The City Ascendant: America's Urban Economy

Home , Allan Lockheed, Francis Boggs, John Hynes (politician), New York World Building

The City Ascendant: America’s Urban Economy

by Edward L. Glaeser Harvard University and NBER

December 19, 2006

Preliminary Draft

Preface

This book occupies an uncomfortable middle ground between economics and history. It does not look like a conventional piece of economics. Economic theory lies always in the background but is never trumpeted with algebra and graphs. The statistics it contains are unvarnished with fancy econometric techniques. Moreover, this book is certainly not history or even economic history. Apart from the use of census documents, I have used almost no original sources. As far as I know, none of the stories contained herein are actually new. Many of them are well known and I have no pretensions to being any sort of an original historian.

This book is an attempt to make urban economics accessible through American history. I am trying to use the paths of America’s cities to show the power of economic theory. While I have tried not to cherry pick my examples too much, there can be no doubt that I have chosen my stories to illustrate the strength of urban economics. I have made constant use of urban history, but I am not adding to that great field.

My hope is that this book will be interesting to both economists and non-economists. Economists will find few new ideas in this book. The basic thoughts have been previously expressed in my own writing and far more significantly in the broad literature of urban economics that includes von Thunen, Alfred Marshall and Paul Krugman. For economists, I hope that this book provides them with examples that enrich the theory. Perhaps the stories that I include will be helpful to them in teaching urban economics, just as they have been helpful in my pedagogic efforts.

For non-economists, I have a broader ambition. I hope that this book makes the dry matter of economic theory more palatable. By wrapping the ideas of dead economists in stories about Benjamin Franklin, William Tweed and Robert Moses, I hope to make economics relevant and enjoyable. To me, the dismal science is anything but. It is an enormously exciting field which never stops delivering insights about our world and iii

especially our cities. I hope that this book will convey to others some of the pleasure that urban economics gives me.

The book is a sandwich. There are three conceptual chapters, one at the front and two at the back, surrounding seven historical chapters. The first chapter gives what I think are the core insights of urban economics. The ninth chapter gives what I think are the core policy lessons of urban economics and history. In the tenth chapter, I dust off my crystal ball and give predictions about the future of cities. Between these three chapters, I have chapters on individual cities in particular epochs. The basic model is to focus on one city during a major period of American urban history, at least until the last 30 years, when I spread myself more widely.

I begin the history in Chapter 2 with a discussion of Boston in the Colonial era. This chapter draws from a previous essay of mine “Reinventing Boston: 1630-2004” that was published in the Journal of Economic Geography. I am grateful for the opportunity to reprint portions of that piece. Like all of the book, this chapter emphasizes the importance of transportation costs and the urban role in linking the wealth of the new world with the markets of the old. But also like the rest of the book, this chapter emphasizes that cities that form to save transport costs, often end up playing a much more important role helping to spread and generate new ideas.

The third chapter turns to New York City in the first half of the nineteenth century. This chapter draws on my essay “Urban Colossues: Why is New York America’s Largest City?” published in the Federal Reserve Bank of New York’s Economic Policy Review. I am also grateful to that journal for the opportunity to reprint portions of that essay. The chapter on New York also highlights transportation technologies, especially the larger boats that made the city the hub of a great transportation network. While I spend some time on the more important social developments of the city, the brevity of this work means that I left out many important topics. Luckily, Burrows and Wallace’s magnificent “Gotham” provides a superb history of nineteenth century New York that iv

covers far more, far more effectively, than I ever could. I am especially indebted to their volume and to Kenneth Jackson’s magnificent Encyclopedia of New York City.

In the fourth chapter, I move inland and turn to Chicago in the late 19th century. This is the first chapter that dwells at length on the buildings that are the physical matter that makes up cities. Interestingly, skyscrapers both made Chicago and were created in that city. The intellectual ferment created by density itself led to the creation of new buildings that increased density still further. This chapter owes much to William Cronon’s Nature’s Metropolis which is a landmark not only in the history of Chicago but also in urban analysis generally.

These first three cities are all places that I know well, having lived for many years in New York, Chicago and Boston. In the fifth chapter, I turn to Los Angeles at the start of the 20th Century. While I have occasionally visited the city, my knowledge of it is as an outsider and I have drawn particularly on written works. The work of Fogelson has been particularly crucial in my understanding of the growth of the city during this epoch.

In Chapter Six, I turn to Detroit in the middle years of the 20th century. The great drama of this great city which grew so dramatically and declined just as sharply is one of the great stories of urban America. I have tried to describe the city accurately, but I am sure that many of my words will infuriate the city’s boosters. At the very least, I should note that my goal is to ensure the best possible policies for the people of Detroit and I believe that those best policies must recognize the enormous economic forces that drove the city’s decline.

Chapters Seven and Eight look at America’s cities since 1970. Chapter Seven examines the disparate fortunes in colder regions. Some places, like Boston and New York City, managed to come roaring out of a 1970s malaise. Other places, like Cleveland, are still stuck in decline. The thesis of this chapter is that the skills of the city’s residents were the crucial ingredient in reinvention. Places with skills were able to convert to the information economy and innovation. Places without skills, however, are still stuck in v

industrial decline. This work draws primarily on my own research over the past 15 years on the role of human capital in fueling the growth of urban areas.

Chapter Eight turns to the sunbelt and compares Santa Clara County, California (Silicon Valley) and Las Vegas. Both regions have had a successful 30 years. Santa Clara’s success has seen rising incomes and housing prices and declines in new construction. Las Vegas’ success has been the constant production of new homes accompanied by new population growth. The thesis of this chapter is that California made it increasingly difficult to build, primarily for environmental reasons. Without homes, population growth declined and prices soared. People who would have wanted to move to the Bay Area chose Las Vegas instead, because its pro-growth regime led to inexpensive living.

All of these chapters reflect about eighteen years of research and reading on urban economics. Some of the books and articles that have influenced me are cited in the text, but many are not. In some cases, the influence of various authors has become buried in my subconscious and I don’t even remember their impact. Conversations with many people led to the ideas that are in this book. I am grateful to the hundreds of people who have taught me and I hope that those who are unacknowledged forgive my failings.

I am particularly grateful to the anonymous authors of Wikipedia which served as a constant reference for this volume. In most cases, my earnest fact checkers provided non-Wikipedia references for facts that I had originally learned from this e-resource. The choice of non-Wikipedia references is a bow to academic conventions of this day, not to any lack of respect for that resource. I am enormously grateful to Wikipedia and I deeply apologize if I inadvertently borrowed any wording from that great resource.

This book was fact checked by Peter Ganong and a wonderful set of undergraduate research assistants including Emily Wang, Theodore Grant, Joshua Lachter and Kelby James Russell. Describing their work as fact checking is somewhat unfair. They found vast number of resources. They corrected writing and factual errors. They are true partners in the creation of this manuscript. vi

Nina Tobio is responsible for organizing and producing the tables and figures. Cara Cappello oversaw the assembly of the manuscript. I am extremely grateful to both of them.

I am extremely grateful to the financial support that I have received in this book. Much of the original research was financed by the National Science Foundation. The Rappaport Institute for Greater Boston funded the original work on Boston and continues to support my research. Alan Altshuler, when he was director of the Taubman Center for State and Local Government, supported this project both financially and intellectually. I owe him much. In more recent years, the Manhattan Institute and the Smith Richardson Foundation have kindly supported this work through a book fellowship.

Most importantly, I would like to acknowledge my intellectual debt to my students, teachers and colleagues. At Chicago, almost 20 years ago, Jose Scheinkman was my mentor and led me to think about cities. Andrei Shleifer and Hedi Kallal were my partners in first writing about cities. Andrei has continued to be an intellectual guide over my entire career. Robert Lucas connected cities with the new economics of knowledge and economic growth. George Tolley taught me the older economics of cities.

At Harvard, I have had wonderful colleagues and students with deep interests in cities. Claudia Goldin and Lawrence Katz have been intellectual wellsprings for me. John Kain taught me more urban economics than anyone else. David Cutler is a great social scientist from whom I continue to learn a great deal. My students have taught me as much as my colleagues, especially Rebecca Menes, Alberto Ades, Bruce Sacerdote, Jess Gaspar, Jacob Vigdor, Jesse Shapiro, Jed Kolko, Albert Saiz and Raven Saks.

Finally, my family has been a continuing source of personal strength and intellectual support. My father, Ludwig Glaeser, first taught me respect for the built environment and a love of cities. My stepfather, Edmund Chaitman, taught me to challenge vii conventional wisdom and to respect private liberty. My mother has been my greatest source of knowledge and support whether in economics, history or life.

I am particularly indebted in this book to my wonderful wife Nancy who not only makes my life rich and joyful, but contributes constantly with her insight and wisdom. She played a special role in the making of this book and was the first editor of all of the chapters. In love and gratitude, I dedicate this book to her.

Chapter 1: The Economics of the Cities

In the popular imagination, cities are composed of skyscrapers looming upwards, cars jostling for lane space and stores, restaurants and nightclubs crammed together offering goods and entertainment. To some, cities also represent danger: crime in dark alleyways and riots in the streets. To others, cities represent freedom in the anonymity of crowds and the abundance of choice. The 11th century German proverb proclaims “Stadtluft macht frei” - city air makes you free. Some people, following in the tradition of American historian Lewis Mumford, find the lack of greenery stultifying. Others find an urban landscape filled with the grand edifices of our civilization exhilarating. Regardless of our often strikingly strong opinions, the subject of cities has long been a topic of fascination, and is one both loved and despised.

But at their root, cities are not tall buildings or stores or subways or any part of the built environment. The essence of cities is physical proximity, closeness, density. Cities are the absence of physical space between people and firms. The magic of cities is the natural product of people being close to one another. Urban distress follows from the same closeness. Urban transport technologies – subways and elevators—are the means for accommodating close crowds of people. Urban landscapes are environments built for dense population on a grand scale.

The importance of urban proximity stems from the incredibly social nature of homo sapiens. Humans are wired to be socially malleable and as a result we are constantly being shaped by those around us. From our dialects to our haircuts, we respond to our friends and neighbors. We learn things—true and false—mostly from conversation. A growing social science of peer effects documents the impact of random changes in social proximity created by natural experiments like the allocation of adoptees to different parents or roommates in elite colleges. Our religions and even our core values are shaped by the people with whom we interact. Human beings are not blank slates—genes count for plenty—but we are not hardwired automata either. Our habits, beliefs and ideas respond to our neighbors.

Cities organize the social interactions that shape our lives and our economy. Their physical structure and history shapes lives today. For example, only through urban history can we understand how the great concentrations of poor and minority Americans appeared in urban centers. African-American ghettos formed in an era where social and legal barriers to integration, like restrictive covenants, were quite strong.1 The permanence of urban form means that these neighborhoods remain strikingly segregated to this day, just as newer places built in sunnier states after 1960 are much more integrated. The ghettos appear to make their inhabitants less happy and less successful. The best scientific evidence on this is the Department of Housing and Urban Development’s Moving to Opportunity Experiment, and work done by Katz, Kling and Liebman (2003). This data shows that people who are given resources to leave the poorest neighborhoods become happier and at least their female children appear more successful.2

Perhaps the most important by-product of the interpersonal proximity fostered by cities is the free flow of new ideas. The great English economist Alfred Marshall wrote more than one century ago that in dense environments “the mysteries of the trade become no mystery, but are, as it were, in the air.” In the 1960s, Jane Jacobs championed the idea that cities excel in facilitating the combination of old ideas into new ideas. My colleague, Marty Weitzman has argued that every major new idea is essentially a combination of two old ideas—nighttime baseball combines the idea of baseball with floodlights. In big cities, where diverse sectors interact, it becomes easier to see the possible gains from connecting different techniques. One of Jane Jacobs’ famous examples is how the brassiere was developed in New York City, not by lingerie producers, but rather by dressmakers who saw the potential gains from structured clothing applied to a new use. In the 1920s, Boston lawyers invented mutual funds taking ideas from their management of trusts and estates.

1 Kain (1968) remains the seminal economic work in this area. Cutler, Glaeser and Vigdor (1999) present a long overview of the history of segregation in America’s cities. 2 This work extends an earlier non-experimental literature, such as Cutler and Glaeser (1997) which found strong negative correlations between segregation and African-American outcomes. 3

The social roots of urban productivity explain why, occasionally, particular cities appear to be miraculous fonts of innovation. Dense urban areas permit the flow of ideas and allow an initial innovation to be rapidly improved upon by nearby collaborators and competitors. The explosion of art in Renaissance Florence follows from initial experiments in perspective by the sculptors Ghiberti and Donatello. The painters Masaccio and Piero Della Francesco borrowed these techniques and created a new style of painting grounded in geometry that enabled complex painting with depth and verisimilitude. An explosion followed as painters, who lived and worked in close proximity, began to explore the implications of the new technology. There was nothing magical in Florence’s water, and it seems unlikely that the genetic endowment of 15th century Florentine artists was so much greater than their 14th century forebears or 16th century descendants. Instead, the explosion of artistic genius reflected that ability of a dense city to facilitate the spread and improvement of new ideas.

The role that dense cities play in facilitating the spread of creative insights helps us understand how some art forms get so strongly associated with a particular time and place. 18th century Vienna facilitated the connections between Hayden, Mozart, Beethoven and dozens of lesser but still great composers; the ideas that moved along these connections created a musical revolution. In the 19th century, Paris connected Manet with Pissarro with Monet with Cezanne. Impressionism was not the result of isolated geniuses, but a profoundly social process where teachers taught pupils and rivals imitated one another. The role of these social interactions means that small events, like innovations from one particularly insightful artist, become magnified as the ideas travel in an unusual game of telephone, where the message gets improved rather than mangled in the retelling. Eventually, casual observers are able to convince themselves that there is something unique about the musical German soul or the artistic French temperament, when in reality, a slight change of events could have easily meant that 19th century Paris would have become a musical metropolis or that 18th century Vienna would have had an explosion in art.

Bursts of artistic creativity provide one particularly visible example of the role of cities in facilitating innovation; the role of geographic proximity, usually in urban areas, is as clear in philosophical or technological creativity. Physical proximity seems to have been critical in the flow of ideas between Socrates, Plato and Aristotle. It should be no surprise that the great seminal moment in Western philosophy occurred because of social and subsequent intellectual interactions in one of the world’s first great cities. My own social science—economics—came of age in 18th century Edinburgh where an extraordinary collection of social thinkers—David Hume, Adam Smith, William Robertson, John Witherspoon—learned from one another. The intellectual products of this period were carried by Witherspoon across the Atlantic and were taught by him to his star pupil James Madison at Princeton. Madison would use the insights of Edinburgh to craft the U.S. Constitution. Today, the work of the Athenian philosophers or the Scottish enlightenment is being carried on in universities, which at their best provide a city-like atmosphere connecting scholars of disparate disciplines.

Technology, as well, is often produced in dense, environments where ideas spread readily. In this book, I will discuss the development of the skyscraper in 19th century Chicago, the car in early 20th century Detroit and the airplane in Los Angeles. In all of these cases, networks spread ideas and allowed connected innovators to continue to build on each other. Today, many of the most important developments in computing technology occurred within Silicon Valley. An initial event associated with Stanford and Fairchild Semiconductor then spawned a vast number of followers who continue to interact with each other to this day. It may not be obvious that Silicon Valley is a city— after all, it is certainly much less dense than the places we have traditionally labeled as cities. But Silicon Valley certainly does specialize in eliminating space between people to speed the exchange of ideas, and as such is a true city, even if it is built around the automobile rather than around pedestrian traffic or public transportation. The success of Silicon Valley shows the continuing importance of geographic proximity, but it just needs to be understood that today the interactions that result from that proximity often involve people driving to see one another.

Goods, People and Ideas

If cities are best understood as the absence of physical space between people and firms, then the demand for cities should be understood as coming from the demand to eliminate distance. The source of this demand is the desire to lower transportation costs. Although they may not be aware of it, people come to urban areas to reap the advantages of easier transactions. They simply think that they are coming for higher wages or a better social life, but these outcomes themselves are ultimately the result of better transportation in cities. The urban edge in transportation is best understood as an edge in transporting of goods, people and ideas.

Economists often describe these benefits of proximity as agglomeration economies, i.e. reasons why people would want to agglomerate. The greatest impact of coming together in an agglomeration is that distances are shortened, which reduces costs of transportation and time. Agglomeration economies are the benefits from proximity that comes from greater ease in moving goods, people and ideas.

As I will discuss in Chapters 2 and 3 of this book, the economic edge of early American cities revolved around their advantage in transporting goods. America’s early economic model was one in which the nation was rich in natural resources and one that had a market back in the Old World. These natural resources were found in the American hinterland, and then shipped, almost always by water, to a port to be packaged and sent for delivery back to Europe. New York originates as a fur trading post for the Dutch West India Company, and later becomes the drop-off point for grain being shipped to the sugar-producing colonies of the Caribbean. Charleston and New Orleans become centers for the shipment of cotton. The tremendous cost advantages of water-borne transport meant that throughout the 19th century, cities formed where rivers merged with other river, lakes, and seas. Ports – such as Philadelphia or Baltimore - would often form upstream on a navigable river in order to secure natural protection from ocean waves and to further lower transport costs (since it was always cheaper to move goods over water 6

than over land). Gradually, man-made rivers—canals—would provide a further network that often fortified initial transportation cost advantages.

The gains from eliminating transport costs created a virtuous cycle where an initial concentration attracted more firms and workers who wanted either to sell to the initial residents or to manufacture goods in a locale that would allow the easy shipment of those goods. For example, taverns and barrel-makers, which both provide inputs that appear to be critical for maritime commerce, were always found around ports. On a larger scale, New York City’s largest 19th century industries—sugar-refining and the garment trade— were located in the city to take advantage of New York’s tremendous natural harbor and its central role in trade routes linking the Caribbean to the American continent to Europe. The garment trade, which would be New York’s largest manufacturing industry through the 1960’s, stems from the city’s one-time role as the entry point for cloth coming to America from Europe. It was cheaper to transform cloth into garments in the city, where large factories exploited scale economies, than to sew suits in every small American town. New York was the natural point at which this transformation occurred because it was the center of the trade routes. Chapter 3 explores the similar story of the sugar- refining industry with more depth.

While some of the first great American factories were built in non-urban locales, like Lawrence or Lowell, both Massachusetts cities located on the Merrimack River, the urban edge in transporting goods meant that producers eventually became more efficient in big cities. As soon as engines became sufficiently powerful so that factories didn’t need their own dedicated river like the Merrimack, they took advantage of cities where their markets—either in the city or at the end of the city’s trade routes—were bigger. Since most factory products were eventually sold in cities and all the inputs were shipped through ports in cities anyway, locating factories in cities allowed business to doubly reduce transport costs. For example, by locating in New York where the cotton was coming anyway, textile factories saved the added cost of shipping cotton to Lowell.

For these reasons, over the 19th century, manufacturing and cities were increasingly linked. At the start of that century, cities were more likely to be centers of commerce than centers of production. As late as 1840, Boston had more than twice as many residents working in the ocean-going professions than working in manufacturing.3 But by 1880, nearly every American city with more than 100,000 inhabitants was primarily a manufacturing town (see Appendix Table 1-1 and 1-2)4 and this pattern would last through the post-war years. As late as 1950, seven out of the eight largest American cities were more concentrated in manufacturing than the U.S. as a whole.

During much of American history, America’s cities thrived because of this urban edge in moving goods. From the beginning, however, cities also succeeded in part because they eliminated transport costs for people as well. The most important urban advantage today is surely the reduced travel costs required for face-to-face interpersonal contact. A portion of travel costs involve money, but in many cases, the time lost is far more important. Particularly during the 19th century, this loss of time was quite significant when the vast majority of people in the cities walked. Although transportation technology is more efficient today, as wages continue to rise, the time costs of travel for people are likely to become increasingly important.

The urban edge in facilitating face-to-face contact explains why cities today specialize in services. One of the traditional features of services is that they generally require personal contact, as opposed to the delivery of a manufactured good or an agricultural product. In some cases, services still always require face-to-face contact. We still don’t know how to cut hair without the barber and client being quite physically close. In other contexts, like financial services, technologies like the telephone and the Internet have transformed industries that once almost always involved face-to-face contact into industries that provide services across long distances. In service industries that do involve personal interaction, however, urban proximity lowers transportation costs, just as in the case of

3 “As late as 1840, the Census reports that Boston had 10,813 people in the ocean-going professions and only 5,333 people in manufacturing.” P. 14. 4 Seventeen out of the twenty American cities with a population above 100,000 were primarily manufacturing towns, defined so that manufacturing is the most popular industry sector. 8 the sugar-refining industry, but in this case the transport costs involve people and not goods.

The urban edge in reducing transport costs for people is not limited to the travel costs in the service sector. Another advantage of dense urban areas is that they host many prospective employers within commuting distance. In lonely towns, there may be only one. The concentration of employers within an area should be seen as another advantage coming from the urban edge in reducing transport costs for people and it has a host of advantages. Alfred Marshall observed this phenomenon more than a century ago and emphasized that the presence of many employers insures workers against labor market shocks.

As an illustration of Marshall’s point, consider an employee of The Hershey Company who lives and works in Hershey, Pennsylvania, one of America’s most famous company towns. Suppose that The Hershey Company is hit by a massive negative shock—the American Medical Association discovers that chocolate causes cancer, or a Latvian chocolate consortium begins to produce chocolate so good and inexpensive that Hershey’s loses its popular appeal—and is forced to lay off this particular employee along with many of her coworkers. Because few employment opportunities exist in the Hershey area outside of The Hershey Company, chances are she will have to move to another town to find a job. On the other hand, if this same employee had been laid off by a chocolate company located in New York City, she would have an easier time finding a new position within her community. Large cities have so many industries and employers that if one firm or sector is dealt an adverse shock, there will always be other firms willing to hire laid off workers. In this sense, cities create a portfolio effect for workers. Since there are many employers, the risks posed by economic instability are muted.

Concentrations of employers reduce the transport costs for workers searching for new employment after a layoff, as well as for workers who just want to change employers. Research in labor markets, like Topel and Ward (1988), shows that both the young workers regularly move firms and that most of the wage gains for young people come 9

with job moves. We see examples of this all the time, as younger workers move from job to job acquiring skills and finding the best match for their talents and interests. Standard labor economics theory tells us to associate wage gains with productivity gains, and if this holds, employment changes that succeed in matching workers with the right employers make our labor markets more productive.

