Among the various economic issues being discussed by politicians and pundits in the present American political season almost nothing is being said about the hole in the historical heart of economic progress, American and otherwise: our cities. This is as unfortunate as it is myopic. Our cities remain our most important source of economic innovation, our greatest cultural resource, and presently our most undervalued social asset, a rusted engine waiting to be rebuilt. The revival of our cities provides a necessary, if tragically overlooked, opportunity to bring about a more robust economic condition. Besides, any enduring economic recovery that includes our cities could have profoundly salutary side effects on our cultural well-being and quality of life, providing greater personal health and longevity through the relaxation of racial tensions, cleaner air and greater energy efficiency, a renewal of popular and high culture, restored neighborhoods, remade businesses, improved public services, and a revivified urban aesthetic.
Adam Smith was a strange man—a philosopher of the Scottish Enlightenment who lived with his mother, once tried to make a cup of tea from a pencil, and is said to have fallen into a tanning pit during rapt conversation. Not inconsequentially, Smith also wrote two world-famous tracts that form the foundation of much subsequent social science and policy analysis: A Theory of Moral Sentiments, published originally in 1759 and revised by Smith nine times before his death, and An Inquiry into the Causes of The Wealth of Nations, published in that banner year of free society, 1776.
Adam Smith’s Wealth of Nations is essentially a book of economics intended primarily to explain how to make the great mass of society better off. Its reputation has long since dwarfed that of The Theory of Moral Sentiments, largely a book of social psychology intended, in tandem with The Wealth of Nations, to explain how to make society better behaved. This lopsided influence has led critics for generations to twist Smith’s message and regard him as a sort of philosophical patron saint of country clubs and boardrooms. But this is not fair to Smith. For he combines material and cultural considerations exquisitely in his civilizing vision, with powerful implications for the urban society that we have become. Fortunately for enthusiasts of the city, Smith’s binocular vision is now emerging in new and inventive ways in the current generation of economic work.
I became hopeful about the revival of cities around a decade ago when intellectuals—mostly scholars unassociated with Adam Smith’s economic legacy—political scientists and social theorists, also architects, designers, and journalists—began to write about the importance of civic participation as a means to a more robust democracy, but also as a sort of petri dish of economic innovation and cultural creativity.
While this revival of civic participation was, as I say, primarily a political, not an economic, thinker’s initiative, marked notably by the work of Robert Putnam’s 1992 book, Making Democracy Work, connections to economics were, to my eye, hidden in plain sight. Economists since the Victorian days of Alfred Marshall have regarded cities as great batteries of economic prosperity. Marshall wrote about the “neighborhood effect” in which cities served as hosts to networks of manufacturers whose complementary capacities created the conditions for industrial growth. More recently, Stanford’s Paul Romer has argued that the ideas vital to economic growth germinate most successfully in settings in which distinctly different concepts collide with each other. This happy collision—the unintended economic consequence of social diversity—is nowhere more fruitful than in cities. Cities, historically, from Alexandria through Venice through Amsterdam through New York and Hong Kong and beyond, have been the main incubators of vital ideas.
The economic creativity historically attributed to cities thus performs the wealth-creating part of Adam Smith’s civilizing project. But in carrying out this commercial function, dynamic urban economies also produce an equally important and intimately connected cultural function. The city, that buzzing beehive in which people from various social backgrounds have mingled for centuries to build, trade, teach, and innovate, provides the backdrop for great cultural experiments, making possible new levels of democracy, community, and artistic achievement. Robust and open cities thereby also embody the cultural side of Smith’s ongoing civilizing project.
Typically, in pieces such as this one, discussions of the pieties of urban culture and enterprise, crucial as they are to the health of civic discourse, turn whatever thin literary air there is into the written equivalent of sodium pentathol, sending even the most eager readers into early slumber. I’d like to avoid this fate, so instead of going straight to an account of the urban legacy of Adam Smith in the work of today’s economic thinkers, I have decided to ply a side path into a more personal consideration of the urban imperative. That is, I would like to draw for you a postage stamp-sized ethnography of how I came to love the city in my days as a young urbanite in the West Philadelphia of the 1950s and 60s, where I first discovered city life as a source of what Adam Smith called “the contagious effects of good and bad company.”
