsider these two champions of the free market:

Adam Smith suggested an ‘invisible hand’ would guide individuals into market exchanges, beneficial to both parties because an individual is motivated to serve others in order to get paid and then, serve their own needs.

Fredriech Hayek refined this notion by stating that order emerges when economic actors are free to trade.

Are they right? What proof do we have that they are correct? Interestingly, the order between and within urban areas provides important physical evidence on this topic. The physical imprint of cities:

Follows reliable patterns when you consider groups of cities over the national and regional scale

Follows a reliable pattern when you consider internal patterns within a city

The consistency of these results confirms Smith and Hayek’s concepts and serves as a visual reminder of economics in action.

Urban EconomicsOrder Between and Within Urban Areas

Spontaneous Order

Many economic classical liberals, such as Hayek, have argued that market economies are creative of a spontaneous order, "a more efficient allocation of societal resources than any design could achieve." [5] They claim this spontaneous order (referred to as the extended order in Hayek's "The Fatal Conceit") is superior to any order a human mind can design due to the specifics of the information required.[6] Centralized statistical data cannot convey this information because the statistics are created by abstracting away from the particulars of the situation.[7]

In a market economy, price is the aggregation of information acquired when people are free to use their individual knowledge. Price then allows everyone dealing in a commodity or its substitutes to make decisions based on more information than he or she could personally acquire, information not statistically conveyable to a centralized authority. Interference from a central authority which affects price will have consequences they could not foresee because they do not know all of the particulars involved.

This is illustrated in the concept of the invisible hand proposed by Adam Smith in The Wealth of Nations. Thus in this view by acting on information with greater detail and accuracy than possible for any centralized authority, a more efficient economy is created to the benefit of a whole society.

Lawrence Reed, president of the Foundation for Economic Education, describes spontaneous order as follows:Spontaneous order is what happens when you leave people alone—when entrepreneurs... see the desires of people... and then provide for them. They respond to market signals, to prices. Prices tell them what's needed and how urgently and where. And it's infinitely better and more productive than relying on a handful of elites in some distant bureaucracy. [8]

- Summary from Wikipedia

Urban EconomicsOrder Between and Within Urban Areas

Hayek on Spontaneous Order

The case for individual freedom rests chiefly on the recognition of the inevitable and universal ignorance of all of us concerning a great many of the factors on which the achievement of our ends and welfare depend. It is because every individual knows so little and, in particular, because we rarely know which of us knows best that we trust the independent and competitive efforts of many to induce the emergence of what we shall want when we see it.

Humiliating to human pride as it may be, we must recognize that the advance and even the preservation of civilization are dependent upon a maximum of opportunity for accidents to happen. These accidents occur in the combination of knowledge and attitudes, skills and habits, acquired by individual men and also when qualified men are confronted with the particular circumstances which they are equipped to deal with. Our necessary ignorance of so much means that we have to deal largely with probabilities and chances.

Of course, it is true of social as of individual life that favorable accidents usually do not just happen. We must prepare for them.

Hayek 1960, The Constitution of Liberty

Urban EconomicsOrder Between and Within Urban Areas

Central Place Theory - Basics

The organization of cities in a region is, in part, an extension of how firms arrange themselves in a region. Different businesses have different market areas:

Some businesses need access to 1,000’s of households to be successful (7-11, Dollar General, or a Beauty Salon)

Some businesses need access to 100,000’s of households to be successful (Sam’s Club, Costco, the Toledo Mud Hen’s, or a commercial law firm)

Some businesses need access to 1,000,000’s of households to be successful (The Chicago Bears, IKEA, an advertising firm, or an amusement park

As firms with different market area needs make location decisions, the added employment opportunities adds to the increased preference to residential location decisions in the same general area. This cycle of adding jobs and then adding households contributes to the next round of businesses decisions, allowing growing areas to become dominant regional hubs.

Urban EconomicsOrder Between and Within Urban Areas

Central Place Theory - Example

s s

s s

s s

M

s s

M BIG

“S” cities, the small cities, can only attract the businesses, like Dollar General, that are able to make profit in those locations.

“M” cities, the medium size, can attract businesses like Dollar General or a Sam’s Club that are able to profit.

“BIG” cities, the largest size, can attract all types of businesses. These cities offer more job opportunities and will generate higher population growth.

Urban EconomicsOrder Between and Within Urban Areas

Nanocivics and Urban Order

Nanocivics:The small-scale relationships of local public life.

Urban EconomicsOrder Between and Within Urban Areas

Central Place Theory and the Rank Size Rule

The nanotech insight:

Life is “not built down from the macroscopic level but up from the atomic.”

Molecular EngineeringEric Drexler, 1981

The nanocivics insight:

Society is “not built down from the national elite but up from the family and the city.”

http://www.nanocivics.com

Urban EconomicsOrder Between and Within Urban Areas

Nanocivics and Urban Order

Civilization builds up from the relationships within and

between cities, families, small businesses, churches, and other local networks.

Linking Generation

s

Sharing Vision

Acting Locally

Engaging Minds

Generating Wealth

Sustaining Self-

Governance

Urban EconomicsOrder Between and Within Urban Areas

What Nanocivics Mean for Urban Order

The organization of cities comes from the standard inputs of business.

Human capital is a key element of any commercial enterprise.

Human capital consists of skilled labor and creative entrepreneurs, together they develop businesses that provide value to the economy.

Human capital is developed through healthy families, healthy neighborhoods and other healthy neighborhood or community social, spiritual and educational organizations.

These nanocivics insititutions help define how and where a city will grow.

Urban EconomicsThe Location of Urban Areas

Localization Economies work with Urbanization Economies

Agglomeration benefits retailers just as much as it benefits industries. Clustering together helps retailers with word of mouth sales and thus reduces advertising costs. Shopping is a positive externality:

An increase in substitutes in close proximity

+

An increase in complements in close proximity

=

Increase ability for comparison shopping

and

Increase in overall sales

Supply

Demand without a retail cluster

Price

Quantity

Demand with a retail cluster

Urban EconomicsOrder Between and Within Urban Areas

The Rank Size Rule

The Rank – Size Rule is simply a statistical observation about cities that holds true over time and over many different geographies.

There is an inverse relationship between the population of a city and its rank. New York is the largest region with many people and it is ranked first. McAllen is a smaller region with fewer people and it is not in the top 100 urban areas in the United States.