The process of switching jobs and firms is made much easier in a big city. In the agricultural heartland, workers must enjoy and be skilled at farming or they ought to find a new home. Loretta Lynn describes the three options open to young men in her hometown as “mining, moonshining or moving down the line.” There is no opportunity to match a great actor with the stage or a great lawyer with the best clients in a small town. By contrast, in big cities that reduce the transport costs for goods, this matching becomes easier. This is one reason why the riskiest occupations tend to be located in the biggest cities— prospective performers can come to New York knowing that if their current career fails, there will be other jobs.

Urban advantages that come from reducing the transport costs for people aren’t limited to the workplace— easy access to people is also what makes cities fun and exciting. Humans are social animals, and proximity to others makes socialization easier. Manhattan is more exciting than rural Montana on a Friday night for the primary reason that there are just more people in Manhattan. Since the costs of connecting with others are lower, entertainment venues, such as restaurants, bars or clubs, that are selling, in part, access to other people, thrive in dense areas. One important factor in explaining the massive concentration of single people in urban areas is the role of the city as marriage market. Because large places have so many other young single people, they are just better places to be single.

Throughout the 20th century, new entertainment technologies, like radio, television and the Internet, have made it easier to live in isolated areas. The radio, in particular, was a great boon to rural America. But in the nineteenth century, before these technologies were invented, nights alone in isolated farms must have been excruciatingly dull, and the 10

dangerous excitement of the city is a running theme of novels almost from the beginning. Even in the eighteenth century, novelists like Fielding (in Tom Jones) or Thackeray (in Vanity Fair) or Balzac (in almost everything) emphasized the social life offered by the big city. In Theodore Dreiser’s novel Sister Carrie, the novel’s title heroine certainly experiences increases in income associated with her move from rural Iowa to Chicago and then to New York. These changes seem modest, however, relative to change between drab rural living and the exciting city.

In many of these novels, cities are correctly portrayed as places of both excitement and danger. To this day, cities remain more dangerous than their less dense counterparts. On average, the crime rate per capita increases by 16 percent as city size doubles (Glaeser and Sacerdote 2000). The tendency of cities to attract crime is again a product of the reduced transport costs for people in high-density areas. Just as it is easier to ship a barrel over close urban distances than over longer rural roads, it is easier to rob someone when they are close. Indeed, one of the great stylized facts of the criminology literature is the tendency of a criminal to work close to his place of residence. Obviously, this means that crime becomes much more lucrative when there are more potential victims available at close distances and these potential victims tend to be wealthier.

Crime is one of the disadvantages, or dis-amenities, associated with living close to other people, but there are other costs of being close. Before 1900, the great cost of living in an urban area was disease. Bacteria also travel more readily over close distances, and airborne diseases thrived in denser areas from the era of Rome onward. Wrigley and Schofield (1981) provide evidence that moving to London in the seventeenth century led to a seven-year reduction in expected lifespan. In nineteenth century America, waterborne diseases were ubiquitous in cities because too many people shared a common water supply. All too often, human waste would seep into the water table and provide an easy mechanism for transmission of diseases. Only in the twentieth century, with modern medicine and even more importantly improvements in clean water, did life expectancies in cities pass those in rural areas.

Because cities facilitate the interaction of people, they also facilitate the flow of ideas. The primary method of information flow throughout history has been face-to-face conversation, which is of course expedited by reduced distances between people. The explosion of knowledge in fifth century Greece was certainly the product, in part of, smart people talking to each other in urban settings. What are the Socratic dialogues, if not Plato’s record of the growth of knowledge through face-to-face conversation? In a more modern setting, Annalee Saxenian’s description of the rise of Silicon Valley abounds with stories of ideas passing from person-to-person in conversations at Bay Area venues like “Walker’s Wagon Wheel” restaurant, which turned into a meeting place for information entrepreneurs in the 1960s. Similarly, Michael Porter’s eloquent description of the Sassuolo ceramics industry emphasizes the importance of face-to-face meetings between suppliers and customers.

One important feature of urban social networks is the existence of a multiplier: a modest increase in the speed of information flow can have a much larger impact on the amount of new information that travels through space. Proximity means both that two people like Plato and Aristotle find it easier to meet, and also that the stock of information that each one of these two is larger, because of increased contact with other people in the urban network. Thus, not only are information exchanges easier, but they are also more content-filled.

Cities facilitate the spread of information in ways other than easier face-to-face contact. Some learning occurs through sight. After all, Piero Della Francesca never appears to have actually met Masaccio but presumably learned from seeing his paintings. Competitors may not have an incentive to share information by talking to each other, but if they are close to one another, ideas will still spread through imitation. The greater range of experiences in a big city also makes learning-by-doing more effective; for example, interns in a city hospital will be exposed to a far wider variety of diseases and medical conditions than will an intern in a rural hospital.

Some people have claimed that information technology will make cities less important. This line of thinking, which was particularly popular among cyber pundits ten years ago like Alvin Toffler, suggests that email will make face-to-face contact, and the cities that support such contact, obsolete. But this is far from obvious. As I will discuss in Chapter 7, there is at least as much evidence supporting the view that new technologies and the increasing value of both information and interaction, will strengthen rather than weaken cities over the next one hundred years.

Transportation Technologies

Since cities exist to eliminate transport costs, urban form and location is itself invariably shaped by transport technologies. At the start of American history, there were two really effective transport technologies: ships and human feet. Horses played at best a supporting role. As a result, every big city was located at a natural port, usually where a big river met the city. The success of some cities, like New York, and the relative decline of others, like eighteenth century Boston, can be readily understood as reflecting inevitable ship-related advantages. Since within-city transport generally meant foot- traffic, these cities were tightly clustered, and rich people often lived at the center of town to save commute times. Pedestrian traffic also meant that streets didn’t particularly need to be straight and grids weren’t a big plus either. Instead, winding streets that avoided hills or cut diagonals were often preferable to straight lines.

The remarkable durability of urban areas means that we can still experience this oldest urban form in the hearts of the oldest American cities (and in most old European cities as well). Both Boston and New York were once pedestrian ports, and the Wall Street area and Boston’s North End both remain shaped by this history. They share the signature characteristics of old port cities – winding streets, small alleys, buildings seemingly on top of one another, and a constant sea breeze. Despite four centuries of growth, the basic lines of these old ports are still visible, especially in Boston which was less successful than New York and therefore had less construction around its port.

In the early nineteenth century, waterways remained the dominant form of inter-urban transport, but starting in the 1820s, public transportation began to change urban form. Big cities were almost always sited at ports through the nineteenth century. Even with the rise of rail, it was better to choose a place with water than without it, though the rise of public transportation greatly changed urban form. The horse drawn omnibus was the first major form of public transit (public in the sense that many people used it at once, not in the sense that it was publicly operated). These buses allowed people to commute much more quickly at much longer distances, so the cities grew out. Buses also benefit from straight wide roads, so nineteenth century cities have wide avenues and generally some form of grid.

Throughout the nineteenth century, it was expensive to move goods, so towns often grew close to raw materials. It was cheaper to process lumber or pigs in Chicago or St. Louis than to ship whole trees or hogs to New York or to the final consumers throughout the world. As a result, cities developed near to raw materials to save on the costs of shipping the finished goods and to allow processing close to the point of initial production so as to cheapen production. The remarkable spread of American cities, relative to the more centralized urban systems that we see in many countries that only developed in the 20th century, is a result of nineteenth century transport costs. The Midwestern cities are all strategically located in places that are close to raw materials and in places that can access waterways. These locations helped boost American productivity throughout its age of industrialization.

The Midwestern cities grew because of transport cost-related advantages, while their 20th century decline has been also been a result of changes in transport technologies. The two big changes in the 20th century have been the declining costs of moving goods across space and the rise of the automobile. The real costs of moving a ton a mile by train have declined by more than 90 percent since 1890. This decline understates the full extent of this revolution since it omits the impact of the truck. As transport costs for goods have fallen, there has been less cause for cities to locate near raw materials. Indeed, it is not an 14

unreasonable approximation to treat the costs of moving goods across space as essentially zero, at least relative to any past point.

The result of this decline has been that cities are increasingly footloose—unfettered by the productive advantages of geography. Cities are still driven, in part, by their economic productivity, but this productivity is a function of who lives in the city, and not a function of whether the city is close to the coal mine or the great lakes. Twentieth century cities are located in places that people wanted to live, not in places that had an innate production advantage. This didn’t mean that geography became irrelevant, but instead of locating near the great lakes to save shipping costs, cities instead located in California to take advantage of a spectacular climate. No variable predicts urban success over the past 100 years better than median January temperature (Glaeser and Gottlieb, 2006). Other man-made factors, like friendly regulatory environments, became increasingly important as cities were no longer determined by raw materials and waterway.

Changing transport technologies also changed urban form. The replacement of ships and rails with trucks meant that technologies that needed to cluster around a key center—the rail station or the port—were replaced by a technology that didn’t require centralization. As a result, firms that used trucks could decentralize. In the old cities, plants had huddled around the wharves and the rail yards to save the costs of moving goods to these key transport depots. In 20th century cities, industrial plants moved away from the city center and could choose any location as long as it had access to a major highway. Today, employment is overwhelmingly decentralized and manufacturing firms that specialize in physical products which need to be shipped are particularly suburbanized.

Of course, no transport technology has shaped twentieth century cities more than the automobile. The rise of the car may was helped by some government policies, like building the interstate highway system, and hurt by others, like continuing subsidies of public transportation, but the dominance of the car in America was essentially inevitable. The totally different speeds that are allowed by the car made car-based living essentially unavoidable. Even in Europe, where the rise of the car was slowed by lower incomes and 15

by government policies, like high gas taxes and highly subsidized public transportation, the car has become the dominant mode of transportation. Leaving aside issues of whether the rise of the car was a great social boon or tremendous evil, it is unquestionably true that the car has reshaped urban form.

Car cities involve vastly more space than any previous urban form both because cars cross distances so quickly and because the car is itself such a consumer of space both while in motion and while parked. Previous modes of intra-urban transit, like the omnibus, trolley or subway, generally required some amount of walking when travelers got to their stop. As long as there was some walking, houses inevitably crowded together. But cars are a point-to-point transit technology that generally involves limited walking, so densities are inevitably much lower. Over the 20th century, cars first allowed people to suburbanize, then jobs followed people (abetted of course by the truck) and across metropolitan areas, people moved to cities designed around the car, leaving older urbanist havens.

These new car cities feel extremely foreign to people who grew up in a traditional walking city. Generally, cars don’t mix well with other transport technologies so it is difficult to travel in a car city without an automobile. There are still small walking cities, called malls, that are plopped in the middle of car-based areas, but the uniformity of wide asphalt lanes can be overwhelming. However, we should never be blind to the fact that car-based cities are cities nonetheless. The defining characteristic of a city is the possibility of speedy interaction and this is just as available in Los Angeles as it was in downtown Philadelphia. Indeed, the number of employers, restaurants and potential friends within a 20 minute drive is often much higher in a modern car city than the equivalent number is within a 20 minute walk or bus drive in an older city. Car cities are lower density, but they are still hubs of interaction.

The rise of the car city helps to reinforce the point that our lives are shaped by our cities. People who live in these cities spend less time commuting, have more children and are generally a little heavier than people who live in traditional pedestrian places. Indeed, it 16

remains a viable hypothesis that one reason for lower levels of fertility in Europe is that European cities have resisted change, and that kids become more difficult without cars and large suburban homes.5 Just as the wharf shaped the character of nineteenth century New Yorkers, the freeway shapes the modern Angelino whose life is built around the automobile.

Is the move to car-based living a great evil or are cars instead another helpful technology that combines a few negative effects with great benefits? Many of the most insightful urbanists of the past century have had no truck with the automobile. Lewis Mumford was deeply critical of the car. Jane Jacobs’ paeans were to dense city neighborhoods, not to the growing suburbs. Today, there is almost an industry built up defaming cars and car- based cities, pejoratively called sprawl.

The economics viewpoint is that consumers generally choose what’s good for them and, despite the presence of significant externalities, I believe that on net cars have brought more good than harm. Bigger homes, shorter commutes and cheaper commodities can all be traced to the automobile. Because so many academics live in higher density areas, they have a tendency to want to impose their own tastes on others. As a “creature of density,” I sympathize with this view, but there should surely be a strong preference for consumer sovereignty. Most criticisms of the car are weak, and most analyses omit the substantial benefits of the car. Suggestions that the people only choose cars because they don’t have a choice - or that the car rose only because of massive government subsidy - are misinformed. Cars were subsidized, but public transportation was subsidized even more, and as a share of costs, the subsidies to cars have been modest.6 The one great unknown, however, is global warming, and I am willing to believe that cars have wrought great harm in this area.7 But even here, the right policy response is to tax gasoline more heavily, not to abandon the car altogether.

5 Waller, M. (2005, Oct/Nov). Auto-Mobility. Washington Monthly. 6 Balaker, T. (2005, July 17). Transit Subsidies Not Cost-Effective. Atlanta Journal-Constitution. 7 For example, cars and trucks are a significant source (25 percent) of U.S. carbon dioxide emissions. These carbon dioxide emissions are believed to be responsible for global warming. Union of Concerned Scientists. (2005). Global Warming. Retrieved 9/27, 2006, from www.ucsusa.org/global_warming/solutions 17

The City: Today and Tomorrow

The changes in transportation technology wreaked havoc on America’s cities between 1960 and 1980. As transport costs fell, much of the city-based manufacturing industry relocated to the suburbs, and in many cases left the U.S. altogether. In 1900, access to the Great Lakes was a real boon for manufacturers. In 2000, a year with far lower transport costs, it is far more important to have access to cheap, often non-unionized labor. The movement of firms in response to changing economic conditions is enormously efficient. When firms migrate to lower cost areas, productivity increases and prices fall.

But even though regional change is ultimately benign, the period of transition can still be painful. Between 1960 and 1980, every manufacturing city in a colder area of the country got clobbered. Employment and population fell. Property values collapsed. Social problems often accompanied these economic transitions. If housing wasn’t so durable, many of the rustbelt cities would now be much smaller than they are today. This story is told in Chapter 7 which discusses the distress that can accompany urban change.

As of the mid-1970s, it was almost impossible to find a traditional city that wasn’t experiencing enormous difficulties. The exodus of manufacturing firms was accompanied by breakdowns in the social norms of poorer neighborhoods. Crime soared and the number of single-parent households exploded. Local governments often did their share to contribute to the urban malaise, as mayors who promised to right the unrightable economic and social problems of their cities only delivered fiscal mismanagement. Many observers during this period looked at the cities—not just Cleveland and Detroit, but also New York and Boston—and saw nothing but further decline.

Remarkably, some of these cities turned around. New York’s strength as the world capital of finance overcame its manufacturing losses. Boston reinvented itself as an innovative technology center. Chicago, Minneapolis and even Washington, D.C. had 18

their own little rebirths. Instead of disappearing entirely, a subset of cities—even those in the rustbelt—managed to come back. Success was uneven, and the majority of onetime urban giants have continued to decline; nine of the fifteen largest cities as of 1950 continued to lose population in the 1990s. Still, some cities were able to stem their decline.

Why did some of the declining cities rebound and others continue to fall? A single variable can explain most of the differences in the fortunes of cold weather cities: skills. The share of the adult population with college degrees in the Northeast and Midwest in 1980 is a strong predictor of population, income and housing price growth since then (Glaeser and Gottlieb 2006). The industries that drove the rebirth of a select group of older, cold weather places are almost all idea-oriented, whether computers or finance. Cities that once thrived as industrial hubs with the eliminated minimal transport costs for goods recentered focus around the transmission of ideas. The high densities that once made it possible to get goods quickly to the wharf now made it easier to interact with traders or lawyers or innovators in information technology. As information became an increasingly important part of the modern economy, the urban edge in facilitating information flows has become an increasingly valuable economic asset. Driven by the rise in idea-oriented industries, the productivity of the densest metropolitan cities rose relative to the rest of the country between 1980 and 2000.

The increasing productivity of some older cities was accompanied by a transformation of older cities into places where it was pleasant to live, not just productive to work. New York, Boston and San Francisco all experienced residential renaissances as well-off urbanites, especially those with no or few children, returned to city-living. Neighborhoods that had been declining were gentrified, especially those like Tribeca that were close to production districts. Perhaps, most remarkably, some cities even acquired reverse commuters who lived in the city center and drove out to suburban jobs. This commuting pattern would have been unthinkable in 1900, when gilded age plutocrats like Jay Gould and J.P. Morgan fled the city as quickly as they could on their yachts; 19

commuting by water was particularly appealing in the pre-car era.8 The rise of reverse commuting is just one particularly visible sign that cities now compete as centers for consumption not just centers for production.

The rise of consumer sovereignty is indeed one of the great aspects of the decline in transportation costs. In 1900, firms and workers located in places that firms had a production-related advantage, like proximity to the coal mines or to the Great Lakes. 100 years later, transport costs have freed Americans from having their locations determined by these cost-saving natural attributes. Over the 20th century, people moved to warm, dry places where they wanted to live and the firms followed. California, Florida, Nevada and Arizona are all states that have grown because people have been free to choose sunny climates and car-based living.

In the 1990s, the move to sun and sprawl continued unabated. The turnaround of a few older cities shouldn’t let us forget that it is Las Vegas, not New York, that is the real urban success of the 1990s. Still, it is remarkable that New York, Boston and Chicago have done as well as they have as consumption centers given the painful decades between 1960 and 1980. Their turnaround is the result of improving city amenities—the decline in crime is particularly important—and the fact that some members of an increasingly rich population really want the special amenities that are best consumed in a big, old city. Beautiful older architecture, a plethora of shops and restaurants, and the sheer density of social contacts all help New York thrive as a city for living, at least for a subset of the population.

What will the next fifty years bring for cities? Predictions are always risky, but city growth has been pretty consistent. Moreover, the great trends that impact cities—low transportation costs, cars, wealth and an idea-based economy—seem likely to persist into the near future. As such, in Chapter 8, I will turn to the future of cities.

8 Kintrea, Frank. (April 1970) The Realms of Gould. Vol. 21(3). American Heritage Magazine; Barker, Robert. (March 30, 1998) Georgia Isles on my mind. Business Week. 20

Much of the predictability of cities comes from the fact that durable housing and infrastructure means that it can take a century before the impact of a large shock is felt. The lower human capital9 rust belt cities are still declining not because of anything that happened in 1995, but because of changes that happened in the first half of the 20th century. It seems unlikely that any of this will reverse itself. In the absence of global warming on a truly grand scale, it seems implausible to think that people will flee California to go to Michigan or Maine. The great amenity of being able to be outside for twelve months each year, rather than six, seems likely to continue working its attractions for the foreseeable future.

The car also appears to be here at least until the next revolution in personal transportation. As time continues to become more valuable, it seems unlikely that people will abandon car-based living for the much slower commutes that use 19th century technologies like the train. Some pedestrian cities—New York, Boston, San Francisco— may continue to thrive, catering to the modest subset of the population that seems to like walking. But it seems likely that enjoying an urban walk will be fulfilled more by the continued development of pedestrian centers that are car friendly. The shopping mall of course is that great example of a walking “downtown” catering to car travelers. As artificial as malls may seem, they provide many of the basic consumer pleasures of an old-style main street and have much better parking. Downtown Las Vegas is another example of a walking wonderland that is easily reached by cars. Innovations in this area continue to emphasize that it is more likely that new areas will meet consumer needs than that most downtowns will somehow come back.

There is, of course, the possibility that gas will reach ten dollars a gallon. One scenario involves increased automobile usage in China and India which would increase demand for a limited gas supply, resulting in higher gas prices and making driving considerably less affordable. Once all of China and all of India starts to drive, the competition for our limited gas resources may make driving considerably less affordable. I believe that this

9 Human capital refers to the intellectual and social capabilities of people. It is usually imperfectly measured with years of schooling. Human capital is important for city growth because it increases entrepreneurship, productivity and reduces social distress. 21

is far more likely to push innovation in the automobile sector towards hybrids and higher mileage vehicles than it is to get Americans to give up their cars. Fifty mile per gallon cars currently exist. My faith in the ingenuity of this sector makes me believe a 100 mile per gallon car is surely reachable in the next 15 years. If gas reaches 10 dollars per gallon, a 10,000 mile per year driver of 100 mile per gallon car will spend $1,000 per year on gas. This will be expensive, but not prohibitive to vast numbers of Americans. Driving smaller, more fuel efficient cars seems like a far more likely response to higher prices than to give up car-based cities.

A third likely trend is the continuing importance of density, especially insofar as it abets the transfer of ideas and the production of innovation. Car-based cities are less dense than Manhattan, but Silicon Valley is no population-free landscape. The Bay area provides the example of a car-based city that specializes in the exchange and production of new ideas. Traditional downtowns may not reappear, but the demand for interaction is not falling. As such, we should expect to see continuing medium density areas that specialize in high human capital people and industries.

One interesting trend that we have seen over the last 30 years is a mild increase in segregation by skill across regions of the countries. High skill people have innovated in ways that then employ other skilled people. As a result, there are an increasing number of enclaves, like Silicon Valley, that are dominated by an entrepreneurial elite. This trend is not as dominant as the move to sun and sprawl, but at least there is a possibility that idea-oriented cities will increasingly seem like segregated enclaves separate from lower human capital places that specialize in cheap housing and pleasant living.

Geographic location is likely to be as important in 2050 as it is in 2000 or 1900. Differences in productivity between regions of the country have stopped converging. The recent discussion of blue states and red states reminds us of how much place can predict how people think about the world. Our cities will be different—increasingly car- centered, consumer-oriented, catering to the production needs of an information economy—but they will continue to be the heart of our economy and our society. 22

Public Policy and the Cities: The Case for Change

In the final chapter of this book, I turn to appropriate public policies towards urban change. There are many different lenses that a social scientist can bring to public policy. We can ask why urban policy looks the way that it does. We can ask how important policies have been to the evolution of American cities. But we can also ask what the right policy is for a mayor trying to revitalize his downtown or for the nation as a whole trying to manage regional development and change.

I will spend some time throughout the book discussing urban policies and trying to explain why they look the way that they do. For example, over much of the late 20th century, city leaders gave up on their attempts to right all the social wrongs in their communities. Visionaries who wanted local government to play Robin Hood, like John Lindsey and James Michael Curley, gave way to city manager mayors like Richard Daley and Michael Bloomberg, who tried to get basic public services right. The retreat from the local welfare is important and somewhat sad, but inevitable. As declining transportation costs made it possible for firms and richer citizens to flee high local tax rates, cities lost their ability to tax with impunity.

