Last week I wrote a posting titled Why do Small Towns Exist?, that delved into a proposal put forth by Andres Duany at the recent Congress of the New Urbanism. My answer to the question is essentially that most small towns exist because they do and have, largely through government subsidy, been able to continue to survive despite not having an independent purpose for their existence. If that goes too far, too fast, for you, please read the past post before going any further.

A comment on this prior posting was received by "Bob", which I feel posed a good counter-question. In Bob's words:

"OK, so if we take this further, what is the purpose for large cities? Centers for industry? Less and less in this country. Centers for finance? The way we can move funds around via the web makes that unneeded. Why does any human grouping exist if not to further itself. The earth would keep turning all by itself if we were suddenly all gone somehow. To single out small towns for this kind of examination is incomplete."

This post is going to address the question, why do big cities exist?, and in doing so I plan to point out the major economic difference between a successful large city and most small towns and also illuminate a way for small towns to start digging their way out of the mess they are in.

Before we go further, though, there are two books that I would recommend reading. The first is the masterful work, The Economy of Cities by Jane Jacobs, that explains how cities grow and prosper and, when they don't, why. The second is Cities by John Reader, a history of the formation of cities. It is a really simple read that I found to be quite illuminating.

A large city will have initially existed for many of the same reasons that a small town did. After all, no city is borne large - they start small and grow. So initially there was a natural resource (agricultural / forestry / mining) that existed or point of shipping or commerce (think New Orleans) that sprung up in a strategic location. The large city grew as that resource was tapped or commerce running through it increased.

So large cities and small towns both start off with an export that brings capital into the community. Some of the capital gets passed around the community (think of a farmer getting a haircut at the local barber, who in turn visits the local doctor, who in turn pays to get his landscaping maintained, etc...) and some capital is used to buy imports (think of an I-pod, something that is not produced locally). Money flows in, flows around and flows out.

In large cities, however, two magical things start to happen. The first is probably the most mystical, that being technological innovation. The second, the most impactful, that being import replacement.

Large cities are centers of thought and innovation. Perhaps the simplest way to think about this is to envision five people living alone in the wilderness. Those people would work to understand their surroundings, adapt to them and master their situation. They would innovate solutions to their problems and, over time, likely advance their position in this tenuous circumstance.

Now contrast these five people with a group of fifty equally-intelligent people living in the same situation. How much more quickly would the fifty understand their surroundings, adapt to them and master them? How much more quickly would they be able to innovate? We all know that two heads are better than one, and we can see that fifty would likely advance more quickly than five when their survival depended on their ability to innovate.

So more people equals more ideas? That is part of it, but when you have more people, you also have social institutions that accelerate this process. Universities, libraries, newspapers, meeting halls, cultural events, etc... all provide opportunities for people to interact, to learn, to innovate and to distribute ideas. This presents a huge advantage over small towns. From Jacobs,

"What we think of as purely rural activities often began in the cities. In premodern Europe, the quintessential cottage industry was weaving; but before cloth was woven in cottages the art was rediscovered and practiced in cities. Dark Ages peasants lived on gruel; the art of breadmaking was recovered first in cities (and based on city-grown bread; a medieval city had its own fields). In our own rural areas there are vast ranches where animals are fattened before slaughter; they are transplants from the city stockyards of Kansas City and Chicago."

The ability to innovate has profound effects on a city's ability to develop exports. Consider the following report, from a funeral held in rural Georgia in 1880:

"The grave was dug through solid marble, but the marble headstone came from Vermont. It was in a pine wilderness but the pine coffin came from Cincinnati. An iron mountain over-shadowed it but the coffin nails and the screws and the shovel came from Pittsburgh. With hard wood and metal abounding, the corpse was hauled on a wagon from South Bend, Indiana. A hickory grove grew near by, but the pick and shovel handles came from New York. The cotton shirt on the dead man came from Cincinnati, the coat and breeches from Chicago, the shoes from Boston; the folded hands were encased in white gloves from New York... That country, so rich in undeveloped resources, furnished nothing for the funeral except the corpse and the hole in the ground and would probably have imported both of those if it could have done so."

When small towns simply export raw materials (agricultural harvests, forest products, mined materials), but are not able to develop innovations that lead to other exports, they inevitably remain small and dependent on exporting those initial raw materials.

Innovation is only the first magical thing - the second is import replacement. Import replacement is probably best described in an analogy of Japanese bicycle production put forth by Jacobs, who first identified the concept of import replacement.

"Starting in the late 1800s, Japan imported bicycles. Repair shops sprang up in Tokyo, at first cannibalizing broken bicycles for parts. When enough of these existed, workshops started producing some of the most-used parts locally. More and more parts were made, until ultimately Tokyo could produce its own bicycles and export them to other Japanese cities-- where the whole process was triggered in turn.

This process not only creates work, it creates expertise and innovation: cities learn how to solve problems in new ways, and transfer the experience of building one thing to another. And it creates wealth: with import replacement, the city becomes richer, because it not only still has what it used to import (bicycles, in the example), but it can now afford new, pricier imports."

So let's directly examine the question: Why do big cities exist? 

The answer is that they exist because they have been able to innovate and create new exports to replace their original ("founding") export. In the process, they have also been able to create mechanisms for fulfilling many of their needs locally with import-replacing endeavors. This has created local wealth, wealth that fuels this cycle of growth.

Switching back to small towns then, a future posting on this site will provide that insight I indicated connecting this discussion to steps small towns can take to solve their economic problems. Fortunately, there are many advantages small towns now have in 2009 that were not available even a generation ago. I look forward to detailing them, perhaps for this Wednesday (unless Ben beats me to the punch with a different topic or something else gets need to depart my head before then).