If this were 1957, and you had followed me on my daily journey from my home at 39th and Sansom Street to my second grade classroom at 38th and Chestnut Street, you would get the picture, in part.
As we left my family’s row house on the south side of Sansom Street, we would walk east along the great grey ballroom wall of the old Penn Sheraton Hotel to 39th Street. Crossing at the northwest corner, we would stop first to peek into Curly’s Cleaners (or Gene’s, as everybody called it; no one had ever seen Curly). This first stop had nothing to do with sampling the daily yield of Gene’s notoriously under-laundered shirts. We would want to see if some of his more illustrious customers—boxers—were in. Ours was among other things a prizefighter’s neighborhood, and boxers like Sonny Liston were our local celebrities. Not that Liston or Ernie Terrell or any of the other champions ever outshone Gene in the hubris department. A friend of mine once witnessed Gene as he boldly instructed a customer that getting back five out of six laundered shirts was, in the end, a pretty good deal. We should all be so lucky, I suppose.
Next door to Gene’s, we would pass the Hamilton Court Apartments, home of my then nemesis, eight-year-old Harmon. Harmon was the Saddam Hussein of 39th and Sansom, truly a keeper of weapons of mass destruction. As bad luck would have it, Harmon’s parents, engineers hailing from Nebraska of all places, had concocted a means of spring-loading the holsters of Harmon’s toy six-shooters. This bit of martial engineering made Harmon the fastest gun not only in West Philadelphia, but so far as I could tell, in Western Civilization—and this technological leap ended the cowboy career of every eight-year-old kid as far as the eye could see. Economists would have described Harmon’s erstwhile opponents like me as victims of technological lock-in, but it felt a lot more like technological lock-out from my end.
Luckily, I discovered that eight year-old urban cowboys had options in those days, and baseball loomed large for me as the next big thing, especially if Harmon’s parents stayed out of it. Eager embryonic baseball fan that I was, my next stop on the way to school was the deli housed in the Hamilton Court, Margolis’s. At Margolis’s, I would buy a Tastykake and a bottle of Cliqout Club Ginger Ale and glance at the Philadelphia Inquirer to see if the Phillies had won the night before. Margolis’s was also the place where I first tasted pastrami, which as I discovered, was to my mother’s preferred lunch meat, a dubious local confection sold under the suspect name “veal loaf,” what the newly emerging color television was to our black and white Philco. But Margolis’s was interesting for its spicy staff as its menu.
Sam Margolis was not only a great pastrami maestro, but a well-known boxing promoter. So was his restaurant’s manager, Blinky Palermo. Blinky was perhaps more accurately described as an arranger of boxing matches with risk-free outcomes. An arbitrageur of swollen flesh. The last time I came across the name Blinky Palermo I was pleased to learn that he was thriving in his sunset years as the basketball coach at Allenwood Penitentiary in Pennsylvania, where presumably most of the fans were savvy enough not to bet on the games. Earlier I mentioned Adam Smith’s reference to the “contagious effects of good and bad company.” Blinky represents the bad company part of our tour.
After paying my daily respects at Margolis’s, I would round the southeast corner of 39th and Chestnut, passing St. Leonard’s Academy. Whenever my mother was with me, she would invariably, unfailingly, make the same remark about St. Leonard’s: “That’s where the Barrymores send their kids to school,” she would say. It probably didn’t occur to her that I had no idea who the Barrymores were, but I heard this refrain so often that eventually I wondered whether Mrs. Barrymore, when walking her kids past my school a block away said, “Look. That’s where the Doughertys send their kids to school.”
And to school the Doughertys went—past the Bell Telephone building and then the courtyard part of Hamilton Court, a frightened micro-Versailles wrought mostly of cement—one block north to 38th and Chestnut. St. James School was definitely the low-priced educational spread compared to the rich creamery butter of St. Leonard’s, but it was a great institution, nonetheless. While there were no Barrymores to be spotted, there were Perezes and Magallens, Bentancourts, Harrises, Brennans, Birgelos, and Waskalavetches to go along with the Doughertys—a bumpy multiethnic stew. Indeed, my appreciation of people from backgrounds different from my own was one of the great collateral lessons—positive externalities, as economists call them—I was privileged to have learned at St. James, and one that the Barrymores of St. Leonard’s would have to learn much later in life, if at all.