I will also argue throughout much of the book that while government policies are important, they are not the critical determinants of urban change. The move to sun and sprawl was abetted by some bad urban management and some subsidy of the car, but these trends were likely to dominate with any reasonable policy. Even the Europeans, who engaged in aggressive gas taxes and public transportation subsidies, have increasingly developed urban landscapes that look remarkably like American sprawl. Some observers have argued that Southern right-to-work laws caused the move from Rustbelt to Sunbelt, but weather is a much better predictor of urban growth than any laws 23 regarding unionization.10 The policy issues are not irrelevant, but it is the basic economic trends that really drive urban growth.

In the past twenty years, however, there is one major policy change that does appear to be dramatically changing urban growth: the increasing severity of land use regulation. In the 1960s, developers were more or less able to do what they wanted with little control by local government. By the 1990s, in California and a growing number of older areas, local opposition to development shut down growth. There is essentially a perfect correspondence between the number of homes in an area and the number of people who live in that area. As California shut down growth, housing prices soared. The restricted supply of homes was confronted with a huge demand for California’s climate, resulting in a population growth decline, especially in the more attractive coastal areas. Instead of further development in Los Angeles or the Bay Area, development soared in less regulated places like Phoenix, Atlanta, Houston and Las Vegas. These policies are unlikely to change and they mean that growth is more evenly distributed throughout the warmer states than it might otherwise be if the levels of regulation were similar across the sunbelt.

I see value in many land use regulations, but I also believe that these restrictions are sadly limiting the ability of many Americans to afford to live in the areas of the country that are most productive and pleasant. There has been a massive change in the way that we have regulated development with almost no national dialogue. This change has shifted urban development and greatly increased housing costs in many areas. I am not sure what should be done about it, but I am sure that this is worthy of far more attention than it has received.

The barriers to new growth are an example of what I think is the greatest mistake in urban policy: resistance to change. Throughout this volume, I try to make the case that urban change is ultimately benign. Conditions change and our space should change with

10Moore, William J and Robert J. Newman. (July, 1985) The Effects of Right-to-Work Laws: A Review of the Literature Industrial and Labor Relations Review, Vol. 38, No. 4, pp. 571-585.

them. It is sad when wealthy communities try to stop others from sharing their success. It is equally a mistake to try to artificially prop up declining communities whose day in the sun is long gone.

Indeed, my main policy recommendation for a national urban policy is to give up on policies that put places ahead of people. We have a national obligation to look after our fellow citizens and to try and make sure that as few of them are left behind as possible. We have no national obligation to any individual place. There is no reason why ghost towns in Montana should be built up again with federal dollars. There is also no reason why government aid should try to prop up declining rustbelt capitals or inner city neighborhoods losing population.

There are at least three good reasons to fear place-based policies. First, place-based policies meant to preserve declining regions distort the incentives of people to leave those areas. Why would it possibly make sense to try to keep people in ghettos or in cities whose declining economies have little chance of righting themselves? Doesn’t it make far more sense to educate our children and let them move where they want, following their own preferences and economic opportunities? Many of the older rust belt cities are rife with social problems. In many cases, it would seem like sounder policy to encourage the young to flee rather than to encourage them to stay.

Second, place-based policies will often help the landlords in an area but not the residents. Consider an urban renewal project that houses a contemporary art museum in a distressed neighborhood. If the museum is good, it will push up prices and attract a new group of wealthy art connoisseurs to the area. The original residents may not care much about the art and they are certainly worse off when their rents rise. Helping the place may end up hurting the people in the area.

Third, the government isn’t necessarily the most cost-effective driver of urban evolution available. Some projects to rebuild downtowns have been remarkable successes, although even in these cases, little cost-benefit analysis has actually shown that many 25 spent on a revitalized downtown was better spent than money spent on schools. An even larger number of place-based projects have been costly and reaped few returns. Large scale government projects are invariably captured by interested parties and serve their interests more than those of the people who are meant to be helped.

None of this means that all place-based policies are bad. Good places enrich our lives. However, the fact that politicians are themselves place-based means that invariably there is too much enthusiasm for these actions. As a country, we are better served by adopting spatial neutrality as our watchword, rather than trying to fight against the urban trends that will inevitably overwhelm most government intervention.

Policy advice to mayors is different than policy advice to the nation. It is appropriate that mayors fight for their localities, just as it is appropriate that CEOs fight for their firms. Federal spatial neutrality aims to give a level playing field for cities, just like neutrality between firms means to give a level playing field for companies. It is no contradiction to simultaneously urge the Mayor of Providence to try to build a great city and to urge Congress to say no to funds earmarked for that place, just as it is no contradiction to urge the President of Texaco to make money for his shareholders and to urge Congress not to give Texaco anything special.

What are the right policies for mayors trying to build their cities? I think that the answer lies in the data: sun, skills and sprawl are the three factors that predict urban success. No mayors have power over their sunlight, but this factor should lead us to judge the success of a California mayor and a Wisconsin mayor using different standards. Mayors of older towns cannot and should not turn a 19th century cityscape into the edge cities of Texas, although the continuing strength of the car should lead them to be suspicious of investing too much into public transportation.

The one variable that civic leaders have some control over is the skill base of their cities, and mayors that want population, income and housing price growth do well to focus on policies that will enrich their place’s human capital. Roughly speaking, there are two 26

classes of policies which can be pursued: business-oriented policies and people-oriented policies. Traditional, local development policies were business oriented and tried to lure big employers to a particular metropolitan area. There are many reasons to doubt the wisdom of these policies.

First, economic growth is increasingly unpredictable. It is awfully hard to figure out what the new, new thing is going to be. Betting on a particular firm or industry seems just as likely to lose as to win. If it was easy to predict the next important innovation, then the innovation would be unlikely to be all that important.

Second, governments aren’t particularly good at picking winners. In the 1980s, there was a great deal of noise about how the U.S. needed to imitate Japan and adopt a policy of investing in new firms and industries. Indeed, Japan’s Ministry of Industry and Trade (MITI) attracted many of the best and brightest from an unusually bright country. However, even given the astonishing resources at MITI’s command, research has shown that MITI consistently picked losers (Weinstein, 1994).11 The resources available to local governments are far inferior. How should we possibly think that localities can figure out the right firm to back?

Of course, local governments shouldn’t ignore business. Good city leaders will listen to what firms want and try to accommodate their least costly needs. But this is a far cry from thinking that a large-scale aggressive policy of picking winners makes sense.

Instead, it seems far more reasonable to try to attract smart, entrepreneurial people and trust that they will figure out how to innovate. But what attracts skilled people to an area?

11 “The MITI Myth: Central Planning Fails in Japan,” The American Enterprise, 6: 4 July/August 1995 pp. 84-86, with Richard Beason. “United We Stand: Enterprise Unions and Firms in Japan,” Journal of the Japanese and International Economies, 8, pp. 53-71, 1994. “International Adjustment and the Japanese Firm,” The Journal of the Japanese and International Economies, 8, pp. 353-7, 1994.

One view is that skilled people are creative and creative people like the arts, tolerance and funky downtowns. There is surely a role for the arts in city planning. It is hard to really be against tolerance, and sometimes a funky downtown is the best thing that can be done with a post-industrial streetscape. But the spirit of these recommendations reflects a misunderstanding of the identity of the skilled people who have driven urban success over the last 40 years.

The average skilled worker is far more likely to be a married person with children, in her late 30s, than a bohemian. To see an urban landscape that attracts the skilled it makes more sense to look at Palo Alto or North Carolina’s research triangle than to look at Greenwich Village. Good schools, safe streets, short commutes and moderate taxes appear to be far more important than funk. Unsurprisingly, the average 40-year old couple with two advanced degrees and 1.5 children cares a lot more about the education of their children than nightclubs.

The upshot of this is that good city government is what it has always been: delivering the basic public services that cities provide and delivering them as inexpensively as possible. Creating a cool downtown is all to the good, as long as it doesn’t cost too much, or let city government forget that its future depends far more on the quality of its school system.

One potential danger lies in local governments getting too enamored with alternatives to the car. There are many reasons to think that we currently drive too much. We don’t charge to drive on congested roads, so they get overused. Carbon emissions may be pushing global warming. Indeed, there is a perfectly good case for a higher national gas tax, especially if it is tied to a general carbon emissions tax.

But just as the car needs to be better managed, cities that think they are going to grow on the basis of public transportation, especially rail, are living in the past. Skilled people overwhelmingly drive. The average commute by car in the U.S. is 24 minutes; the average commute by public transportation is 48 minutes (Glaeser and Gottlieb 2006). No 28

city is going to attract a pair of young professionals with two kids from the research triangle by offering them a garden apartment with easy access to rail. Just as the John Lindsays of the past were taught by the out-migration that they couldn’t solve all of society’s problems at the local level, the environmental activists of today who think that they can force public transportation on people one city at a time will only succeed in pushing the skilled away to cities that are friendly to people who want to drive to work.

Good urban policy aims to make cities centers of socially productive interactions. America’s urban past has had some glaring successes and a few dismal failures. The hope of this book is that we can learn from the past and move forward in a way that respects the rights of consumers and the realities of a changing economy.

Chapter 2: The Colonial City

America had five cities with more than 10,000 people in the 1790 census: Baltimore, Boston, Charleston, New York and Philadelphia.12 They were all ports sitting on the edge of an open continent and shipping goods from the new Republic to the old world and its colonies. Of these five, only Boston and New York were founded in the first half of the seventeenth century. These two cities are also the only two American cities incorporated prior to 1680 that have more than 200,000 residents today.

Given the large differences between the founding visions of Boston and New York, the two cities’ later history is remarkably similar. New York was a company town. Its primary objective was to make money for the Dutch West India Company. Colonists traded fur and were happy to look for any other trading opportunities they could find with the local Lenapes or anyone else. Like many colonists, but not Bostonians, the early New Yorkers hoped to earn a fortune quickly and get back to Holland as quickly as possible. Taverns and prostitutes both thrived in its tolerant, urban atmosphere. The West India Company squelched attempts to impose religious restraints on residents. How could such rules possibly make the company’s partners any wealthier?

Boston was different—not just from New York but from every other colony outside of New England. Its residents came not to earn a quick buck, but to found a religious colony free from the oppression and perceived vices of the Old World. Naturally, the early Puritans didn’t expect to live in penury. In a sense, they were America’s first consumer city: a place whose population grew as a result of a desire for a certain lifestyle, not for high earnings. They hoped that God’s favor would ensure that their trade and fishing activities would thrive.

Both Boston and New York have long been centers for innovation and new ideas, but while New York’s success was almost destined by its perfect geographic location and

12 http://www.census.gov/population/documentation/twps0027/tab02.txt

port, Boston’s success only came through a series of struggles and reinventions which challenged its residents to figure out new ways to survive in a location that was far from ideal. The colonial history of Boston shows the importance of transportation, but it also shows that America’s cities thrived as centers for new ideas from the outset. The city’s survival ultimately hinged on the remarkable willingness of smart people to stay and innovate rather than cut and run.

John Winthrop and his Family

John Winthrop founded Boston, leaving prosperity and safety in England because of his passionate set of religious beliefs. Winthrop not only created a city, but he himself was also a product of ideas created and spread in other cities. The growing cities of 16th century Europe played a crucial role in spreading the ideas of the Protestant Reformation. Winthrop’s religious ideas were the production of religious ferment and he in turn founded a city that would also be noted for religious change and innovation.

The Winthrop patriarch was John’s grandfather, Adam, who had come as an apprentice cloth-maker to London, a major city where ideas flowed freely. Adam Winthrop embedded himself in a network of clothmakers who taught him skills, made him wealthy and appeared to impart in him sympathy for religious reform (Bremer, 2003). Adam Winthrop retired to Groton, where religious reformers were strong, and his children grew up surrounded by fervent believers. John Winthrop’s father was educated at Cambridge, the leading intellectual center for Puritanism, and he married the daughter of Henry Browne, sometime reforming rector of Groton.

John Winthrop himself studied with a Cambridge-trained tutor and spent two years at Trinity College, Cambridge, before returning to manage his father’s estates. As a local worthy, he became involved in dispensing justice and eventually in his thirties studied law and was admitted to the bar. Winthrop was well-to-do, but not rich, and steeped in both religious and legal knowledge. Much of the leadership of the Bay Colony shared 31

those attributes. Perhaps most striking to the modern observers is that these pioneers were so well-educated, given the standards of the seventeenth century.

The right to colonize Massachusetts Bay had been granted by royal charter to the Massachusetts Bay Company in 1629. In that same year, while still in England, Winthrop was elected Governor of the Massachusetts Bay Colony. Some of the investors in the company were driven by pecuniary motives, but Winthrop seemed attracted more for religious than for financial reasons. King Charles I had begun moving the Church of England away from Protestant reform; Winthrop thought his religious community in the Stour Valley besieged by the established church. Against this perceived threat, Winthrop urged his backers to support his expedition “to raise a bulwark against the kingdom of Antichrist which the Jesuits labor to raise in all parts of the world.” Subsequent ethnic conflict between Irish Catholics and Boston Brahmins seemed almost guaranteed such a city’s founding mission.

At first glance, Winthrop’s decision does seem madness itself: a prosperous lawyer in thriving England surrounded by friends and relatives decided to make a perilous ocean crossing to a new world, where English colonies had a pretty dismal track record and where there was no evidence whatsoever of vast riches. Three facts help to understand this decision. First, despite the short track record of English colonists, the Spanish had been colonizing the New World with some degree of success for more than a century. Their innovation made English imitation less remarkable and certainly less risky. Second, Winthrop was a man of astonishing courage and wanderlust. Third, Winthrop’s religious views were so fervent that even in England he lived outside of the ordinary. His worldview consisted of saints, who were assured of eternal salvation, constantly under attack from the forces of darkness. As today’s religious extremists’ engage in both self- segregation and risk-taking, Winthrop did the same. While we think of modern cities as models of diversity and inclusiveness, Boston was founded to be religiously homogenous and exclusive.

Bremer (2003) argues that Winthrop was elected Governor because he was the most significant prospective emigrant who was willing to risk everything and commit to the Massachusetts Bay. There were richer Protestant supporters of the colony, but they were unwilling to become permanent residents of the new colony. Winthrop had just the right combination of worldly competence and otherworldly fervor to make him the elected leader of the Massachusetts colony.

In 1630, Winthrop led a fleet with eleven ships and 700 settlers across the Atlantic. He first settled in Charlestown where John Endecott, a native of Salem, had built him a house (Bremer, 2003, p. 192). While Salem itself offered limited opportunities for a large settlement because of its rocky soil, Charlestown boasted better farmland, a protected harbor and the Charles River.

Charlestown had everything except the most important ingredient for urban survival: clean water. The area’s one spring was accessible only during low tide, and without good water, disease spread among Winthrop’s followers. The Governor then led his flock across the Charles to what was then known as the Shawmut, “drawn there by a spring with abundant fresh water” (Bremer, 2003, p. 193). Boston was founded because of a spring.

While the first months in the New World were subsidized by investors and by the sale of the settlers’ English property, Winthrop still faced the fundamental problem of economic survival, and the colony needed a more permanent means to right a massive deficit with England. After all, the immigrants were not natives who could live without English products. They needed to buy goods from England, and there wasn’t much in Massachusetts that was worth shipping across the ocean for sale. As John Smith wrote in 1616, New England’s “main staple, from hence to bee extracted for the present to produce the rest, is fish” (Smith, 1616). While there was some money in fishing, New England waters had been fished for decades by seamen who saw no need to put down permanent roots in Boston or even New England.

Every successful colony prior to Massachusetts was based on extracting high value-per- pound products with a strong market in the Old World. Spanish settlement in the South was driven by silver and gold which enriched the conquistadors, who returned to Spain and funded the Hapsburg military machine. The Dutch colony in New Amsterdam and the Swedish colony in what became Delaware were trading posts for the acquisition of furs from Native Americans. The Virginia settlements became plantations, growing tobacco and shipping it back to the Old World. The Massachusetts Bay colony had neither tobacco nor gold nor silver, and too many colonists to survive from the fur trade alone.

We don’t have data on trade flows during these early years, but eighteenth century patterns illustrate Massachusetts’ basic problem. Between 1697 and 1774, New England ran a trade deficit with England during every year. Most of the time, imports from England were worth more than double New England’s exports. By contrast, between 1700 and 1750, Virginia and Maryland ran trade surpluses in all but three years, and in most years the surpluses were enormous. For example, in 1700, Virginia and Maryland imported 173,481 pounds worth of goods from England and exported 317,302 pounds worth of goods (mainly tobacco) to that country.13 While southern economies made financial sense, Massachusetts had to buy goods from England and had no obvious means of paying for them.

Boston’s problem was unique among seventeenth century colonies, but common among cities. No city is economically self-sufficient. At the very least, it needs to import food products, and most cities need to import far more than that. To pay for their imports, cities need a substantial export industry, and a city’s dominant export industry often determines that city’s character. For example, nineteenth century New York exported textiles. This industry employed thousands of immigrants, often women, working in close quarters. Twenty-first century New York exports financial services. This industry employs thousands of highly trained exporters who also work in quarters that may be

13 Glaeser, E.L. (2003) " Reinventing Boston: 1640-2003 ," Harvard Institute of Economic Research Discussion Paper #2017.

34 close but that are certainly far more luxurious. Detroit sold cars and Chicago exported refrigerated, processed beef. Rarely can a city be understood without understanding its dominant export industry.

The only type of city that can survive without an export industry has enough unearned income to cover their import needs. Historically only seats of government have that kind of unearned income. Capitals, imperial and otherwise, from eighteenth century Edo to twenty-first century Washington can grow large on tax revenues, and have no need to export goods or services. In the late twentieth century, some particularly poor cities, like East St. Louis or Manchester, England, receive a large fraction of their income through government transfer programs and can survive with few exports. Finally, there are an increasing number of communities designed around wealthy retirees that do not export.

Boston may have been the Massachusetts Bay Colony’s capital, but that didn’t bring in much tax revenue and it certainly wasn’t going to be supported by Parliamentary largesse. It needed to find its own export industry. During its first decade, the Boston economy survived as something of a colonial era Ponzi scheme. The first wave of settlers provided food and basic necessities to the next wave of settlers who paid for them with their life savings which they brought with them from England. The older settlers were able to buy English goods with the wealth of the newer settlers. As Boston’s population rose from 150 settlers in 1630 to 1,200 settlers a decade later, this policy of living off new immigrants worked for a time.14

But any Ponzi scheme relies on exponentially increasing numbers of new participants and, by the 1640s, the flow of immigrants was starting to wane. Winthrop’s co- religionists took up arms against the King, and chaos in England shut down the westward voyagers. After the Parliamentary Victory15 the Protestants no longer saw the need to emigrate to live in a religious community. Even without these events, the colony could

14 Glaeser, E.L. (2003) " Reinventing Boston: 1640-2003 ," Harvard Institute of Economic Research Discussion Paper #2017. 15 The Parliamentary victories were part of the English Civil War. "English Civil Wars." Encyclopædia Britannica. 2006. Encyclopædia Britannica Online. 16 Oct. 2006 http://www.search.eb.com/eb/article- 9032663. 35

not have long survived on the basis of immigrants’ gold, because the number of Bay colonists would be too large to survive by selling to new settlers. John Winthrop’s city needed a new economic model.

Furs seemed to present one possibility. William Bradford had led a fur expedition in the 1620s. In 1631, John Winthrop sent out a ship, The Blessing of the Bay, to acquire furs (Bremer, 252). Fur had a high ratio of value to weight – ideal for shipping back to England. But competition for furs was exceedingly fierce. New York had been set up to specialize in this activity and the French settlers in Quebec were also expert fur traders. The potential of furs seems to have been obvious to everyone and there was nothing about Boston that gave it any sort of an edge. Fierce competition and a limited animal stock ensured that Boston was not going to grow as a fur trading community.

John Winthrop, Jr., the multi-talented son of the Bay’s first governor, had other visions, which would only come to fruition in later centuries. Winthrop’s namesake son was an active doctor, statesman and scientist, but he was also a proto-industrialist. He started an unsuccessful saltworks near Ipswich (Bremer, 332). He pursued mining and iron manufacturing and even convinced the colony’s government to support prospecting. He eventually established the Saugus Iron Works in 1646 which became the area’s first industrial site.

Winthrop’s efforts were not failures, but they were far too small to support a large population. Since transporting iron is expensive (needless to say, its value per ton was less than that of furs), it had no international market and Winthrop could only sell to the small colonial market. Massachusetts iron works required skilled labor that the younger Winthrop needed to import from England. Moreover, his proto-industrial activities needed water power and iron ore - ideally located away from Boston. Despite his creative ideas, Winthrop’s son could not overcome the inherent disadvantages in the high cost of transporting iron. The Iron Works were an important foreshadowing of America’s later industrial might, but they were not the solution to Boston’s needs for an export industry. 36

The First Reinvention and the Rise of the Triangle Trade

Other entrepreneurs-- George Story, Samuel Maverick and John Winthrop’s other sons Stephen and Samuel— established the source of Boston’s financial well-being: trade in basic commodities with Spain, the West Indies and the American South. George Story came to Boston in 1636 as a traveling salesman representing an English trading house. Bostonians displayed the welcoming attitude for which they would become famous for over the next century. Story was quickly brought before a magistrate and fined as an alien, but fortunately, he stayed anyway.

More importantly for Boston commerce, Story responded to the economic crisis of 1640 by exporting 8,500 clapboards “presumably to the islands.” Samuel Maverick followed him closely, shipping clapboards to Malaga, Spain. In 1642, John Winthrop noted the departure of six ships “laden with pipe staves and other commodities of this country.” New England was by and large forest, so it was natural that wood products were a major export. Throughout the colonial period, wood represented about one-third of Boston exports measured by weight.

The only problem with wood is that its value per ton is extremely low. Grain— a somewhat more valuable commodity—was soon added as a second Bay colony export. Edward Gibbon in 1641 received support from the General Court for a grain ship. In 1644, the sixty-ton Hopewell carried grain from Boston to the Canary Islands. Finally, the colony had a long tradition of exporting fish, and so three commodities—grain, wood and fish— became Boston’s core colonial exports.

Through the mid-1640s, Boston ships focused on a direct trade between Massachusetts and the Old World. This required a lot of sailing for such low value commodities until a better model emerged in 1647. In that year, a great Barbados famine sent Caribbeans north looking for food. Ships from the West Indies appeared in Boston looking to buy grain and fish, and thus began the export of Boston grain and fish to the West Indies. The 37

Caribbean colonists specialized heavily in sugar, which generated huge profits when shipped to European markets. The high returns to sugar meant that planters switched land that had been producing food into sugar production. This left the Caribbean colonies with little excess food supply and vulnerable to a bad growing season. Bostonians, with plenty of food if little else, were only too happy to accommodate them.

In a sense, this economic model was only a slight twist on Boston’s first industry— selling food to new settlers. Now Bostonians were still selling food to settlers, but the settlers were in other colonies. A division of labor between Massachusetts and the Caribbean (and later the American South) made perfect sense. The soil of the extractive economies of the Caribbean and the South could grow tropical commodities which were scarce and valued in the Old World. Massachusetts-grown food could be shipped to these richer southern areas and the income gained from this trade would help the Bay Colony pay for English goods.

This basic pattern persisted throughout the colonial period. By 1770, 78 percent of Massachusetts shipping left for America, Bermuda and the Caribbean and only 18 percent left for England. Shepherd and Walton (1972) tell us that in the 1768-1772 period, 35 percent of the Massachusetts exports to the West Indies were fish, 32 percent were livestock and 21 percent were wood products. Sending grain and wood southward eventually coalesced into a triangular trade. Ships that traveled from Boston to Barbados laden with wood, fish and grain would have to return with empty holds if they went straight back to Boston. Instead, ships would come into Boston with manufactured goods from Europe, depart with wood, fish and grain for the Caribbean and then complete the triangle by bringing sugar to Europe, solving the coincidence of wants problem.

Today, urbanization and income go closely together. But in colonial America, the less dense, extraction-based colonies were richer than Massachusetts. By all accounts, New England seems to have been prosperous relative to Europe, but so was the South. Boston’s size was not a direct result of Massachusetts’ wealth, but rather a result of its urbanized export industry for a variety of goods. Virginia’s tobacco trade was simple and 38

hinged on dispersion across vast plantations. Boats would come down the river to pay cash for bales of tobacco. No Southern rival grew larger than Boston, in part because one relatively simple commodity dominated southern life and this did not require a commercial or manufacturing center. But since Massachusetts’ produce was worth too little to export to England, the colonial merchants were forced to develop a complex trading system that handled a rich number of commodities.

A Commercial Cityscape

America today is a remarkably self-sufficient economy. The ratio of exports plus imports to GDP in the U.S. is about one-half of that trade ratio in France and England. In the seventeenth and eighteenth centuries, it was the European economies that were relatively large and self-contained while the United States depended on its external trade. The early American cities were the lynchpins of this trade; they were the sluices through which the wealth of the New World found its way back to the old. There were five cities with more than 10,000 inhabitants in the first Census of 1790: New York, Philadelphia, Boston, Charleston and Baltimore.17 Every one was a port. In each of these places, American wealth went either directly (in the form of tobacco and cotton) or indirectly back to the Old World.

No place was more dominated by ocean commerce than Boston, which shaped its economy, society and physical structure. For two more centuries, Boston would look seaward; its economy was tied to the ships that came in and out of the harbor. The most important government policies towards the city were those that impacted trade. As late as 1840, there were twice as many people in the city’s seagoing trades as in manufacturing. Still, the growth of Boston came from other industries which clustered around the port.

17 Census.gov. 39

Agglomeration economies make cities grow. An initial advantage, like a port, then attracts new businesses that come to supply the city’s first inhabitants with inputs or non- traded consumption goods. This phenomenon by which an initial success increases the returns (by increasing customers and infrastructure) for future businesses is called a positive feedback mechanism. Sometimes, these trade-based agglomeration economies are supported by the gains from sharing the costs of common infrastructure. Boston’s Long Wharf could serve one merchant or hundreds.

A natural port city, Boston is both protected from the turbulence of the open ocean and connected by river to rich agricultural hinterland. Early colonists recognized these geographical advantages and designated it the political seat of the Massachusetts Bay Colony. Soon the flow of goods and people into and out of the city attracted a host of businesses, as many of the colony’s exports, such as ships and other wood products, required some form of workmanship. . Boston became a center for manufacturing, replete with shops and factories that transformed New England lumber into finished goods. Taverns arose to meet the demands of sailors. Shipbuilding and repair industries expanded and began to centralize their operations . Thus, while the cotton and tobacco economies of the south remained relatively basic, the manufacturing- and services-based economies of Boston and New York expanded within complex networks of trade. .

By centralizing manufacturing in one place, a port offers producers access to masses of customers and suppliers. This allows firms to grow and achieve economies of scale, which in turn enables them to specialize within a given industry. In The Wealth of Nations Adam Smith eloquently describes the many advantages that accrue from specialization, one of which is a phenomenon called learning-by-doing--the idea that we perform tasks better the more we do them. Specialization also enables people to utilize their talents and pursue their interests more effectively. In a traditional rural setting, gifted artists and brilliant athletes alike are forced to earn a living by planting crops and caring for animals; there is little room for specialization. In a large market economy, workers have opportunities to find jobs that suit their skills and inclinations. As Smith put it, “the division of labor is limited by the extent of the market” (Smith 1776). Great 40

division of labor exists today because we live in a market economy where trade in specialized goods and services occurs.. Of course, the volume of such trade depends on the size of transaction costs. If distances between producers and consumers suddenly expand and transaction costs increase significantly, trade and the demand for specialized goods will inevitably fall, limiting the division of labor. As a result, we will lose many of the advantages that accrue from the development of specialized skills and technologies.

Today, trade and specialization are ubiquitous because transportation costs are so low everywhere. However, in past centuries, these activities were possible only in cities. Ships arriving in colonial Boston provided enough of a market that barrel-makers and tavern-keepers could specialize successfully in their trades without depending on income from secondary occupations. . In 2006 a quick glance at the Manhattan Yellow Pages reveals specialized operations like necktie restoration and parapsychology, professions that simply do not exist in smaller towns.

Arguably the most important development in Boston’s early labor market was the emergence of professional merchants.. These men, who operated at the heart of the Boston economy, specialized in matching supply and demand, or, more specifically, in allocating capital to profitable seafaring ventures. Boston merchants pioneered a remarkable number of trade routes, some justly famous, like the China trade, and some infamous, like the triangle trade, which brought slaves from Africa to the southern colonies.

In the colonial period, American cities facilitated the trade of ideas as well as the trade of goods. Whereas rural tobacco farming in the south required little up-to-date information or interpersonal activity, mercantile operations aiming to match supply with demand across continents involved much face-to-face contact between merchants in search of the next lucrative business opportunity. In his history of Massachusetts, Morison describes

how Boston merchants even in the nineteenth century “still continued their eighteenth- century custom of meeting on ’change, at one o’clock every week day, to discuss business and politics before going home to their two or three o’clock dinner” (Morison 41

1961). Their information-intensive business required the kind of first-hand knowledge that could only be acquired by living at the port.

Boston’s society was dominated by the wealthiest mercantile families. While the most prominent Southerners owned vast plantations and held sway over what amounted to their own separate economic zones, the wealthiest Bostonians were men like John Hancock, whose earnings resulted from many profitable seagoing investments. Beneath this group of urbanites were the professionals—lawyers and ministers like John Adams and Cotton Mather. Just as the elites’ wealth was contingent on the innovativeness of their ideas, the success of the professionals was typically a function of their knowledge and education. Even renowned craftsmen and ship captains, both lower in status than the professionals, relied on human capital to succeed.

Since the mid-nineteenth century, with the rise of urban transportation technologies, living arrangements in major cities have undergone polar reversals. Initially, colonial Boston was a pedestrian city for rich and poor alike. When everyone used the same commuting technology, the wealthiest individuals, who bore the highest opportunity cost of time, lived closest to the city center in order to minimize their commute. In colonial New York, for example, the rich lived on Bowling Green, an area where large mansions were clustered together within walking distance of the port. In those days, it was the more suburban West End of Boston that gave homes to the city’s poorer residents. However, around the time of the Civil War, the introduction of new transportation technologies like the horse-drawn omnibus allowed the rich to live and commute easily to work from the outskirts of the city. In an effort to keep up with quickening pace of city life, the pedestrian poor were forced to move closer to offices and factories in the city center. Today, we observe that many urban neighborhoods continue to be heavily populated by unskilled and low-income laborers.

Perhaps the biggest structural difference between early and late American cities is that the early cities lacked street grid systems. Foot traffic did not require straight, perpendicularly-aligned streets, so roads were simply built to curve around natural 42

barriers such as hills or waterways. However, once wheel-based transportation technologies became ubiquitous, cities began to implement street grid systems, which made fast-paced urban travel much more efficient. . After centuries of growth, only remnants of pedestrian cities in the oldest quarters of Manhattan and Boston are still visible.

The dominance of foot traffic in Colonial Boston and New York was responsible for the high densities of these urban areas. People lived and worked within walking distance of one another. Manufacturers crowded wharves with their factories and shops because every extra mile to port significantly increased their overall production costs. Transportation was incredibly expensive for people and goods, and pedestrian cities in the U.S. were structured in ways that minimized the distances between buyers and sellers.

Religion, Education and Social Cohesion

The ports, trade patterns, and population densities of early Boston and New York were strikingly similar. Both places faced the same economic realities and transportation technologies. But whereas New York City was defined from its beginning by the search for profits, Boston was born as a religious colony that aspired to be a shining “city on a hill,” dominated by Congregationalism. Of course, early Boston’s hyper-religiosity would eventually dissipate, making it an extreme example of “Blue State” secularism. Nevertheless, the city’s early religious zeal left imprints on its culture that continue to play a formative role in its development today.

One direct result of Boston’s religious culture was its passion for education, which stemmed directly from the Protestant rebellion against 1500 years of Catholic tradition and the search for renewed legitimacy in the Bible. Since there were many aspects of the Catholicism that lacked biblical justification, Protestant enthusiasts found they could easily use lessons from the book to discredit their Roman-Catholic opponents.. John Winthrop and his fellow colonists, unwavering supporters of the Protestant cause, 43

believed that improving literacy rates and training young men to be effective ministers were important first steps towards securing Boston against the Jesuits. .

In part to fulfill these religious aims, the Boston Latin School was founded in 1635 and Harvard College in 1636. Although these bastions of Protestantism originated as training grounds for New England ministers, they soon began to educate Boston’s mercantile and professional elites. The enormous demand for education in New England led to the founding of many more institutions of higher learning, and over the next 370 years, Boston’s emphasis on education would make it an important trading hub in the market for both conservative and liberal ideas. The philosophical justifications for the American Revolution had their roots in the great minds of colonial Boston. Today, debates about evolution and the ethical implications of stem cell research have perhaps become most animated in that city of learning.

The second important consequence of Boston’s religiosity was the collectivism that Congregationalism demanded. . Membership in the church was a prerequisite for full membership in the community, because the church acted as the primary administrative and penal authority for the town population. Settlers in Virginia had reason to think that they were leaving a stultifying world in old England to live a freer life on the frontier. However, no seventeenth-century Boston-bound settler could hope to share in this sort of social, moral, and religious freedom. In fact, colonial Boston regulated everything from its citizens’ clothing and property purchases to their sexual behavior, all according to strict moral laws.. Liberal use of the stocks ensured that these early settlers behaved as they should.

Naturally, the surrender of the self to the group generated certain costs for the young colony. Certainly many Bostonians would have been happier and more economically productive living in a culture of greater individualism. Moreover, New York’s openness, which in large part derived from its financial rather than religious focus, attracted valuable citizens of diverse backgrounds away from mid-seventeenth century Boston. As an illustration of New York’s religious tolerance, consider the arrival of the city’s first 44

Jewish settlers in 1654. Although Peter Stuyvesant, a prominent political figure in early New York, wanted the Jews to leave the city, the West Indies Company used its financial clout to overrule him. She’arith Israel, one of the first synagogues in New York, was founded before the end of the seventeenth century. By contrast, Solomon Franco, a famous Jew, arrived in Boston from Holland in 1649 and was quickly forced to depart. In this austere and strictly homogenous climate, Boston’s tiny Jewish population built its first synagogue as late as the 1850s. Thus, the city’s intolerance, evident in the case of the Jews, without question, deprived it of many useful citizens of various religious and ethnic backgrounds.

But Boston’s early history also suggests that certain advantages stemmed from its rigidly enforced homogeneity and collectivism. Because of their strong religious foundations, Boston’s communities were able to maintain a high level of peace and stability, whereas their southern counterparts continued to be far more dangerous places to live and work (Kim, 2003). This divide is reflected in the differences in homicide rates between New England and the South, which date back to the colonial period and persist to this day.. Even within the Northeast, Boston’s religion made it a much safer and more orderly city than New York. Of course, there is always a tradeoff between regulation and disorder. But along the seventeenth century American frontier, safety seems to have been in much greater demand than liberty. Boston’s church-led system of social control made it an attractive place for settlers to start life in the New World.

Historically, urban areas have functioned as safe havens for dense populations. Traditional cities like Boston arose in the seventeenth century partly because city walls provided protection against outsiders such as the Native Americans. Today, the events of September 11, 2001 remind us that cities continue to be at risk from outsiders. But in this age of terror, agglomerations are less likely to afford protection and more likely to present tempting targets.

Most of the risk to city-dwellers, however, does not come from outsiders, but rather from their fellow urbanites. Proximity enables trade and the free exchange of ideas while also 45 facilitating theft and the spread of disease. Dense agglomerations can easily spiral into criminal chaos; riots are as naturally urban as marketplaces. Principles of tolerance and liberty make urban living seem attractive only when the city can ensure the safety of its citizens and their property.

As Bostonian religious cohesion and intolerance began to dissipate in the seventeenth century, as witch burning and exiling heretics quickly became obsolete practices, social disorder was on the rise. These changes marked the evolution of Congregationalism from a dynamic and intolerant faith that bound the community together with a strong religious mission, into a laxer denomination that was more tolerant and less powerful. Given Massachusetts’ current reputation for liberal thought, it is worth asking how America’s most religious colony became its arguably most secular state, particularly because this secularism is not just a post-1960s phenomenon Already in the 1930s New England was, despite its strong republicanism, quite religiously tolerant.. In a Gallup Poll, sixty-two percent of New Englanders said they would vote for a qualified presidential candidate who happened to be Jewish, the highest among all regions and twenty percent higher than southern respondents (Gallup 1972).

The story of Boston’s religious liberalization illustrates the power of cities to speed the flow of new ideas. The decentralization of Congregationalism, royal intervention in colonial government, and mercantile wealth were the three forces that helped transform the Puritanism of John Winthrop into the Unitarianism of Ralph Waldo Emerson.

In a centralized religious hierarchy, like the Catholic Church, innovative clerics remain tethered to a central body of dogma. In decentralized religions, like Congregationalism or Islam, each preacher has the freedom to become a religious entrepreneur, gain fame, and acquire a large following by preaching a unique message. Of course, as easily as the free market for religious ideas can produce more liberal doctrinal strains, it can abet fiery divines who claim the ability to save souls and deliver a tough message of redemption through strict adherence.

Late seventeenth century Boston had an abundance of ministers who lived and worked in proximity to one another. They exchanged ideas and felt relatively free to suggest new interpretations of old doctrine. Some of these clerics, like Increase Mather, disdained compromise measures between the ministers such as the “Halfway Covenant,” instead favoring a renewed commitment to the strongest forms of Congregationalism. Other clerics, like Solomon Stoddard, preferred a form of religion that was more tolerant of outsiders and individual moral and spiritual shortcomings. Finke and Stark have argued that America’s current religiosity is the result of its free market for religious ideas, which has allowed, in addition to the work of more liberal clerics, itinerant evangelists to continually reinvigorate people’s faiths (Finke and Stark, 1988). Since market forces naturally produced such divergent doctrinal strands, the decentralization of the church under Congregationalism alone could not have catalyzed the great liberalization of New England Protestantism.

It would also take stronger royal rule of the Massachusetts colony to initiate this change, for if the English had granted Boston a greater degree of independence, Mather and his allies might have succeeded in creating an entrenched, orthodox theocracy. But despite the fact that Mather almost convinced the colony’s General Court to adopt his own religious objectives he lost his fight against the Halfway Covenant, and in 1683 the British government demanded a surrender of the Massachusetts Charter, effectively depriving the colony of self-government. He was accused of treason, though not punished, and Sir Edmond Andros imposed Stuart rule on New England.

Andros’ rule did not survive the Glorious Revolution, which replaced the crypto-Catholic James III with the Protestant William III. William III was willing to compromise with the Bay Colony, unseat Andros and thwart the most extreme attempts to replace Bay Colony independence with royal control. But while more mindful than his predecessors of the colonists’ desire for self-determination, William refused to endorse Mather’s theocratic dreams. The new Charter, negotiated in 1691, returned some measure of control to the colony while granting the royal governor veto powers and ensuring that membership in the Congregationalist church would not be a requirement for voting. The 47

Charter guaranteed that orthodox Puritan divines would never again be the political leaders of Boston.

But if Mather had failed to achieve his political objectives, he still had an opportunity to win the hearts and minds of his fellow Bostonians. Indeed, he remained a popular preacher and was President of Harvard from 1685-1701. However, at the turn of the eighteenth century, he was confronted by a group of younger ministers who favored a faith that was more tolerant of outsiders and less demanding of its adherents. Although he had garnered greater parishioner support than his opponents, they retained the backing of the wealthy merchants, who understood that religious intolerance can interfere with the pursuit of profits. Money-minded merchants preferred a society in which spiritual piety was considered subordinate to wealth, church doctrine to individual rights. The merchants who controlled the Massachusetts General Court effectively ousted Mather from his presidency at Harvard by instituting a rule in 1701 that required the president to live in Cambridge. Mather faced a difficult choice: he could either make the arduous commute from a new home near Harvard to his church in Boston or resign from his presidency. He chose to resign. When he was replaced by Samuel Willard, the bond between Harvard and the liberal wing of Congregationalism strengthened. Willard, unlike Mather, had been a strong opponent of the witchcraft trials and other practices of the orthodox Protestantism. New England would certainly see more fire and brimstone preachers, including Increase’s son Cotton, but after this momentous changing of the guard at Harvard, mainstream Christianity would abandon strict Calvinism and embrace ideals of tolerance and methodologies of philosophy.

Cities support religious competition just as surely as they support competition among restaurants. High densities make it possible for people to choose between a variety of churches, which in turn strips clerics of the kind of monopoly power that they can wield in rural environments. Of course, if competition always led to passionate adherence, Boston never would have secularized. But competition among religious leaders does not necessarily produce a more militant church any more than competition among car producers ensures that cars are more fuel efficient. Competition only increases the 48

tendency of producers to focus on what consumers want, and the consumers of religion were both everyday parishioners and the more influential wealthy donors. On average, ordinary churchgoers wanted a passionate church, while the wealthy tended to prefer a religion that catered to their interests and promised salvation without requiring too much of them spiritually. The preferences of wealthy merchants appear to have shaped Boston’s transformation from Puritanism to Unitarianism.

New York and Philadelphia: Boston’s Stagnation

During much of the second half of the eighteenth century, Boston slumped. Its population grew from 17,000 in 1740 to a meager 18,300 in 1790. Meanwhile, New York City grew from 5,000 in 1698 (Kantrowitz, 1995) to 13,000 in 1753 and, remarkably, to 26,000 in 1786. In the 1790 census, New York City was listed as the largest American city with 33,000 inhabitants. If the greatest stretches in New York’s demographic explosion occurred after the revolution, Philadelphia’s Golden Age took place in the middle of the century. Founded as late as 1683, the city grew to become largest in the American colonies and the fourth largest in the British Empire by 1750. On the eve of the American Revolution, Philadelphia had 24,000 inhabitants (Gyourko, 2005).

Why did New York and Philadelphia surpass Boston in demographic growth? One can look for answers in Quaker tolerance or New York entrepreneurship, but geography seems to offer a much simpler explanation than anything related to civic culture. These cities copied the Boston model of shipping basic commodities, especially flour, to the Southern and Caribbean colonies, and were able to beat Boston at its own game because certain geographic advantages kept their transport costs unbeatably low.

To begin, New York and Philadelphia are more centrally located than Boston, which sits at the northern edge of the main American colonies. For ships from England and other countries that were trying to make a single delivery to the colonies, New York and Philadelphia offered better drop-off points since it was shorter and cheaper to ship goods 49 home from those cities. For ships that were traveling to the rich Southern colonies, leaving from Philadelphia and New York instead of Boston shaved miles and days from the trip.

Further, New York and Philadelphia had better river access to the American hinterland. Boston’s Charles River quickly becomes narrow and shallow inland, and is less than 100 miles long. By contrast, the Hudson is more than 300 miles long and extremely navigable. The Schuylkill and the Delaware that meet at Philadelphia are also more navigable than the Charles. In an age where water-borne transport was far cheaper than transport by land, access to better rivers gave New York and Philadelphia an edge over Boston.

Finally, the soil of New York, New Jersey, and Pennsylvania is considerably richer than the rocky soil of New England. Although an excellent source of wood, New England is not fertile enough to produce grain, the most valuable commodity in the eighteenth century. River access to farmland suitable for grain production was a necessary ingredient for substantial economic and demographic growth. The agricultural strength of the Mid-Atlantic states is demonstrated by the fact that between 1740 and 1790, while the population of Massachusetts barely doubled, the population of New York State and Pennsylvania increased fivefold.

By the 1760s, Philadelphia’s port became busier than the port of Boston because of these natural advantages. Philadelphia also dominated New York before the Revolutionary War, but this position cannot be explained by geography alone. After all, New York had every geographic advantage of Philadelphia and a superior port: the port of Philadelphia was more than 100 miles from the Atlantic, whereas the port of New York was less than 20 miles away. As a result, a European ship looking to save time and money would naturally be attracted to New York.

Joseph Gyourko argues that the fundamental difference between New York and Philadelphia in the mid-eighteenth century was that Philadelphia’s agricultural hinterland 50

was safely controlled by the English while the Iroquois Confederation still held sway in upstate New York. This difference meant that there was a much greater land area sending its grain through Philadelphia than through New York during this period. Since the main function of the port was to be a conduit for grain to the West Indies, greater grain flows meant a more active port and a larger port city (Gyourko, 2005).

Philadelphia’s dominance over Boston is particularly well-illustrated by its ability to attract creative colonists like Benjamin Franklin. Franklin was born in Boston in 1706 and eagerly attended the Boston Latin School, displaying a true Puritan enthusiasm for learning. As a young man, he worked for his brother James as a printer’s apprentice and began his long and distinguished literary career writing under the pseudonym of an older widow. He fled his apprenticeship at age 17 and, to escape his brother’s wrath, moved to Philadelphia, a city that was large enough to provide a market for his specialized skills After a brief working trip to London, he established the Pennsylvania Gazette in 1730. Franklin carried with him to Philadelphia the practical knowledge that he had acquired while working in other cities, which directly enabled him to revolutionize printing. For 18 years, Franklin prospered as literary entrepreneur. He retired in 1748 and pursued a remarkable career as a scientist and civic leader.