At the end of the school day, I would take the alternate route home a block south onto Walnut Street. This path would take me by the bookstores and haberdasheries outlining the Penn campus, around Smokey Joe’s Bar run by the Ryan family on the northeast corner of 38th Street, past the Sigma Nu fraternity house occupied by college students from exotic, far away places like New Jersey and Delaware, and finally past the Montclair Hotel at 39th and Walnut, where one of the waitresses would walk her pet baby alligator on summer evenings.
These streets were studded with small businesses—shoe repair stores, laundries, restaurants, printers, banks, insurance offices, machine shops, newsstands, candy stores. This is where I encountered the outside world, got my first job, and learned the bourgeois virtues in miniature. Later I realized that these storefronts also performed what the late, great Philadelphia-born sociologist Robert K. Merton called “latent functions.” They lit the streets at night, making them safe and pleasant for us locals, softened the tensions between town and gown, and served as a freewheeling laboratory of cultural cross-fertilization. In a few years as I wandered further through the rabbit trails of West Philadelphia, I would stick my nose into LaTerrasse, a restaurant on Sansom Street that posted its menu in the window. What flummoxed me about this place was that its owners insisted in writing their menu in a language that I didn’t understand. Is this stuff veal loaf? Maybe it’s pastrami. Why would anybody eat here if the food is foreign? What’s wrong with American food, like the kind they serve at Horn & Hardart’s? To this day, I can’t eat in French restaurants without thinking of that place.
A significant number of our businesses were operated by black merchants—I remember some by name: Joe Volkens the dry cleaner, William Martin the insurance man, Cliff Burrell the shoemaker, MacQueen the mechanic, Raymond the manager of Sun Ray Drugs—and patronized by white, Asian, and Indian neighbors. That such a heathly ethnic equilibrium was achieved during a period so justly infamous for crude and malicious racism (an affliction hardly unknown in these same streets) is, to my mind, a great testament to the moral mettle of community-scale commercial society, West Philadelphia-style; a tiny example of Adam Smith’s civilizing vision at work.
This lively Philadelphian fabric began to unravel rapidly around 1960, when most whites moved to the suburbs, most blacks moved to the projects, Blinky Palermo moved to Allenwood, and the Barrymores moved presumably to Beverly Hills. St James closed its doors a dozen years later. My brother Joe was one of the eight students in the last first-grade class enrolled there. Snow White, starring Jacqueline, the only girl in the class—who, as easy irony would have it, was black— was the last school play staged before the wine-colored velvet curtains sadly fell at old St. James.
The great urban philosopher Jane Jacobs gauged the seriousness of this kind of loss in her classic 1961 work, The Death and Life of Great American Cities. Referring to the social networks that unify and animate city neighborhoods such as my own, she noted that, “These networks are a city’s irreplaceable social capital. Whenever the capital is lost, from whatever cause, the income from it disappears, never to return until and unless new capital is slowly and chancily accumulated.”
This social capital needs to be replenished if the West Philadelphias of this world, gutted in the urban diaspora of the Sixties, are to thrive again as sources of wealth and of wonder. Political thinkers such as Robert Putnam have heroically led the charge in the attempt to revive city life, insisting that the closer people work, live, and shop, the better life is. However, most intellectuals of a political mien have little to say about the centrality of markets in this effort, often because of their conviction that it was markets themselves—for cars, lawns, malls, highways, and the legal and corporate infrastructure needed to support their expanses—that hastened the death knell of our cities. We hear urban scholars extol the value of networks, civic institutions, horizontally organized democratic organizations, smart growth transportation systems, mixed-use architecture, faith-based social services, community development projects in search of a city revived, but little of markets.