Urban proximity and growth offered Franklin and others a large market for their services, allowing them to specialize in an ever wider range of occupations. While population density tends to exacerbate devastating problems such as fire and disease, these complications can be mitigated if citizens coordinate relief efforts through their local government or through private civic associations. Philadelphia became a leader in addressing the worst consequences of agglomeration, with Franklin directing Philadelphians in their efforts to combat the scourges of city life.

In 1736, Franklin founded Philadelphia’s volunteer fire department. He invented the Franklin stove and the lightning rod in an effort to use science to make cities safer from flames. He also helped found Philadelphia’s first hospital as well as the Academy and College of Philadelphia, which would later become the University of Pennsylvania. In 51

the eighteenth century, social divisions and conflict with the crown made Boston less effective than Philadelphia at solving collective problems. Philadelphia’s preeminence in this area became even more obvious after the revolution when it pioneered the provision of clean water, which may be the single most important action in the history of public health.

Philadelphia reached its apogee on the basis of a robust economy and manufacturing clustered around the port. However, by the end of the colonial period, there were already signs that New York would eventually become the first city of North America. Most importantly, the French and Indian War ended the threat of the Iroquois and the French in New York, making the state’s access to the Hudson Valley considerably more valuable. The Revolutionary War also had a remarkable impact on New York City, the only large city to remain in British hands and house thousands of Tory sympathizers during the war. In the next chapter, I will return to the competition between New York and Philadelphia in the early years of the new republic, but first I will return to Boston and the roots of the American Revolution.

The Political Consequences of Urbanization: The Revolution

Boston’s opposition to the crown did not begin at Bunker Hill or in the battle over the Stamp Act, but rather unfolded in the 1680s during the conflict over the Massachusetts Charter. As discussed above, Increase Mather led a strong protest movement against heightened royal control over the Bay Colony. Sir Edmond Andros, the Royal Governor, had managed to inspire widespread dislike for policies that subjected New England to greater crown rule and diminished the power of the church. He earned the enmity of Mather by favoring religious tolerance and reducing the influence of the clergy in political matters. He also made enemies with merchants and sailors by attempting to end smuggling at the major ports along the East Coast. Above all, he won the contempt of most colonists by favoring a more charitable approach to the natives.

In 1689, when word of the Glorious Revolution crossed the Atlantic, revolution broke out in Boston and New York. Militias marched into Boston from other towns in the region and were joined by a mob of mariners. This group swept aside Andros’s small guard and imprisoned him. In New York, Jacob Leisler, leader of a rebellion that ended royal control of the colony for a brief period, held sway over the city. Already the seeds of the American war against royal sovereignty had been planted.

If seventeenth century Boston had been a model of order—no riots occurred in the city prior to 1689—eighteenth century Boston was far more chaotic. Between 1689 and 1765, “Boston’s maritime crowds provoked and participated in at least twenty-eight riots and illegal actions” (Bourne, 2006). Some of these riots were perceived by city residents as random outbursts of rum-besotted sailors, but many others were taken seriously as mechanisms for political change. In some cases, wealthy Bostonians, like John Hancock, used the unruly mobs to achieve their own larger political aims, one of which ultimately became independence.

If cities are defined by the absence of space between people and firms, then riots are a particularly extreme form of urban activity. The defining characteristic of a riot is that there are so many people either engaging in criminal activity or at the very least distracting law enforcement that the probability of arrest becomes effectively zero. Robbing a tavern on an average day would usually have led to arrest with a high probability; robbing a tavern during a riot would be a lot safer. The agglomeration of rioters causes the cost of rioting to decline, creating a feedback mechanism that is similar in nature to the productive agglomeration mechanisms that drive city growth.

These agglomeration mechanisms exist when each new resident increases the productivity of the city as a whole by bringing new ideas or increasing the extent of the urban market. In a riot, each new participant causes the cost of rioting to decline by further reducing the probability of arrest. Two people cannot carry out a riot. A riot needs enough critical mass to overwhelm law enforcement. The necessary size itself depends on the size and skill of law enforcement. Today, American riots increasingly 53

occur only on a vast scale, because anything smaller could easily be suppressed by our competent and well-armed police force. Riots in colonial Boston could be considerably smaller because the police force was so much smaller. A crowd of one hundred could be easily dispersed or arrested by the present NYPD, but they could overwhelm Boston’s small colonial force of twelve constables (Bourne, 2006).

Since Boston’s law enforcement was meager, and its crowds of sailors many, we shouldn’t be surprised that rioting was a regular event. Even without the conflict between the town’s wealthy merchants and the crown, there would have been rioting near the crowded dockside taverns. But Boston rioting was far more significant because the city brought together mariners and local merchants who saw the benefits from supporting riots aimed against English taxes and tariffs. Taxes on commerce, like the Molasses Act of 1733 or the Stamp Act of 1765, hurt both merchants and seafarers at the expense of the crown. It wasn’t hard for a well connected merchant-cum-smuggler like John Hancock to use his connections and his ample supply of Madeira wine to get the wharves to erupt in objection to the crown’s policies. The returns to Hancock of fomenting disorder were high; the crown’s appetite for trouble was sufficiently weak that it repeatedly caved when faced with these uprisings.

Indeed, the gains from connecting the merchants who wanted reform with the mobs that could force reform on England were sufficiently high that Boston created a class of middlemen that specialized in leading the mobs with the support of the mercantile elite. James Otis, Ebenezer Mackintosh and the two Samuel Adams (the father a deacon and the son a brewer) were all adept intermediaries between the wharf and the counting house. Cities abet markets and middlemen, and we shouldn’t be surprised that rich men’s demand for violence brought forth a very particular class of middlemen.

There are two different ways in which urban proximity laid the groundwork for the revolution. First, the closeness of people made organization easier. In a rural community, it is far less clear that Hancock and Samuel Adams would have found each other. In Boston, their connection was practically automatic, and the combination of 54

Hancock’s wealth and Adams’ organization skills ensured that large mobs would be called forth agitating for Hancock’s interests. Hancock’s close connection with the colonial elite as well as their own dislike of royal authority also made it easy for Hancock to be a fairly open scofflaw. At a later point in the Revolution, colonial governments would create and organize the Continental Army, but at the beginning there was only a small cadre of interested parties organizing mobs something that only would have been possible in a city.

The second way in which cities helped the Revolution was by speeding the spread of ideas. The Revolution wasn’t a mere riot, and by 1775, Boston’s elites like John Adams had made a massive intellectual shift from being loyal subjects of the crown to being lovers of American independence. Those ideas spread from person to person in the dense intellectual atmosphere of colonial Boston. As Gary Nash compellingly argued, similar processes occurred in Philadelphia and even in New York, which was the most loyal of the three largest colonial cities.18 It is no surprise that Boston sent the most radical delegation to the First Continental Congress and that the first anti-English ideas supported by the Congress were the Suffolk Resolves (Boston is in Suffolk County), which were hand delivered to Congress by Paul Revere.19

The difference between Massachusetts and Virginia was not that Virginia lacked advocates for independence. It would be hard to surpass Patrick Henry and Richard Henry Lee in this regard. But until the delegates assembled in urban Philadelphia, their ideas had not come to the same level of acceptance in rural Virginia as they had in urban Boston. Cities have often been hotbeds for new political ideas and high density levels have often abetted uprisings. Indeed, the events of 1789 in Paris were even more spectacular than those in Boston 15 years earlier. It is fair to say that the American

18 Nash, G.B., First City : Philadelphia And The Forging Of Historical Memory. Philadelphia : University of Pennsylvania Press , 2002.

19 "Suffolk Resolves." Encyclopædia Britannica. 2006. Encyclopædia Britannica Online. 3 Oct. 2006 .

Republic, which was profoundly rural for the first half of its existence, was born politically in its early cities.

Boston’s Post-Revolution Reinvention

A remarkable feature of Boston history is its continuing reinvention. After the stagnation of the mid-18th century and the chaos of the Revolution, the city rebounded splendidly in the early nineteenth century. Indeed, Boston grew steadily between 1790 and 1920, from a town of 18,038 residents in 179020 to a city of 748,060 in 1920. Over the 1790-1890 period, Boston’s population grew steadily by 3.2 percent per year, or 38 percent per decade.21 The 1790s were a typical decade: Boston’s population increased from 18,038 to 24,937, a 36 percent increase

Of course, America as a whole was growing remarkably over this period. The new republic had 3.7 million Americans in 1790 (Census, 1790) and 106 million in 1920 (Census, 1920). During the 1790-1830 period, Boston grew at about the same rate as the country as a whole. 0.49 percent of Americans lived in Boston in 1790 and 0.48 percent of Americans lived in Boston forty years later. Starting in 1830, for fifty years, Boston started growing at a much faster rate than the country as a whole, and by 1880 0.72 percent of Americans were living in Boston. 22

Boston’s growth during the 1790-1840 period followed the maritime pattern set during the colonial era. Unlike New York, Philadelphia or even Baltimore, Boston appears to have been overwhelmingly oriented towards trade and fishing. It did not transform itself quickly into a manufacturing town. As late as 1840, the Census reports that Boston had 10,813 people in the oceangoing professions and only 5,333 people in manufacturing. By

20 U.S. Bureau of the Census. Return to the Whole Number of Persons within the Several Districts of the United States. Philadelphia: Childs and Swaine, 1791.

21 U.S. Bureau of the Census. Report on Population of the United States at the Eleventh Census: 1890. U.S. Government Printing Office: Washington, 1895.

22 18,038 out of 3,680,253 in 1790 (Census, 1790); 61,392 out of 12,866,020 in 1830 (Census, 1920); 362,839 out of 50,155,783 in 1880 (Census, 1920) 56

contrast, New York had 43,390 people working in manufacturing and only 2,786 residents in the ocean-going trades. 23 Lowell, not Boston, was Massachusetts’ first city of manufacturing with 8,936 people working in the textile mills.24 Boston had more seagoing occupants than all of America’s other big cities put together. While they had become manufacturing centers by 1840, Boston remained centered on the sea just as it had been 100 years earlier.

How did an ocean-going orientation lead to growth between 1790 and 1840 when it had led to stagnation between 1740 and 1790? During the 1740-1790 period, international wars cut Boston off from trading partners (notably Spain), British mercantilism constrained colonial shipping development, and under the Articles of Confederation, state policies blocked Boston merchants from intra-U.S. trade. As a result, U.S. shipping as a whole grew only modestly during this era, and Boston’s share of that shipping declined as it was passed by more southerly ports.25

After 1790, the Constitution broke down the barriers to national trade. The U.S. was no longer constrained from trading with Britain’s enemies (The U.S. even fought a war partly over our right to trade with whomever we pleased). No imperial tariffs constrained Boston merchants anymore.

Just as importantly, the breakdown in legal barriers was accompanied by a revolution in maritime technology. In the first half of the nineteenth century, ship sizes exploded and these larger ships were more efficient and better at making vast journeys and spanning the globe. North (1968)26 states that typical ocean-going ship sizes increased from 150

23 U.S. Bureau of the Census. Statistics of the United States of America at the 6th Caucus. Blair & Rives: Washington, Vol 1, (1841), 115 24 1009 employees in the wool manufacturing industry and 7362 employees in the cotton manufacturing industry. U.S. Bureau of the Census. Statistics of the United States of America at the 6th Caucus. Blair & Rives: Washington, Vol 2, (1841), 53 25 Glaeser, E.L. (2003) " Reinventing Boston: 1640-2003 ," Harvard Institute of Economic Research Discussion Paper #2017. 26 North, D.C., “Sources of Productivity Change in Ocean Shinng, 1600-1850,” The Journal of Political Economy, Vol. 76, No. 5 (Sep., 1968), 953-970.

tons in the Colonial Era to 300 tons in the early nineteenth century. Clipper ships grew to be as big as 2000 tons. Larger ships were the mainstay of the global travel that enriched Boston.

Increasing ship sizes and declining barriers to trade led to an explosion in trade in the first 50 years of the American Republic. While total U.S. exports and imports were worth $20 million in 1790 ($391 million in today’s dollars), by 1840, total exports and imports were worth $239 million (or $4.9 billion today). The increase in trade certainly gave a boost to all of America’s ports. Ships brought ideas as well as goods and helped to make Boston and New York much more cosmopolitan.

But if the pre-1790 trends had continued, we might have expected New England to have a smaller and smaller share of an increasingly large amount of American water-borne trade. However, somewhat surprisingly between 1816 (the first available year for comparison) and 1840, New England’s share of trade appears to have risen. In 1791, 38 percent of U.S. merchant vessel tonnage was in New England ships. In 1841, New England’s share of merchant vessel tonnage was up to 58 percent (Albion, 1932). Morison (1961) reports that between1798 and 1855, the Boston Customs’ District ownership of shipping rose from 81,000 to 546,000 tons.

This fact doesn’t mean that Boston’s share of American exports and imports was rising. It wasn’t. In 1821, 21 percent of America’s imports and exports were handled by Boston and 29 percent were handled by New York. Twenty years later, New York’s share was up to 43 percent and Boston’s was down to 10 percent. Boston Harbor was clearly outclassed by New York’s harbor along many dimensions, and the opening of the Erie Canal just made things worse for Boston. As a port for products coming from or going to the American hinterland, New York was vastly superior to Boston, and we can’t be surprised at New York’s rise relative to Boston.

But the boats that landed in New York were to a large extent owned and operated by New Englanders, often Bostonians. As Albion (1932) writes “Yankees captured New York 58

Port around 1820 and dominated its activity at least until the Civil War.” Indeed, during the same era when Boston was losing its importance as a port of entry, Boston and New England were increasing their control over the shipping fleets. Between 1811 and 1851, New England’s share of foreign commerce fell from 28 percent to 11 percent while New York’s share of foreign commerce rose from 21 percent to 52 percent. Over the same four decades, the share of registered tonnage owned by New Englanders increased from 45 percent to 58 percent (all figures in Albion, 1931). Boston shipyards were providing the boats; Boston’s merchants owned these ships and its sailors operated them, even though they were sailing into New York.

If New York was America’s best port, what was Boston doing with all the sailors and ship-owners? The best explanation for this puzzle is Adam Smith’s classic doctrine of comparative advantage. The essence of maritime trade is mobility. A community that has skills in mining coal will still not lead to a coal mining community if there is no coal in the area. You can’t move a mine. But a community with seafaring skills can easily supply ships and sailors throughout the world because ships can move. Boston exploited its early edge as a maritime community, which stretched back into the sixteenth century, to become the capital of a vast maritime empire. Boston was generally just the spot where the ships began their voyages and where many of the sailors returned home, but this was enough to give the city in the early nineteenth century its maritime wealth.

What was Boston’s comparative advantage in the maritime industries? In one aspect of the trade, New England was well-suited due to its access to lumber. New England’s large forests supplied the Boston shipbuilding industry, which supplied most of America’s ships (and many English ships as well) for decades. Not surprisingly, this industry gradually shifted to Maine, which has even more forests. Boston’s northerly location is a plus for some forms of fishing, especially access to plentiful fish off the Canadian coast. Likewise, proximity to Canada and England was worth something in trade.

But the real advantage of Boston in seafaring was not geography but human capital. Operating and managing sailing ships requires skill. As Morison (1961) writes “even an 59 ordinary seaman was expected ‘to hand, reef and steer, ... to be able to reeve all the studdingsail gear, and set a topgallant or royal studdingsail out of the top; to loose and furl a royal, and a small topgallant-sail or flying jib; and perhaps, also to send or cross a royal yard.’” Certainly, these skills could be learned by Pennsylvania farm boys (and Massachusetts’ farm boys for that matter), but children who were sons of seamen who grew up in New England’s fishing and seafaring towns had a big leg up. The importance of maritime human capital didn’t stop at the forecastle. Large maritime fortunes were often founded by sea captains who had themselves all of the skills of mates and more besides. The skills required in leading a multi-year, multi-continental trading voyage that involved dealing with cultures as disparate as the Northwest Indians (who sold the Boston traders otter furs) and the Chinese Court of Canton (who traded high end China goods for those same otter furs) were also enormous.

As ships got faster and as peace and independence made it possible to establish trading routes that traveled thousands of miles, Boston’s advantage in human capital made it a natural capital for a trading empire. Furthermore, Boston had institutions like maritime insurance, begun in 1724 by Joseph Marion, that were complements to international trade. When trading high-value products that had traveled thousands of miles, the advantage of better sailors and captains greatly outweighed the cost disadvantage associated with the fact that these people came from Boston. Far more important was the skill and entrepreneurship that Boston merchants brought to the exploitation of international trade routes.

The importance of sail-specific skills is best seen in the cataclysmic effect that the rise of steamships had on Boston shipping. Operating steam ships requires different and fewer skills than operating sailing ships. Suddenly, centuries of sail-specific human capital became obsolete as sailing ships became a picturesque relic of the 1850s and 1860s. At this point, Boston lost its sail-based dominance as a port, which it would never to regain. From this point, Boston would be a manufacturing city that was a pale imitation of New York, not the great center of a sailing empire it once was.

Boston’s success in manufacturing itself owed much to the legacy of sail. The early textile mills, founded in Lawrence and Lowell, were based on English technologies that New England shipping magnates borrowed during overseas voyages. Manufacturing was financed with sea-based fortunes. Perhaps even more interesting, the Irish labor force that provided the backbone of the city’s manufacturing was itself a legacy of Boston’s onetime sail-based dominance.

In the 1840s, Boston was the closest American port to Liverpool, and the abundance of Boston sailing ships meant that travel times to Boston were lower than times to anywhere else in the U.S. 27 The fares were also as low as anywhere else, and Liverpool-Boston fares were often less than 20 dollars. As a result, we shouldn’t be surprised that many Irish emigrants, often on the verge of starvation, minimized transport costs and came to the nearest harbor. If the potato famine had happened even 30 years later, Boston’s transport edge would have been gone, and steamships would have bypassed Boston entirely heading straight for New York. Unsurprisingly, Boston’s share of immigrants coming to America was far higher in the 1840s when ships still sailed, then in the 1880s and 1890s.

Because so many sailing ships traveled between Liverpool and Boston, between 1845 and 1855, 208,000 immigrants came to America through Boston. At a time when Boston had less than 0.6 percent of total U.S. population, it received 6.6 percent of the total immigration flow into the U.S. These facts underestimate Boston’s share of Irish immigration, since the Irish came disproportionately to Boston and the Germans arrived disproportionately in New York.

Boston’s population rose by about 43,000 during both the 1850s and the 1860s and almost doubled its population over that 20 year period as Boston changed from a Yankee town to an Irish city. In 1840, less than 30 percent of Bostonians were foreigners or first generation Americans. By 1880, 64 percent of the city was foreign born or first

27This sentence marks the beginning of paragraphs are taken from " Reinventing Boston: 1640-2003 ," Harvard Institute of Economic Research Discussion Paper #2017 by Edward Glaeser. 61 generation. The overwhelming share of the foreign born and their children were Irish. The sailing ships that had been responsible for Boston’s success between 1640 and 1840 also made Boston Irish.28

28 This ends the section of paragraphs taken from " Reinventing Boston: 1640-2003 ," Harvard Institute of Economic Research Discussion Paper #2017 by Edward Glaeser. 62

Chapter 3: The First Industrial Cities (1820-1865)

In 1790, New York City was the nation’s most populous city, edging out Philadelphia by 4,600 residents or 16 percent of Philadelphia’s population. The gap between New York City and its nearest urban competitor would never be that narrow again. Between 1790 and 1800, New York’s population almost doubled from 33,300 to 61,000 widening the gap with Philadelphia to 19,000 or almost one-half of Philadelphia’s population. Throughout the nineteenth century, when New York City was just Manhattan, it was generally about 50 percent larger than its nearest competitor. In the twentieth century, since the consolidation of the five Boroughs, New York has almost been at least twice the size of its nearest competitor. It has been and it remains the one truly monumental American city.

Figure 3-1 shows the rise in New York City population in the nineteenth and twentieth centuries. Manhattan is broken out in the twentieth century. Figure 3-2 shows the rise in New York City population relative to the nation as a whole during the nineteenth century. The city wasn’t just exploding in population; it was exploding relative to the rest of the country. New York in 1795 was still a city of traditional elites not magnates.

Figure 3-2 shows the growth rate of the city by decade. This figure shows that the city grew by 50 percent or more in every antebellum decade, except for 1810-1820, up to 1860. The 1790s was the most remarkable period of expansion for New York City, but massive growth was also prevalent elsewhere. This figure is also useful for rebutting those who argue that one discrete event, like the opening of the Erie Canal, was solely responsible for New York City’s growth. The Canal was opened in 1827, and while it certainly contributed, there is no sense in which the city’s fortunes experienced a major shift after that point.

As New York grew from 33,000 residents in 1790 to 813,000 residents in 1860, its orientation became increasingly commercial. At the time of the Revolution, wealthy merchants vied for status with crown-appointed officials. The first citizen of the city was certainly the royal governor, not any merchant or manufacturer. Even in the 1790s, 63

political brilliance and glamour continued to trump wealth. It is hard not to see the New York City of the 1790s as Alexander Hamilton’s city, and he is the closest thing eighteenth century New York has to a central figure like Benjamin Franklin. Hamilton’s pre-eminence in the Federalist city reminds us that New York in 1795 was still a city of traditional elites not magnates.

Hamilton was a transition figure with one leg in the 18th century and one leg in the 19th. He was the grandson of a Scottish lord, but was born in Nevis, in the West Indies, illegitimate and poor. As a teenage clerk, he came to manage a Caribbean counting house and he wrote so eloquently that his neighbors raised money for him to go to New York to be educated. In a sense, Hamilton embodies that connection between the northern cities and the Caribbean that had been the source of those cities’ eighteenth century prosperity. The fact that Hamilton went to New York rather than Boston shows how much Boston had been eclipsed by New York in its trade with the West Indies. Notably, he also came to the city to acquire knowledge; New York was then, as now, a forge for the creation of human capital.

Hamilton studied at King’s College (now Columbia) and like students today, he rapidly became involved in radical politics, penning an eloquent rebuttal to the Tory writings of Samuel Seabury. When the war broke out, his energy and brilliance made him a Lieutenant Colonel on George Washington’s staff. Their close relationship began when Hamilton was in his early 20s and would continue through Washington’s presidency. Among the intellectuals who led the new republic, including Jefferson, Madison, and Adams, Hamilton was the only real war hero, having bravely led an assault on Redoubt # 10 at Yorktown.

Hamilton’s post-revolutionary career would blend public service with private entrepreneurship. As a public figure, he wrote the Federalist Papers, spent six years as Secretary of the Treasury, where he pushed the nation to embrace its industrial future, and became the central figure in the Federalist Party. His central role as a founder is 64

largely due to the dominant role he played in Washington’s administration, and his prestige in New York City came in large part from his political importance.

In his private life, his income accumulated mainly from his role as a successful lawyer. He also founded New York’s first bank and the New York Post, which is still published today, albeit in a form quite different from today’s tabloid. His private activities were never completely detached from government, for courtroom advocacy is inevitably related to the State. The Post had political objectives and gaining a bank charter in New York State in the first 50 years of the republic required a fair amount of political skill.29

His great rival, Aaron Burr, who shot him in Weehawken, had activities which similarly spanned politics and business. Burr was a much more adept popular politician than Hamilton, and he helped make the Tammany Society into a potent political machine. Not only did he serve as Vice President30 but he was also indicted for treason (acquitted by John Marshall on a technicality). He founded a bank that would eventually become Chase Manhattan.31 As I will discuss later, this bank charter resulted from Burr’s political skills in gaining state support in an unsuccessful attempt to solve Manhattan’s water problems. Like Hamilton, Burr was a successful pre-industrial figure who owed financial success in part at least to his political powers.

Over the first half of the nineteenth century, the iconic figures of New York City would increasingly be merchants and not politicians. Even those like William Havemeyer or Peter Cooper, who became political figures, were first and foremost businessmen. The increasing importance of the magnates in the nineteenth century owed much to the scale of their success. Wealthy merchants in the eighteenth century had resources that were dwarfed by representatives of the crown. In the first half of the nineteenth century, as

29 Mitchell, Broadus. Alexander Hamilton: A Concise Biography. New York: Oxford University Press, 1976. 30 Lomack, Milton. Aaron Burr: The Years from Princeton to Vice President, 1756-1805. New York: Farrer, Straus, Giroux, 1979. 31 Lomack, Milton. Aaron Burr: The Conspiracy and Years of Exile, 1805-1836. New York: Farrer, Straus, Giroux, 1982.

transportation costs declined, magnates were increasingly able to buy and sell on a grander geographic scale. By 1907, New Yorker and President Theodore Roosevelt would have to go to New Yorker and financier J.P. Morgan to assemble the resources to quell a financial panic.32 Their fortunes and their power increased proportionately.

The Havemeyers were the first family of New York’s foremost industry: sugar refining. Cornelius Vanderbilt was a transportation magnate, first specializing in ferries and then later making the switch to rail.33 Peter Cooper’s career is even more varied. He started in textiles and invented cloth-cutting equipment. He also built the country’s first working steam engine, mined and operated iron-works in Baltimore, financed the first cross- Atlantic telegraph cable and brought the Bessemer process to the U.S.34 He also deserves the gratitude of five-year-olds throughout the globe for the invention of Jell-O. Cooper’s activities spanned continents, but he was a product of New York City. His stream of innovations was the result of a remarkable mind situated in a great city which was increasingly becoming a center for the flow of global ideas from across the globe.

If fifteenth century Florence seemed to have an artistic genius on every street corner, early nineteenth century Manhattan seemed to have just as abundant a supply of commercial geniuses. But the first among equals was John Jacob Astor, who in 1840 had an estate of $20 million, making him the richest man in America. While the Havemeyers and Peter Cooper made fortunes in New York’s export industry, Astor’s great wealth occurred because he bet on the city itself. He was only slightly younger than Alexander Hamilton, and like Hamilton he was an immigrant. Astor came from the German town of Waldorf, near Heidelberg. Astor began in fur trading, a typical seventeenth century industry. Trade with upstate natives had long lost its profitability, and Astor thrived off of the furs of the Pacific Northwest. However, his great fortune came in real estate.

32 "Morgan, John Pierpont." Encyclopædia Britannica. 2006. Encyclopædia Britannica Online. 24 Oct. 2006 . 33 "Vanderbilt, Cornelius." Encyclopædia Britannica. 2006. Encyclopædia Britannica Online. 24 Oct. 2006 . 34 "Cooper, Peter." Encyclopædia Britannica. 2006. Encyclopædia Britannica Online. 26 Oct. 2006 . 66

Astor began buying in 1810 and his success seems to have ultimately been the result of his enormous confidence in Manhattan. He had the courage to buy distressed properties during New York’s many downturns. He managed his properties well and plowed the income back into buying more land.35 At the end of his life, he said “could I begin life again, knowing what I now know, and had money to invest, I would buy every foot of land on the Island of Manhattan,” (Brands, 1999). He didn’t quite achieve this goal, but he came closer than anyone else. Astor is the prototype for all of the New York City real estate moguls who would make and lose billions over the subsequent two centuries.

Astor’s great bet on Manhattan real estate would have come to naught if the city hadn’t experienced its extraordinary boom. The great magnates may have led this remarkable urban explosion but in reality they were riding a wave with deeper economic causes. What then were the roots of New York City’s expansion over the first half of the nineteenth century? How was it able to grow from 33,130 to 813,000 residents over a 70 year period? Why did the Havemeyers and Astors become so rich? The answers to these questions help us both to understand why New York became America’s urban colossus, as well as to understand more generally why American cities grew so rapidly in the 19th nineteenth century.

Why New York Boomed

There are two distinct, but closely related growth processes that occurred in New York over this time period. First, the port of New York came to completely dominate American shipping and immigration. Second, New York exploded as a manufacturing town as industries such as sugar, publishing and most importantly the garment trade clustered around the port. The growth of New York City’s port seems almost like an inevitable result of New York’s clear geographic advantages (especially when nature was helped along by the Erie Canal). The growth of manufacturing in the city informs us about the nature of agglomeration economies and transportation costs.

35 Madsen, Axel. John Jacob Astor: America’s First Multimillionaire. New York: John Wiley & Sons, Inc., 2001. 67

Albion (1970)36 describes the increased use of New York City as a dumping ground for European goods. The Napoleonic wars (and the War of 1812) had severely curtailed trade between the United States and the United Kingdom. As soon as peace was declared, British merchantmen with millions of dollars of goods hastened to America to finally sell their wares. The merchantmen packed large ships and came to New York to drop their wares, which were then shipped throughout the republic. This basic pattern was to be the model for trade with Europe over the nineteenth and early twentieth centuries.

At the end of the colonial period, Boston, not New York, was America’s premier port. Between 1790 and 1820, New York came to supersede Boston and ultimately attracted a large number of Boston merchants and sailors to its harbor. From 1820 to 1860, New York completely surpassed its northern competition in terms of trade. Figure 3-3 shows the time path of annual imports measured in dollars between 1821 and 1860. At the start of the period, New York’s exports were 13 million dollars and Boston’s were 12 million dollars. By the end of the period, New York’s exports were 145 million dollars and Boston’s exports were 17 million dollars. As the figure shows, it was New Orleans, not Boston or Philadelphia, that rivaled New York City by the middle of the nineteenth century.

What changed? Why had the harbors of Boston and Philadelphia been good enough to be the leading port of the colonial era, but not good enough to maintain their strength over the 19th century? There are actually two different sets of answers to this question. First, there are the technical facts that make New York a somewhat superior port. Second, there are the economic factors that translated this modest geographic superiority into complete mercantile dominance.

36 Albion, R.G. "Yankee Domination of New York Port, 1820-1865," The NewEngland Quarterly 5(4), 1932, 665-698.

As I discussed in the last chapter, New York and Philadelphia had two great geographic advantages over Boston. The first of these is a more central location on the eastern seaboard. As the Constitution replaced the Articles of Confederation, the barriers to interstate trade disappeared. As these barriers fell, the possibility for interstate trade increased and the advantage of being located near the center of the colonies increased.

The advantages given to New York by the Hudson River also expanded in the nineteenth century. The Erie Canal connects the Hudson to the Great Lake system, enabling goods to travel from the American heartland to Europe completely by water. As the mid-west developed, New York had unparalleled water access to the American heartland. In an age where water-borne transport was far cheaper than transport by land, New York’s access to canals, lakes and rivers gave it a significant edge relative to most of its competitors.

Philadelphia shared some of New York’s advantages of centrality and water access to the interior. Of course, Philadelphia’s connections with Pittsburgh and the West comprised of both rail and water, and as such, were decidedly more complex than New York’s pure water connection. Moreover, New York enjoys a third advantage which Philadelphia does not have: direct access to the ocean. The port of Philadelphia is more than 100 miles from the Atlantic whereas the port of New York is less than 20 miles from the ocean. As such, a European ship looking to save time and money would naturally be attracted to New York. The ports along the Chesapeake Bay, such as Baltimore, also suffered due to a greater distance from the ocean.

Finally, New York’s port is also superb in its combination of depth, shelter and freedom from ice. New York harbor is protected from the ocean by Staten Island and the Brooklyn peninsula. It is much deeper than the harbor of Boston or Philadelphia and this became increasingly important as ship tonnage increased starting in the 1790s. Finally, New York harbor is less prone to ice than either Boston or Philadelphia. The advantage over Philadelphia occurs despite Philadelphia’s more southern locale because its location on a river means that its water freezes more readily. 69

These advantages were significant, but they only implied that New York would be the first among equals. The remarkable dominance that the city had over America’s exports needs more explanation. Why did New York end up having five or six times the exports of Boston in 1860 and 25 times the exports of Philadelphia in the same year? This question is the essence of the agglomeration economies that lies behind cities.

The rise of New York City as the dominant port can be seen as an early example of a hub-and-spoke transportation network with New York City playing the central role. Earlier in colonial history, the dominant form of transportation between the New World and the Old consisted of point-to-point transport where bales of tobacco were picked up in Virginia and transported to England. But point-to-point transport was plagued with the problem that the exporting areas did not import anywhere nearly enough goods from England to fill the ships on their return voyage to the Americas. First, the southern plantation owners generally maintained a large current account surplus (the value of exports greatly exceeded the value of imports) which was offset either by capital accumulation or by paying debts on the purchase of land and slaves. Second, the manufactured goods that were important from the Old World used much less space than the tobacco or cotton that was exported. Third, the southern plantation owners found it increasingly efficient to buy manufactured goods or food from New World producers and avoid the lengthy Atlantic trip.

The lack of southern imports is illustrated in Figure 3-4, which shows imports and exports out of New York and New Orleans. Throughout the 1821-1860 period, the New York harbor imported more than it exported. This pattern reflected the general tendency of America during this period to run a current account deficit, which was offset by shipments of bullion back to the old world. Throughout the same time period, New Orleans maintained a staggering current account surplus. By 1860, New Orleans exported 107 million dollars worth of goods and imported 22 million dollars worth of goods. In a sense, this lack of balance made it somewhat amazing that New Orleans’ port 70

could thrive as an export market, despite the enormous advantage of being at the mouth of the Mississippi.

In the eighteenth century, this lack of coincidence of wants had been solved by the early triangle trade, where manufactured goods in England were brought to Africa and traded for slaves, which were in turn brought to the Caribbean and the South. The ships reloaded with plantation produce which was then brought to England. But this triangle could hardly survive the elimination of the slave trade in 1808. Moreover, the elimination of the slave trade coincided with an enormous increase in the production of cotton following Eli Whitney’s invention of the cotton gin in 1794. At the same time as the South had more and more to export, importation of slaves became illegal.

The “cotton triangle” in New York City solved this problem. Cotton was shipped to New York and was transferred from coastal ships to transatlantic lines. Manufactured goods, often made in the city, went south. Ships coming to New York were filled with imported goods from the old world. Ships leaving New York were filled with cotton and other basic commodities being shipped east. While the New York port of the eighteenth century had focused on shipping flour grown in the vicinity of the harbor, the port of the nineteenth century became a conduit through which a large amount of the entire colonies’ trade would pass.

The “cotton triangle” is just one example of New York becoming a hub connecting multiple spokes. Obviously, New York also connected the river, lake and canal traffic from the west with the transatlantic ships to the New World. Tobacco products from the South came to New York from Baltimore and other more southern ports. More surprisingly, New York also served as a hub for goods from Philadelphia and even Boston. For example, Boston textile producers would often ship their wares to New York to be sold to buyers from across the country. Similarly, Philadelphia shipped coal from the Pennsylvania anthracite mines up to Manhattan.

The increasing attractiveness of hub-and-spoke shipping owed much to changes in shipping technology. Two large changes occurred, both of which added advantages to having a central port. First, as I mentioned in the last chapter, transatlantic ships became increasingly large over the early nineteenth century. For example, Albion (1970, p. 398)37 reports that in 1834, 1950 vessels entered into New York harbor carrying 465 thousand tons of cargo. In 1860, 3982 vessels entered into the harbor carrying 1983 thousand tons of cargo. The average tonnage per ship entering into the harbor increased from 238 tons of cargo to 498 tons of cargo over that 26 year period. The rise in ship size is particularly clear when considering the packet lines that provided regular service from New York to Liverpool. In the early 1820s, these ships typically carried between 300 and 400 tons. By 1838, 1,000 tons became normal and the Amazon carried 1,771 tons in 1854 (Albion, 1970).

These large ships provided great scale economies in that they required smaller crews per ton. Furthermore, they were generally safer and faster than their smaller predecessors. However, these large ships created an indivisibility which makes the gains from a centralized port more obvious. While smaller ships can readily go point-to-point, dropping their small cargoes at disparate locations, larger ships need a market that could accept its larger cargoes. This created a centralizing tendency, just as scale economies and indivisibilities do in standard models of economic geography (Krugman, 1991)38. This effect is exactly parallel to the tendency to use the largest planes only for travel between the biggest airports. These bigger ships also increased the advantage inherent in New York’s deeper harbor. Philadelphia could readily compete in handling the shallow draft ships of the 18th century; however, the Delaware was simply not deep enough to handle regular commerce with the largest ships of the nineteenth century.

37 Albion, R.G. "Yankee Domination of New York Port, 1820-1865," The New England Quarterly 5(4), 1932, 665-698.

38 Krugman, P. (1991) “Increasing Returns and Economic Geography” Journal of Political Economy 99(3): 483-499.

The second large change of the 19th century was increased specialized shipping, which was in itself a by-product of the increased use of large ships for transatlantic crossings. In a small ship world, the ships that plied the coastal trade and the ships that crossed the ocean were not all that different. However, the rise of big ships meant that it became efficient to use different ships to carry goods up and down the American coast and to carry goods across the Atlantic. Small ships are far more appropriate to pick up smaller cargoes and carry them on shallower waters. Big ships had more of a risk of running aground and could not be used to pick up the smaller cargoes being shipped to and from the disparate settlements of young republic. Instead, it increasingly made sense to use smaller ships, such as schooners, to ply the coastal trade. These ships would then bring their cargoes to New York and then be consolidated into larger cargoes carried in big ships for the transatlantic crossing.

These technological advantages were further enhanced through learning-by-doing, specialized investment in port-related infrastructure and the agglomeration of manufacturing (described in the next section). There is little doubt that New York gradually acquired an unequal set of skills and institutions that supported large-scale trade. Its auction houses and insurance system became the largest in the Americas. New York invested in its wharves which further enhanced its port. Indeed, the Erie Canal should also be seen as a form of port-related investment that further entrenched its initial advantages. As trade became more intricate and as financial transactions became larger, gains to specialization increased. As such, the initial advantage that New York had because of its deep harbor and central location ultimately translated into massive dominance as a port.

The rise of the New York port is not an illustration of random accident leading to geographic concentration. New York was the best port in the United States and it should have been the largest. However, its rise does show the conditions under which an initial advantage, which might have been slight, translates into vast scale. Probably the most important reason for New York’s commercial centralization was the mismatch between the supply of American exports and the demand for imports. If Southern colonies were 73

importing enough goods to offset their exports, Charleston may well have become more important than New York. The mismatch between supply and demand led to the increasing attractiveness of a large market which would eliminate the need for point-to- point commodity transactions. A secondary factor was the change in technology that created larger boats and benefited from specialization. These also created scale economies in the port. Finally, these advantages were further advanced by trade-specific infrastructure and trade-specific human capital which became increasingly important in the more complicated world of the nineteenth century.

The Rise of the Manufacturing City

While the rise of New York City as a port is a striking example of agglomeration economies at work, the majority of New York’s burgeoning population was not involved either directly in commerce or in the maritime trades. While Boston specialized in seafaring men, New York’s population increasingly engaged in manufacturing. As early as the 1820, New York had 9,523 workers in manufacturing and 3,142 people in commerce. By 1850, there were 43,340 people in manufacturing and 11,360 in commerce. New York’s port may have been the catalyst for the city’s rise, but New Yorkers were far more likely to be involved in producing manufactured goods than in working on the ships themselves.39

Drennan and Matson (1995)40 analyzed data from the census of manufacturers in various decades. The dominant industries (measured by value) are generally sugar refining, printing and publishing and the garment industry. In the 1810 economic census, sugar refining was the largest industry and it was responsible for more than one-third of the value of total manufactured products in the city. In 1870, sugar was the second largest industry (by value) in New York City and the largest industry in Kings County

39 Glaeser, E.L. “Urban Colossus: Why is New York America’s Largest City?” NBER Working Paper Number 11398. 2005

40 Drennan, M. and C. Matson (1995) “Economy” pp. 358-362 in K. Jackson, Ed. The Encyclopedia of New York City. New Haven: Yale University Press.

(Brooklyn). Even in 1900, sugar remained the second largest industry in New York City. Needless to say, sugar’s dominance did not continue into the twentieth century.

The sugar industry began in New York in the eighteenth century when Nicholas Bayard opened the first sugar refinery in the city in 1730. Several other refineries followed and in the nineteenth century, the Havemeyers began refining in Brooklyn. Sugar refining was, certainly relative to the garment industry, highly capital-intensive for its day. These refineries were large industrial undertakings that produced vast returns for early industrialists.

New York’s dominant role in the sugar industry resulted from its trade with the West Indies, which increasingly specialized in sugar production in the 1750s and 1760s. During this period, New York flour was shipped down to the Caribbean, and raw sugar was one of the commodities that returned in the holds of the ships. This raw sugar would then be refined in New York and then consumed in the city or shipped elsewhere. This pattern would continue after the Revolutionary War where New York’s central role as the hub of a trading network meant that sugar passed through the city on its way both to Europe and to markets within the United States.

But why was New York the natural place to refine sugar? In principle, sugar could have been refined in either the West Indies or at the final point of consumption. In the case of some commodities, processing removes so much weight that it is generally efficient to engage in this processing at source. Indeed, even in the case of sugar, it would have been madness to ship untouched sugar cane up to New York for processing without first turning the sugar cane into raw sugar. The excess weight would have badly compromised profits, and even more importantly, unprocessed sugar cane rots quickly.

While initial processing must be done soon after the cane is cut to avoid rot, and close to the sugar plantation to avoid carrying excess weight, sugar refining occurs “close to 75 where the sugar is to be consumed” (Galloway, 1989, p.17)41. Galloway (1989) writes “the fundamental reason for the separation of the final stage in the manufacture of sugar – refining… – from the cane fields, a separation that in the western world dates back several hundred years, lies in the fact that crystals of sugar coalesce during the inhuman conditions of a long sea voyage, and so any imported refined sugar would have had to have been reworked if customers were to have received the top quality.” Galloway also emphasizes the lack of cheap fuel for refining in the tropics and he might have also stressed the tropics’ high cost for labor which was sufficiently skilled to run refineries.

Sugar refining occurred in North America rather than in the Caribbean because of the difficulties in transporting refined sugar. But on a more micro level, sugar refining occurred in New York rather than in small towns scattered throughout the country because of scale economies. By the standards of early nineteenth century industry, sugar refining involved large infrastructure investment and significant fixed costs. Sugar refineries were among the largest factories of this early period. These scale economies meant that it was impractical to spread sugar refineries throughout the colonies in every town or village. The technology of sugar production almost dictated that sugar refining should occur in a central location close to most centers of consumption, and New York City was an ideal central location.

The strength of the sugar industry in New York therefore owes everything to New York’s role as a shipping hub connecting Caribbean ports both with the American hinterland and with European final consumers. There are strong enough scale economies in sugar refining that it makes sense to centralize, and centralized production is most efficient if it occurs in the port through which the sugar is passing anyway.

The growth of sugar manufacturing shows a basic pattern for the growth of New York as a manufacturing center. Trade brought raw commodities through the city. In cases where manufacturing in the initial agricultural area was inefficient, but where it made

41 Galloway, J. H. (1989) The Sugar Cane Industry: An historical geography from its origins to 1914. Cambridge: Cambridge University Press.

sense to manufacture in a single place, then this gateway city was the natural place to create finished products.

While the sugar refining industry produced a great deal of value, it generally only included a modest number of New Yorkers. For example, in 1860, the economic census of manufacturers reports that there were 1,494 employees in sugar refining in New York City producing more than 19 million dollars’ worth of products. By contrast, the garment industry employed 26,857 workers in that same year and produced 22 million dollars worth of products. From the mid-nineteenth century through to 1970, the garment trade had remained New York City’s dominant manufacturing industry, at least in terms of total employment. The share of New York City manufacturing employment in the garment trades was almost 30 percent in 1860, 19 percent in 1900 and 27 percent in 1940 and 1967. While these shares do vary, the industry remained important for more than a century.42

New York was generally a diversified economy, but to the extent that one industry has dominated the city for a century, it was the garment trade. The basic economics of the nineteenth century New York garment industry are not so different than the economics of the sugar refining industry. The essence of this industry is turning cloth into clothing. Cloth was generally produced in textile mills, either in England or later in the textile mills of New England. As was the case with sugar, cloth and silk came through Manhattan. The starting point for the textile trade was England’s commercial dominance as an exporter of wool and cotton cloth. This dominance was historical, but at the end of the eighteenth century, early industrialization gave English producers a huge advantage in the production of textiles. This advantage, and the general importance of clothing in budgets, meant that in the first half of the nineteenth century, “textiles amounted to nearly 60 percent of England’s domestic exports and about one-third of the imports of the United States” (Albion, 58). This trade increasingly came through New York with the city’s dominance of transatlantic shipping. In 1860, more than 80 percent of the nation’s

42 Glaeser, E.L. “Urban Colossus: Why is New York America’s Largest City?” NBER Working Paper Number 11398. 2005 77

textiles entered through New York. In the same year, wool, cotton and silk goods accounted for 37 percent of the total imports coming into the harbor.

England was not the only producer sending textiles into America through New York harbor; the city was also the entryway for silks from France and even China. As New England mills began production and competed with English producers even they found themselves shipping cloth to Manhattan to take advantage of this central market. The vast flow of cloth into Manhattan was the natural result of New York’s dominance as a port and textile’s dominance as an item of trade.