This, for me, is where Adam Smith and his latter-day economic offspring come into the picture. For Smith saw that markets are essential not only for monetary but also for moral progress; for the propagation of “economy, industry, discretion, attention and dedication of thought,” as well as for the working virtues including, “prudence, vigilance, circumspection, temperance, constancy, (and) firmness.” Creating new markets, reshaping established markets, redirecting errant markets, and reviving old markets is, in my view, the greatest challenge to civic revival, but not solely for economic reasons. Economists, however, must be party to this effort if it is to succeed.
Just to name a few such initiatives, Michael Porter has proposed new ways of making cities more successful by leveraging their competitive advantage as industrial clusters. Richard Freeman has proposed creative ways for labor unions to manage their pension funds in a manner that serves the interest of the urban areas in which much of their work gets done. Richard Florida in The Rise of the Creative Class demonstrates how urban policies designed to attract creative professionals and the businesses needed to support them provide a conduit to civic revitalization. Edward Glaeser has identified cities as being especially conducive to the information technologies of today that favor the kinds of social networks naturally found in closely quartered contexts.
Economists from Milton Friedman to Caroline Hoxby have argued forcefully for the advantages of educational choice in resurrecting our badly burdened city schools. Edmund Phelps has called for special employer tax credits designed to stimulate jobs in cities, and Robert Shiller and others have championed new financial markets designed to buffet the effects of economic downturns on cities and thereby provide some protection for investors wanting to exploit new opportunities in old neighborhoods. Robert Solow has called for a creative combination of public support and private jobs to help poor city dwellers move gradually from welfare to work. Finally, Glenn Loury has made strong insights into ways of restructuring some of the old Great Society urban programs such as affirmative action with sharper incentives.
Most of the aforementioned economists’ ideas are intended to hose down the economically parched and blistered streets of our cities with money; capital of the good old financial variety. Adam Smith would have been all for this because he, perhaps more than any philosopher before or since, was mindful of the importance of material well-being for individuals and communities, alike. Alfred Marshall echoed this conviction in his work on economic chivalry and our responsibility to the poor, a century later. But Smith and Marshall would have insisted that this job would be incomplete, and therefore unsuccessful, unless and until those newly monetized city streets were fertilized with markets, because it is only through the cultivation of community markets that economic capital evolves into the social capital of which Jane Jacobs speaks.
To conclude: Late the other night I was watching TV and saw film director Martin Scorsese narrate a documentary history of Italian cinema, a topic only of passing interest to me. I was struck by something he said. He quoted director Roberto Rossellini who noted, following the completion of his great 1951 motion picture Open City, that we live in society now, and the heart of society is law. But Rosselini went on to say that we once lived in community, and that the heart of community is not law, but love. Strong community institutions—faith, learning, friendship, family, history, work, and the aesthetic of streets, shops, and houses—are the sources of love. But so, too, is “sweet commerce,” in the phrase of economist Albert O. Hirschman. I recall the comment of one of my authors, a Chicago economist, who spent much of his youth as a faculty brat in Florence. There, he claimed, each street had its own bakery, its fragrance wafting into the next, as if perfuming the love of city and its “contagious effects.” He went on to lament that these bakeries—community markets, Italian-style—are no more. However, intellectuals seldom think of markets in such terms; that is, as anchors of moral sentiments—of love.
No. Markets tend to get the attention of intellectuals when they are the source of inequity or dislocation or corruption or windfall profit, as when they are exploited by the likes of Kenneth Lay or Jeffrey Skilling or Dennis Koslowski or Bernie Ebbers. And so they should. Yet, as quick as intellectuals are to discredit markets when their luckiest beneficiaries break the law and hijack the wealth of nations, they should be more willing to understand and promote markets as sources not only of wealth, but of culture.
Only if intellectuals, economists among them, re-learn the importance of the cultural function of markets, of a social order based in community as well as of society, of love as well as of law, will capitalism continue to achieve the civilizing vision of Adam Smith, who said two centuries ago, “When the greater part of people are merchants they always bring probity and punctuality into fashion, and these are the principal virtues of commercial nations.”
Peter J. Dougherty is Group Publisher and Senior Economics Editor at Princeton University Press. This talk was delivered to audiences at the Princeton University Store and in the Economics Department of La Salle University in Philadelphia in 2003.