In the early part of the nineteenth century, this trade did not create a garment industry. In the 1810 economic census, New York City had significant tanneries and hatteries, but not a significant garment trade.43 Fifty years later, the garment industry had become the city’s largest industry. This shift occurred because of the rise of the ready-to-wear industry. In 1810, cloth was turned into clothing by tailors, seamstresses and by the end users themselves. There weren’t factories for the production of clothes. When clothes were made-to-measure, there was no place for centralized production of garments. At the start of the nineteenth century, therefore, New York’s garment industry consisted mainly of tailors catering to the local population.

Over the nineteenth century, there were both changes in demand and production technology that turned New York into a center of ready-to-wear clothes. On the demand side, the rising slave population of the south had a demand for extremely cheap, ready-to- wear clothing. George Opdyke began the manufacture of ready-to-wear clothing in New York in 1831, catering to the market in New Orleans.44 The changes in production technology included the development of the factory system and, even more importantly, Elias Howe’s invention of the sewing machine in 1846. Mechanization greatly decreased

43The United States Department of the Treasury report on the state of Manufacture in the 1810 Census reported $113,285 worth of tannery goods and $12,750 worth of hatterie goods, but only $2,303.875 of cotton, flaxen, and wollen goods produced in New York City. while the 1860 Census of the United States reported (Ref HA201 1860cx) 44Where was this found? I looked through what I could think of and couldn't find anything beyond his anti-slavery stance as Mayor of NYC in 1862. 78

the costs of mass production relative to custom tailoring and furthered the rise of the ready-to-wear garment industry.

Once such an industry existed, and given that there were substantial scale economies in the production of clothes due to machinery and specialized human capital, it is hardly surprising that this industry centered in New York City. Given that the cloth came into that city, there was no reason to wait until the cloth reached its final destination before transforming it into shirts and pants. There would be few advantages of making ready-to- made clothes in disparate locations rather than in one centralized locale.

As in the case of sugar, we must ask why manufacturing didn’t occur in the place where the raw material was first produced, which in this case would be England. First, while England had a long history of cloth production, it had no history of producing ready-to- make clothes. No place did in 1830, however, and. A as a result, England had no natural advantage in this form of manufacturing. New York manufacturers not only had the advantage of better knowledge of local demand, and the ability could therefore to cater to local tastes, they also. They had access to relatively inexpensive labor from the increasing immigrant populations. In short, there were probably only mild advantages for centralizing ready-to-make clothing in New York rather than in London, but these small advantages were enough for this industry to be located on the American side of the Atlantic.

Another important point about the garment trade, which helps to explain its 100 year dominance in New York, is that among manufacturing industries its need for physical space and power was quite mild. Textile mills themselves were more efficient on a grand scale and, in the first part of the nineteenth century, the mills had to be powered by water. As a result, they were generally located away from urban areas along the banks of rivers like the Merrimack. By contrast, the garment trade involved human beings and relatively small sewing machines. In many cases, working women could contract work to be done in their own apartments. This was the ideal industry for a city where land was expensive.

Over the decades, New York developed an increasing human and physical infrastructure that supported the continuing presence of the garment trade even after the port’s primacy had passed. Factories were built to cater to this trade. Singer came to New York to popularize his adaptation of the Howe sewing machine. An entire section of the city (the Garment District) became oriented towards clothing production and a network of spatially proximate suppliers catered to this industry. Perhaps even more importantly, the city’s industry attracted skilled workers who created a powerful agglomerating force that trained new workers and attracted entrepreneurs. This was an initial comparative advantage in manufacturing garments that came from New York’s port, but this comparative advantage was what produced an agglomeration that kept the industry in the city.

The third largest manufacturing industry in the city in 1860 was printing and publishing. As late as the 19670s, publishing would be a distant second to garment manufacturing in its share of New York employment.45 Only in the past 30 years has publishing passed garment manufacturing to become New York’s largest manufacturing industry. Still, value added per worker was generally much higher in this industry than in the garment trade. Moreover, the rise of New York publishing suggests the increasing role of New York as a city centered around the transfer of ideas.

New York’s printing industry began in 1693 when William Bradford brought his London-learned expertise to the city. Bradford started his American career in Philadelphia, but he had unwisely printed pamphlets critical of Quakerism. New York offered a more tolerant market, and Bradford printed secular and religious books, newspapers, plays, and maps. He enjoyed steady revenues as the royal printer which meant that he also printed currency. The division of labor is limited by the extent of the market, and early eighteenth century New York was a sufficiently small market so that for the first 30 years, Bradford pretty much printed everything.

45 Drennan, Matthew. “Economy” Encylopedia of New York. New Haven: Yale University Press, 1995. 80

His first competition appeared in 1725, when his former apprentice Peter Zenger opened shop. As Bradford was the royal printer, Zenger specialized in work against the government. Zenger’s Weekly Journal was supported by the partisans of former state Chief Justice Lewis Morris who had been fired by Governor Colby. Newspapers had few pretensions of non-partisanship until the late nineteenth century, and Zenger’s journal steadfastly attacked the governor. Finally, in 1735 Zenger’s establishment opponents struck back, charging him with libel. Zenger’s acquittal is widely considered a landmark in establishing freedom of the press. Bradford’s next competitor was another former apprentice, James Parker, who operated the Weekly Post-Boy.

The competitive entry of Bradford-trained apprentices suggests the importance of skills in this industry. We are used to thinking of harsh terms associated with apprenticeship as one of the dark aspects of colonial history, but at least in this industry, once an apprentice was trained, he became a potential competitor. The master craftsmen needed tough contracts to ensure that they would receive at least some returns from training apprentices before those apprentices left and undercut their prices. Needless to say, the spread of knowledge to these young printers is yet another example of knowledge spreading in urban areas.

New York’s colonial publishing industry was active, but it was less significant than its Boston and Philadelphia competitors. Only in the first half of the nineteenth century did New York surpass its rivals and come to be America’s publishing center. Somewhat surprisingly, the early development of New York’s publishing trade was also connected to New York’s role as a port connecting America with the old world. Access to European technology, and even more importantly to European books, proved the basis of New York’s publishing might.

There were revenues from printing native authors, but in the early nineteenth century “the big money, however, came from pirated copies of English authors (who didn’t yet have to be paid royalties because the United States government refused to as yet to recognize 81

foreign copyrights).”46 Noah Webster’s copyright law of 1790 was consciously nationalistic. It protected American writers but not foreigners, which of course, had the side effect of making American publishers unwilling to pay for domestic prose, when there was plenty of free foreign stuff available. Writers like Sir Walter Scott and Charles Dickens were happily copied by American printers. These writers also served as examples to Americans, like James Fenimore Cooper, whose first successful novel, The Spy, owed much to Scott’s style.

As the best material was coming for free from London, there was a huge advantage in this industry to being the first printer with a copy of the latest London sensation and “printers and book dealers in New York and Philadelphia competed furiously to bring out the first American editions of new English novels.”47 In this competitive atmosphere being at the center of the transatlantic trade offered a crucial advantage. New York printers would have been capable of receiving new novels from England more quickly and regularly than their Philadelphia competitors because of the more frequent sea traffic between New York and Liverpool. As literacy became more widespread, and as writers like Dickens and Thackeray turned out innumerable best-sellers, the value of getting the English books first increased. New York’s production advantages were then complemented by their advantages in distributing to western consumers via the Erie Canal.

As in the case of the garment trade, this initial advantage stuck because of specialized human capital and the advantages that came from local agglomeration economies. New York attracted networks of suppliers and tradesmen who catered to the book producers. Book sellers from around the country would come to New York for book fairs to get access to the latest novels. Eventually, the combination of high costs of land and low transport costs would push the printing presses themselves off of Manhattan, but to this day, there is a strong community of publishing houses in Manhattan connecting with authors and potential customers.

46Burrows, Edwin G., and Mike Wallace. Gotham: A History of New York City to 1898. (New York: Oxford University Press, 1999.), pg. 441. 47Ibid. 82

While publishing English novels was one part of the early success of Manhattan publishing, the news industry was the other cornerstone of this industry. Information was extremely valuable to the growing mercantile economy and most of the early papers focused on providing this information. Scale economies in this industry also meant that New York had a disproportionate number of newspapers. As the news became entertainment, and even entertainment for the masses, scale economies and New York’s large population ensured that the city would remain a center for newspaper production.

The central lesson of the rise of New York in the early nineteenth century is that manufacturing congregated around a port. Changes in transportation technologies turned New York into the preeminent port of the United States. This meant that raw inputs, including sugar, cloth and even English novels, first came into the city. The first manufacturing industries were based on these raw inputs. As scale economies rose with industrialization, production was increasingly centralized in the one place which welcomed the nation’s imports of these inputs.

The Beginnings of Public Transportation and the Growth of the City

Just as nineteenth century improvements in transportation technology increased New York City’s economic preeminence, improvements in transportation technology also radically reshaped the internal structure of cities. As a result, the stereotypical monocentric city developed during the nineteenth century. At the urban core lay the commercial and manufacturing activities. We see this pattern so often that we are liable to take it for granted, but it doesn’t have to be that way, and indeed in the twenty-first century, firms are increasingly become less concentrated than people. But in the nineteenth century, it was cheaper for the workers to commute by foot, often over fairly long distances, than it was to move the heavy physical products being created. As a result, the firms crowded up against one another and the workers spread out.

But the people didn’t spread out far. Workers crowded close to the seaports of New York and Boston. Both the rich and poor needed to live within ready walking distances of their work. As a result, the rich and the poor lived in close proximity to one another. America did not have the usual European custom in walking cities, of the poor literally living on top of the rich. In many higher-density European cities, taller buildings were already the norm. Often the poor occupied the higher floors and the rich lived beneath them. In the colonial cities, land was sufficiently cheap that it made little sense to build up. As a result, single floor homes and boarding houses were common.

Until the early 1800s, New York residents followed the basic, crowded colonial pattern. The rich lived right on Bowling Green. Since the rich walked, they valued proximity. The Governor’s mansion was right at the tip of the Island—the poor house was at the upper reaches of the city. The eighteenth century cities revolved around sea traffic and walking and as a result, they were dense, the rich and poor lived together, and often the rich lived closer to the center of the city than the poor.

Cities began to spread in the nineteenth century with the coming of public transportation. As transport costs fell, people spread out. Moreover, since early transport was expensive, it was the rich that could afford it, and it was the wealthy that first moved away from the city center into more pleasant, less dense neighborhoods. This decentralization was only possible because mass transit made it easier for the rich to commute longer distances.

According to legend, mass transit began in New York City in the 1740s, as ox carts carried passengers up and down Broadway.48 True fixed-route transit lines, however, did not begin until 100 years later. In 1827, Abraham Brower pioneered mass transit in the Americas with a stagecoach that ran from the Battery to Bleeker Street along Broadway (a 1.75 mile line). By 1831, Brower had three vehicles and the largest of them was referred to as an omnibus (the term was borrowed from Paris).49 These buses used city streets, like any other vehicle.

48Cudahy, Brian J. Cash, Tokens, and Transfers : a History of Urban Mass Transit in North America. (New York: Fordham University Press, 1990), Pg. 8.

49Ibid. 84

The horse-drawn omnibus was a great technological breakthrough. These were initially just large carriages, drawn by a team of horses. They could carry a group of between 5 and 20 passengers through the city. The omnibus was slow by modern standard (perhaps 6-8 miles per hour) but it doubled travel times relative to walking. They were too expensive for the poor to use because horses were expensive. The omnibus however did make horse-drawn transit affordable for the middle classes, and not just a privilege of the very rich. The omnibus (or bus), which was invented in Paris in 1828, made it possible for people essentially to share the costs of a horse between them. It rapidly changed the urban configuration of many major cities (including London, Paris and New York).

Given that the omnibus seems like an obvious invention, it is worth asking why this didn’t show up until the 1820s. Presumably someone could have figured out that you could have a big carriage earlier. In fact, the omnibus needed wealthy customers who could afford its relatively high fares and city streets that were sufficiently level for a team of horses to move a carriage at reasonable speeds. The omnibus was certainly a spark of genius for Brower, but if someone else had thought of it fifty years earlier the technology would have been much less effective (because of road quality) and the lower number of people who could have afforded bus tickets would have been much lower.

Modern urban densities, and the modern separation of rich and poor, pretty much began with the omnibus. After Brower introduced them, the omnibus seemed to explode overnight. There were eighty buses in 1833 and one hundred and eight in 1837.50 Burrows and Wallace reported that “the New York Gazette and General Advertiser suggested in 1834 that New York might well be termed ‘the City of Omnibuses’ as they generated much of downtown’s ‘noise and bustle’”.51 During this time period, the great flight uptown, particularly of the wealthy, took off. Between 1800 and 1840, there was an exodus of well-to-do New Yorkers from the tip of the island to northern areas like Greenwich Village or the nascent developments on Washington Square (Burrows and

50Burrows, Edwin G., and Mike Wallace. Gotham: A History of New York City to 1898. (New York: Oxford University Press, 1999.), pg. 565. 51Ibid. 85

Wallace, 580). Richer people, who could afford the new technology, took advantage of it and moved to areas where they could consume more space and avoid the dangerous densities of downtown. The poor, who couldn’t afford public transportation, remained within walking distances of work. The modern pattern—where the rich live on the outskirts and the poor live at the city center—first began to evolve.

Omnibuses were soon joined by two other innovations: street railroads and steam engines. In 1832, the New York and Harlem Railroad pioneered the street railroad. These railroads were horse drawn carriages that used rails set in city streets. In the cobblestone era of street paving, this offered a smoother ride. Cars with metal wheels moving along rails were much more comfortable and much easier to move than buses. While eventually these rails would use electricity and steam, for the first fifty years street railways were horse-drawn. Still, the New York mayor, in 1832, thought that the recently-patented street railways represented such an improvement over other technologies that “this event [the first street railways] will go in history of our country as the greatest achievement of man.”52

While both omnibuses and street railways used city streets, street railways actually physically altered the streets by covering them with rail. The rail itself, even when not in use, posed a barrier to other forms of transportation. The rails blocked both wheels and sleighs and were clearly something of an impediment to other forms of travel. Brian Cudahy describes ferocious conflicts between private citizens who were accustomed to using sleighs in the winter and street railway companies (Cudahy, 16). Since the railroad companies had to clear the snow around their rails, the sleigh-users were blocked from these roads. While the rail beds themselves were an inconvenience to others, railways also were legally given rights-of-way on their rail beds.

Steam trains also began during this period, but their noise and danger kept them out of the heart of the city. The New York and Harlem line used steam engines in the north of Manhattan and horses south of 27th street. Eventually, elevated railways, subways and

52Cudahy, Brian J. Cash, Tokens, and Transfers : a History of Urban Mass Transit in North America. (New York: Fordham University Press, 1990), pg. 9. 86 motor-driven buses would compete and then replace the omnibus, but it was the simple innovation of horse-drawn buses that would begin the transportation revolution, and this revolution reshaped the city. Manhattan’s vast size would be unthinkable in a purely pedestrian city and its changing patterns of rich and poor neighborhoods are likewise the result of these transit technologies.

Immigrant City

New York has always been a city of immigrants. Its multi-ethnic tolerance and its superb natural port combined to make it the first, and often the last stop, for millions of entrants into the United States. William Bradford, Alexander Hamilton and John Jacob Astor were all eighteenth century immigrants, but over the course of the nineteenth century, the numbers of immigrants coming into the U.S. and New York exploded. Figure 3-5 shows the number of immigrants entering the U.S. after 1820 decade-by-decade. The greatest flow of immigrants didn’t occur until the end of the nineteenth century, but even before the Civil War, hundreds of thousands were coming through and into New York.

The earliest immigrants had, of course, been Dutch, but throughout the eighteenth century, most immigrants were Anglophone. Bradford and Hamilton were somewhat more typical than the German Astor in this period. In the nineteenth century, immigrants were increasingly Irish and German. In the last chapter, I discussed the Boston Irish, but even though the Irish represented a larger share of Boston’s population, they came in greater numbers to New York City. As New York was the nation’s foremost port, it was also the natural place of entry for immigrants coming to America. By 1860, 47 percent of New York was foreign born. Casey (1995) reports that more than one-quarter of the city in 1855 was born in Ireland alone.

The forces that propelled Irish and German emigration have been abundantly recounted. In the 1840s, the potato famine offered many Irish the option of starvation or flight. Similar to Many Germans, like Carl Schurz, a revolutionary who eventually became a U.S. senator, many Germans fled in response to the chaos of the 1848 revolution and its 87

failure. Many more Germans seem to have been induced by the prospect of American prosperity. Of course, poverty alone doesn’t make an immigrant: declining transport costs were at least as important. In the colonial period, crossing the Atlantic required too much money for the poorest residents. Some poorer residents came as indentured servants, but this crossing was open primarily to the young and able bodied. Over the 19th century, transatlantic transport costs plummeted and increasingly immigration was a viable option for even the very poorest.

From the perspective of this book, it is more important to understand why so many immigrants decided to stay in New York than to understand why they came to the U.S. After all, most of them had been farmers before immigrating. A life in America’s farms was surely a more natural transition than a life on the Lower East side. Yet hundreds of thousands stayed in the city.

Broadly speaking, we can divide the reasons that immigrants stayed in New York into three classes: convenience, employment and lifestyle. The convenience motive is obvious. Given the expense involved in crossing the ocean, it surely made sense to thousands not to travel any more. For many, the ocean voyage would have completely depleted their resources and further travel would have seemed prohibitively expensive.

The employment motive is only slightly more complex. New York’s economy was certainly booming and despite discrimination there were jobs for immigrants, even those with limited skills. Casey (1999) notes that in 1855 “about 86 percent of the city’s laborers and 74 percent of its domestic workers were Irish-born.” One can see this employment as reflecting the ability of New York’s large market to support the division of labor. Farmers generally needed their own land and equipment to be productive. Urban workers need only their minds and muscle; someone else provides the capital. It is a testament to the city’s productivity that there were so many jobs available in occupations at the bottom of the skill hierarchy. Admittedly, the wages were low, but it would take considerable courage to leave a place with plenty of jobs for the uncertainty of other places. 88

The economy and the immigrant population evolved together. Immigrants stayed because of jobs, and jobs were created because of the supply of low cost labor. New York’s port made it a natural place for textile manufacturing, but if hundreds of thousands of immigrants had landed in Charleston, it seems likely that there would have been more textile entrepreneurship in that city. The important point is that New York was particularly capable of employing all those immigrants because it had enough capital and few barriers to entrepreneurship.

The lifestyle motive is the most complex, but it helps us to understand why immigrants continue to be drawn to cities today. Cities are particularly attractive for those immigrants who are most different from the native population, because they are least likely to be comfortable in a typical native community. Just as there are agglomeration economies in production, there are agglomeration economies in consumption. All of us need friends who we can talk to and we want to live in a social community where we or our child can find mates. There are also culture-specific services and goods—churches, food, newspapers— that will be provided in a dense immigrant community but not in the native hinterland.

By congregating in New York, the Irish and Germans were able to form their own churches and supply their own food. The Germans had the added advantage of being able to interact with people who spoke the same language. Immigrant entrepreneurs published newspapers like the Gaelic-American and the Staats-Zeitung. There were certainly immigrant centers of agrarianism, but the city provided a helpful focal point and density permitted these groups to coordinate in the provision of their own special public goods.

A particularly important lifestyle consideration is safety, and immigrants coming into the U.S. were often greeted with violence. Anti-Catholicism was a defining characteristic of Anglo-American culture and churches and nunneries were particularly subject to attack. An influx of immigrants will always be a tempting target for nativist demagogues and 89 these abounded in the ante-bellum U.S. After all, the anti-immigrant American Party (or Know-Nothings) managed to get more than one-fifth of the popular vote. The nativist threat was quite real.

New York was not free of nativism, but the concentration of immigrants ensured the movement’s weakness. In 1844, the city elected a nativist mayor, James Harper, but the concentration of immigrants ensured that nativism would become a losing political strategy. It is hard to win an election on an anti-immigrant platform if one-half of the electorate is foreign born. Tammany Hall, which became the dominant political force in the city from 1860 through 1960, had its base in immigrant communities. Concentration created political power and safety at least from outsiders.

Ethnic segregation, of course, comes with costs as well as benefits. Children growing up in ethnic enclaves learn English less readily than those in more native communities. Since immigrants were poor, immigrant neighborhoods also had the problems of concentrated poverty, most notably crime. Immigrant gangs, like the Dead Rabbits, became infamous, but they were often tolerated within their ethnic enclaves because they provided protection against rival nativist gangs, like the equally infamous Bowery B’hoys. The New York City metropolitan police of 1850 were certainly stronger than the Bostonian antecedents 130 years earlier, but they were still far too weak to enforce rule of law in the poorer areas of town. Gangs stepped into the vacuum protecting and exploiting their fellow immigrants.

Increasingly, the city acquired ethnically diverse neighborhoods and took on the international character that is has today. At first, German areas like Kleindeutschland were the main outposts of non-Anglophone New Yorkers. Over the next 150 years, neighborhoods evolved that spoke Italian, Russian, Yiddish, Chinese, Spanish and many other tongues. The city became, in a sense, a machine for incorporating new arrivals into the U.S. Entrepreneurs, both immigrant and native, specialized in housing and other services that catered to these usually poor clientele. Certainly, New York would serve as 90

a melting pot, but much of its appeal to many New Yorkers was that it would let them exist in a culture that was closer to their country of origin.

The Rise of Popular Politics

The association between immigrants and Tammany Hall is strong that it is easy to forget that this machine and popular politics more generally, long predated the great inflows of the middle nineteenth century. There were popular uprisings against colonial leadership even in the seventeenth century when Adrian van der Donck led the fight to get Peter Stuyvesant deposed by the Dutch States General. In 1689, Jacob Leisler led a rebellion against Andros’ rule that briefly put the city in Leisler’s hands. In the 1730s, former Justice Morris’s supporters won municipal elections with a populist anti-establishment ticket.53 Even in the revolutionary era, when New York was a Tory outpost, it still had its share of revolutionaries, such as Alexander Hamilton.

Still, it was only in the 1790s that mass urban politics really came to New York. During this decade, the first incarnation of the Democratic Party took over the city government. For the next 200 years, subject only to occasional reformers and Republican mayors, the Democrats would continue to run the city. Just as New York City had been a center for Tories, at the start of the 1790s, it was a center for Federalists. The wealthy elites of the city were as conservative as one might expect. In addition, their leaders—Hamilton, John Jay, Gouverneur Morris—were larger than life figures in the Federalist hierarchy. In the early Republic, their prominence and the Federalists’ wealth made them natural leaders. Furthermore, the city’s Common Council, was elected only by those voters with at least 20 pounds of property, ensuring them a friendly electorate.54

But while the Federalists were extraordinary men, they were poor campaigners. Their policies were better at appealing to men of property than to a wide spectrum of the population. Understandably, given their positions the Federalists did not share the

53Burrows, Edwin G., and Mike Wallace. Gotham: A History of New York City to 1898. (New York: Oxford University Press, 1999.), pg. 152. 54 Ibid, 330. 91

popular enthusiasm for the French revolution. Their opponents included the seven-term governor of the state, George Clinton, congressman “Beau Ned” Livingston and the redoubtable Aaron Burr. The Federalists faced increasingly organized groups, like the Democratic Society, that politicized a much wider range of New York Society. The Society of St. Tammany became an increasing presence in Democratic politics. The Federalists compounded their problems with the internecine warfare between Hamilton and John Adams, but their defeat seemed inevitable.55 By 1804, Hamilton was dead and the voting rules changed both to relax the property qualification and to introduce the secret ballot. 56 Federalism in New York City was truly over.

The tools developed in this battle would be part of urban politics for the next 200 years. Aaron Burr was the organizing genius who figured out how to run an urban political campaign: “Burr prepared a roster of all voters in the city and had party workers visit every known Democratic-Republican to round up support and contributions.”57 He created the first machine manned by party professionals who got to know the voters and got them out to vote. The societies, like Tammany Hall, provided the foot soldiers in this campaign. At least until television revolutionized politics in the 1950s, Burr’s methods were unbeatable and imitated by machine after machine. Party workers would be rewarded by patronage and they would have to earn their jobs by delivering voters on Election Day.

Democratic-Republican victory was unsurprisingly followed by division within the party. DeWitt Clinton, George Clinton’s nephew, had become the dominant figure in the state for the quarter-century after the 1800 victory.58 He was responsible for, among other things, the Erie Canal. But while Clinton may have made a better populist than Gouverneur Morris, he still represented the establishment side of the Democratic Party. The Tammany Democrats came to oppose Clinton, and they formed an alliance with the

55Ibid, pgs. 328-239. 56Ibid, pg. 332. 57Ibid, pg. 328. 58Ibid, pg. 329. 92

upstate political virtuoso Martin Van Buren.59 As Clinton stepped down from the governorship in 1822 rather than face defeat, once again the more elite branch of the party ceded power to those skillful organizers of mass support, Tammany Hall.

As these events illustrate, Tammany Hall created a competitive market for votes. Every voter had a valuable asset: the ability to influence those in control of the city treasury. Many people underestimated the value of this asset. To this day, the majority of citizens choose not to vote because they do not believe their ballots can a sway an election. However, when taken together, even 1,000 votes are significant. Between 1834 and 1865, 10 elections for the mayoralty of New York City were decided by 2,000 votes or less (Jackson, 1995). The shift of a mere 1,000 votes from one side to the other would have changed several outcomes. If control over the city government was worth millions to those in power, it is easy to see why a party would be willing to pay voters at least 100 dollars each for their votes. Just as dense urban populations promote trade in diamonds, they also facilitate the buying and selling of votes.

The heart of the Tammany process was replacing high-minded appeals for votes with much more tangible incentive structures. Voters were sometimes paid directly, but more often they were indirectly compensated for their support. The city politicians frequently employed their friends and relatives. Tammany delivered food during a famine and care after a fire. At the very least, on Election Day, voters could count on drinking and eating at Tammany’s expense if they cast their ballots in its favor. While Tammany bosses may have been earning much more than any of their constituents, the poorest New Yorkers certainly faired much better under this system than they would have under alternative political regimes.

Between 1820 and 1850, Tammany’s hold on the city was never absolute. It was a strong participant in local politics, but only one of many stakeholders. The Mayoralty often ended up in the hands of conservative merchants, like William Havemeyer. In the 1830s, the Whigs tried to beat Tammany with their own populist organization and, indeed, had

59Ibid, pgs. 512-513. 93

some success. In the 18 elections between 1834, the year of the first mayoral election, and 1852, the Whigs won six contests to the Democrats’ 11 (Jackson, 1995). Of course, even when the Whigs took the mayoralty, Democrats continued to dominate the common council. And yet, during this period of transition, Tammany Hall never fully controlled the Democratic Party, nor the Democrats the city.

The great epoch of Tammany Hall lasted from 1865 to 1933 and is bracketed by two extraordinarily popular mayors, who created their own political operations that competed successfully with Tammany’s. Rejecting this period of corruption, Fiorello LaGuardia gained recognition as one of America’s truly great mayors of the twentieth century. Fernando Wood, on the other hand, became known in the mid-nineteenth century as a scoundrel and Copperhead, a title given to anti-war Democrats. Nevertheless, by the 1850s, he was a powerful presence in the political landscape of New York City.

Wood made a fortune in the 1830s and 1840s by marrying well and investing in real estate. Even at this early stage, accusations of fraud haunted him. He served in congress in the early 1840s and ran unsuccessfully for mayor in 1850. During the early 1850s, city expenses boomed as a Tammany ring of alderman, nicknamed the “Forty Thieves”, began exploiting the city’s financial resources more seriously. Their excesses brought forth a reform movement led by wealthy merchants like Peter Cooper.

In one upcoming election, Tammany decided to compromise with the reformers rather than fight them, and Wood emerged as the compromise candidate. He was not an out- and-out reformer like William Havemeyer, but his personal wealth suggested independence from Tammany. Leading Democratic reformers decided to support Wood instead of splitting the ticket. Once elected, Wood pleased his reform-minded allies much more than his Tammany Hall supporters. He immediately put forward a sweeping agenda for municipal projects. Among other things, he started a complaint book so that people could voice their unhappiness with public service provision, tried to consolidate power in the Mayor’s office, and built a network of support by combining Irish 94 immigrant votes with the backing of wealthy citizens. He even started a competitor to Tammany Hall: Mozart Hall.

Wood was always more effective at proposing than accomplishing, but he only bears partial blame for the worst problems of his administration. Upstate Republicans passed a prohibition statute in 1855, but Wood had no intention of enforcing the law at the expense of his popular support. The state responded in 1857 by taking control of the police force away from Wood and the city government. He quickly responded by ordering the Common Council to create its own rival police force. Two enemy police forces and a city full of well-armed gangs almost guaranteed chaos. Following the breakdown of law and order and the economic crisis of 1857, Wood was ousted from his position in the next election, defeated by an independent named Daniel Tiemann.

Despite his loss, Wood was not quite finished. He was elected mayor again in 1860, but his strong Confederate sympathies cost him re-election in 1861, a defeat which brought New York’s first Republican mayor to power. Wood returned to congress in the late 1860s and remained there as a peripheral player in New York politics. His central role was soon taken on by William Magear Tweed (“Boss Tweed”), the Tammany boss who still stands as the ultimate personification of urban corruption in the U.S.

Tweed had risen through the ranks of city politics. He had been active in a volunteer fire company, allegedly wielding an ax against rival companies. Although he was himself a native, Tweed, like Wood, was particularly effective in Irish districts. He was one of the “Forty Thieves” in the early 1850s, presumably honing his craft. He served for a brief, undistinguished term in the U.S. Congress and then returned to New York. Whereas Wood tried to use his personal popularity to cement his control over the city, Tweed was an organizing man, who worked within Tammany Hall to build himself a wide base of support. He worked for years putting together his ring, but it was only during the Draft Riots of 1863 that he became a major public figure.

The Draft Riots remain the deadliest riots in the history of the U.S. More than 105 people died (Jackson, 1995). Just as in the Boston riots, New York City combined anti- war elites like Fernando Wood and Governor Horatio Seymour with tens of thousands of working-men who had no interest in fighting to free the slaves. The war was particularly unpopular in Irish circles, in large part because the freed slaves competed with them for employment. Costa and Kahn documented that Irish-Americans were more likely to desert from the Union army than either natives or German immigrants (2003). The draft was wildly unpopular in immigrant communities not only because it seemed to promise death in a war that they did not want to fight, but also because the rich could pay a substitute 300 dollars to fight in their stead (Jackson, 1995).

The first draft lottery took place on July 11. There was another scheduled for July 13, but on that Monday morning, laborers took to the streets. They knew that they would have the critical mass to overwhelm the police force because the riot had been well-organized. Rioters initially targeted policemen, draft offices, and the homes of the wealthy. The vulnerable black community attracted vicious racist attacks. For days, the city was in utter chaos and full order was not restored until five regiments were diverted from Gettysburg to New York City (Jackson, 1995).

Amidst this mayhem, Tweed emerged as a figure of moderation and order. Tweed was trusted in the urban neighborhoods. He had access to his own gangs. He also supported the war and wanted the chaos to end. He flanked Governor Seymour when the Governor tried to moderate the crowds. More importantly, Lincoln entrusted Tweed with the next draft lottery. Hoping to avoid the chaos, Lincoln dropped the number of New York draftees from 26,000 to 12,000. Tweed and his allies set aside $2 million to pay for substitute soldiers for poorer New Yorkers. Tweed became the middleman between Washington and the poor of the city, a role he would play for another decade.

While Tweed served an important political role as a tribune for New York’s least fortunate, he is most famous as an innovative raider of the city treasury. After all, paying 96

for votes requires money and patronage. However, in Tweed’s case, much of the stolen funds appear to have found its way into his own pockets.

There are three obvious ways to steal from a city treasury: one may take directly from the till, undercharge for goods owned by the city, or overpay for goods bought by the city. The first type of theft was relatively rare because it was the easiest to catch. However, the second type of theft was quite common during the Gilded Age, and handing out public transit franchises for a nominal fee was almost routine. Although the city itself earned little from these nominal payments, government officials pocketed their own private payments from railroad tycoons like Philadelphia’s Wideners. Finally, overpaying for goods, the third form of graft, did not require the sale of any public services, which made it easy to implement whenever the city was spending money.

Tweed was a master of this third technique: “Plunder of the city treasury, especially in the form of jobbing contracts, was no new thing in New York, but it had never before reached such colossal dimensions” (Bryce, 1914). The ultimate highlight of this form of corruption was the Tweed courthouse. As Ellis writes:

Under the new Tweed charter the new board of audit consisted of Tweed, Hall and Connolly. At one of the board’s first meetings, on May 5, 1870, the trio authorized the payment of an additional $6,300,000 for the new courthouse they were building. Nearly 90 percent of this sum was padding, and they pocketed the extra $5,500,000. (Ellis, 1966)

But this is only the most famous example of Tweed’s corruption through overpaying for privately provided services. He also centralized street cleaning and contracted with a single company. “The successful bidder was paid $279,000 for a year’s work—and immediately ‘kicked back’ $40,000 from his fee” (Glaab and Brown, 1967). This type of corruption was simple to implement and enormously profitable.

Tweed, of course, was eventually brought down by reformers, including Peter Cooper and Samuel J. Tilden. His voters stuck with him to the end, but he fled the country unannounced, leaving behind a vast fortune. Tweed’s successors at Tammany Hall— “Honest” John Kelly, Richard Croker and Charlie Murphy— avoided his style of blatant corruption. But they did manage to keep Tammany’s coffers full and its voters satisfied, which allowed them to dominate city politics for the next 60 years.

Providing Clean Water

The corruption of the Tweed machine should make it clear why providing public services was difficult in the nineteenth century. Nonetheless, services were provided. Perhaps the most important success of municipal government was clean water and the Croton Aqueduct. Until the 20th century, cities remained incredibly unhealthy places to live. Just as proximity facilitated trade, it also facilitated the flow of disease. Massing people together overtaxed natural water supplies, and primitive refuse treatment contributed to pollution. Some estimate that city-living took ten years off of one’s life. However, in absolute terms, cities also became much healthier during the nineteenth century, in large part due to modest improvements in water quality.

Government involvement in New York’s water supply dates back to 1666, just two years after the Dutch surrender, when the English governor sunk the first public well. Water, fire, and sanitation were the primary responsibilities of the earliest government of New York, the Common Council (Koeppel, 2000), the body that spearheaded the first large- scale public well system. Interestingly, the Dutch, who had acquired many private wells, turned most of their water into beer, which, at the time, was a considerably safer drink.

By the eighteenth century, New York’s public wells no longer produced good water, and a more sophisticated private system replaced them. Private wells, set at a distance from the main population center, became the norm. The size of the city and the rising price of water now justified a distribution system that would bring water in from private wells to meet the needs of city residents. Public wells were still important, but they served 98

primarily as a fire safety resource. Koeppel writes: “As the laws protecting the public wells and pumps make clear, the greatest interest was in having plenty of water to douse fires” (Koeppel, 2000). Thus, a two-tiered water supply system emerged. Cheap public water from wells in high-density areas was used to fight fires, and city residents, especially the wealthy, drank from more distant private wells.

Eventually, as densities rose, particularly in the uptown areas that supplied water, the quality of the private wells also deteriorated. Since waste was deposited on the ground, high-density levels naturally lead to poisoned water. In fact, some linked New York’s cases of Yellow Fever with poor water quality. Soon city government re-entered the water supply market in a significant way, with Christopher Colles’ project to pipe water in from further uptown (Jackson, 1995). If implemented, this project would have required the construction a large well and steam engine but, in fact, it was abandoned when the British occupied New York during the American Revolution.

The government’s ongoing involvement in water supply has two explanations. First, unclean water creates large externalities in dense urban areas, where a disease carried by a few individuals can quickly spread and infect others. Second, providing clean water often involves large fixed infrastructure, which places limits on multi-firm competition.

After the revolution, the city launched a private water project. In 1798, New York had a significant Yellow Fever outbreak, and public interest in clean water increased. However, instead of keeping the project purely public, the city opted for a subsidized private scheme. Aaron Burr and Alexander Hamilton collaborated on the project, which would become a private company with public funding. The company claimed that it would pump water in from the Bronx and, in exchange for this promised service, received two substantial rights. First, it was given rights of eminent domain to take all the land it would need to supply the water. Second, it was allowed to use its surplus capital in any way it saw fit. This was a substantial right, because at this time, limited liability companies were highly restricted in their operation. The political clout of the company’s founders overcame initial opposition to these unusual entitlements. 99

However, the company did not completely follow through on its promise to provide water to the city. It used its surplus capital clause to engage in more lucrative ventures and ignored the much harder task of delivering water; it is no coincidence that the Manhattan Water Company is the direct ancestor of the Chase Manhattan Bank. While public interest in water came about because of health and safety concerns, the problems with private provision had already become obvious 200 years ago. The company’s political clout had caused it to receive substantial gifts from city hall.

Meanwhile, Philadelphia had begun to move ahead with its path breaking water works. There are two aspects of Philadelphia’s landscape which differ radically from New York’s. First, it is swampier and more innately disease prone. In 1793, approximately eight percent of the city died from Yellow Fever. Second, it is surrounded by fresh, not salt, water rivers, making it an ideal place for large water works.

Philadelphia tested a system of private, large-scale water works in the Delaware and Schuylkill Canal Company. Like the Manhattan Water Company, this private company also failed to deliver water to the city, despite government aid. Under Benjamin Latrobe’s leadership, Philadelphia began a large-scale public water works system that eventually would be quite successful. However, even with some customers incurring high charges for water use, the program regularly ran at a loss.

New York moved more slowly. It wasn’t until the cholera epidemic of 1832 that the city seriously focused on large-scale public water supply. The Croton Aqueduct was built over a seven-year period, starting in 1835, and its $11.5 million (standardize dollar amounts throughout document) cost represented a massive investment of government funds (Jackson, 1995). Like Latrobe’s works, it eventually delivered clean water efficiently, but it took thirty years longer for annual revenues from the water works to exceed expenses, which included debt on the fixed costs of construction. After this period, New York never systematically experimented with private provision of water.

100

Why did the city turn to public provision? Why did they not just subsidize private providers? The answer in New York’s case is probably that no private company could have been trusted with the levels of subsidy needed to build large-scale water works. After the experience of Aaron Burr, what sensible politician would have voted to trust a private entrepreneur with the $11.5 million needed to build the Croton? Some economists argue that public provision becomes appealing when it is more important to keep unobservable quality high than to reduce costs (Hart, Shleifer and Vishny, 1997). This was the case with water. Costs mattered, but bad water could have killed thousands.

The provision of water in other cities eventually followed. Boston built its Cochituate system over a nine-year period, starting in 1846. All of these water supply systems were massively expensive. For example, by 1900, municipal spending on water in the U.S. was significantly greater than all U.S. federal government spending, excluding the Armed Forces and the Postal Services.

The story of New York City government highlights corruption and violence, but the Croton Aqueduct reminds us that nineteenth century urban governments were also able to achieve great things for the public. Cities cannot exist without significant spending on public goods like clean water, sewage removal, and rule of law. This tends to require big governments, which inevitably bring waste and corruption. But the waste and corruption of developing American cities should not mask the fact that city governments served a vital purpose.

101

Chapter 4: Chicago and the Midwest

In 1890, Chicago passed Philadelphia to become America’s second largest city, with almost 1.1 million inhabitants. The city had been incorporated only in 1837 and had less than 5,000 residents in the 1840 census. Before the Civil War, its population increased more than 20-fold in 20 years. Between 1870, the year right before the Great Fire, and 1890, its population increased by 800,000. The city was a new place, made up almost entirely of recent migrants, and it was booming.

Just as New York was the hub of a transportation network that connected the United States to Europe, Chicago was a hub that connected the American hinterland back to New York. But while human ingenuity, in the form of the Erie Canal, played only a supporting role in New York City’s rise to greatness, in the case of Chicago, human ingenuity was the catalyst. The city sits at a point where a relatively short river meets the Great Lakes. Before the Illinois and Michigan Canal was built, the only way to get from the Great Lakes to the Mississippi river system involved going over land and on small streams which, though possible for explorers, fur traders and Native Americans, was very costly for large freight shipments.

Father Marquette and Louis Joliet, both French explorers, were taught about the portage60 by Native Americans in 1673. The basic route is from the Mississippi River to the Illinois River to the Des Plaines River to Portage Creek to Mud Lake and then overland to the Chicago River which then (at that point) empties into Lake Michigan. For nimble and lightly encumbered French explorers, this path was both feasible and much better than other alternatives, such as the path through Green Bay that they had formerly used to reach the Mississippi. The small early settlements around Chicago certainly benefited from this route. However, without new man-made infrastructure, Chicago was never going to become a city of significance.

60 Defined as “the carrying of boats, goods, etc., overland from one navigable water to another,” Random House Unabridged Dictionary, © Random House, Inc. 2006 102

The value of a canal linking the Great Lakes to the Mississippi system was lost on no one. As early as 1810, a New York congressman Porter declared in the House that “At the southwestern extremity of Lake Michigan, the most inconsiderable expense would open a canal between the waters of the lake and the Illinois River, one of the principal branches of the Mississippi."61 The very border of the state of Illinois was set in 1818 in order to ensure enough Lake Michigan shoreline so the state could build a canal without needing to negotiate with other states. In 1822, before the Erie Canal was completed, Congress granted the State of Illinois a right of way across 100 miles from Lake Michigan to the Illinois River in order to build a canal.

Everyone understood the importance of the Canal’s eastern terminus and the canal commissioners laid out a town on the spot—Chicago—in 1829. The growth in the town began almost immediately, as speculators bought the land sold by the Canal commissioners before any construction on the canal started. While the value of Chicago land soared and crashed, most notably in the panic of 1837, there is no doubt that entrepreneurs readily saw the potential value created by the canal.

Construction on the Illinois and Michigan canal finally began in 1836 and it would take 12 years to complete.62 In a sense, the Illinois and Michigan Canal was the natural sister to the Erie Canal. Together, these two engineering feats made it possible to travel in a great arc from New Orleans to New York City through the American hinterland completely by boat. The Illinois and Michigan canal cost $6.1 million or about $140 million in today’s dollars.63 Upon completion the canal ran 97 miles from Chicago to LaSalle and transformed Chicago from being just another spot on the Great Lakes to being a central transportation hub. The spot where the canal met the lakes was a particularly natural spot for a city because this was the place where cargo was frequently moved from canal boats to larger lake traveling ships.

61 Putnam, J.W.. “An Economic History of the Illinois and Michigan Canal: III.”The Journal of Political Economy, Vol. 17, No. 7.,1909, 413-433. 62 Miller, Donald L., “City of the Century.” New York: Simon and Schuster Inc. 1996 63 Chicago Library digital database: http://www.chipublib.org/digital/sewers/canal.html 103

The growth of Chicago was intimately bound together with the Canal, but the city’s boosters certainly didn’t wait on the Canal’s opening. From the moment that the canal construction began in 1836, enthused speculators moved to the city to be able to get in early on the area’s expected takeoff. Exploiting the wealth of America’s hinterland depended on shipping it to the East Coast. Chicago’s frontier location, combined with its water access to both the Atlantic Ocean and to the Gulf of Mexico, made it a natural hub to access the natural wealth of the old Northwest.

Chicago’s location was fixed by waterways, but that and its Midwestern location alone did not make it unique. Every one of the 20 cities in the U.S. with more than 170,000 inhabitants in 1900 was on a major waterway.64 Eight of those twenty were on the eastern seaboard (New York, Philadelphia, Boston, Baltimore, Washington, D.C., Newark, Jersey City and Providence). San Francisco was on the Pacific Ocean and New Orleans was on the Gulf Coast. The remaining 10 cities were all located on rivers and lakes in the American Midwest. The modest area covered by these 10 cities was bounded by Buffalo in the East and Louisville in the South and Minneapolis in the northwest. There were no cities in the former confederacy, other than New Orleans, and no great cities, other than San Francisco, that were west of the Mississippi.

Chicago started as a great waterway hub, and its transportation-based advantages only increased with the construction of railroads. While the rise of rail did not mean the end of water traffic, as it was still cheaper to move goods long distances over water than by rail, the growth of rail did mean the end of spending vast sums to build canals within the continental U.S. The Illinois and Michigan Canal was the last major canal built in the U.S.65 Instead, infrastructure investment went into rail, usually pushed along with significant government subsidies that came in the form of land grants. Chicago’s first rail line was the Chicago and Galena which first carried a westbound train out of Chicago in 1848. The Chicago and Galena was initially intended to connect Chicago with the lead mines in Galena, but it soon excelled in shipping grain from western farmers to the Great

64 www.census.gov/population/www/documentation/twps0027.html 65 Chicago Library digital database: http://www.chipublib.org/digital/sewers/canal.html

104

Lakes. By 1852, the Chicago and Galena was carrying over half the city’s wheat into Chicago.66

Chicago’s early rails were complements with, not substitutes for, the waterways. Shorter rails reached into the American hinterland and allowed farmers and ranchers to ship their goods to Chicago. At that point, they would be transferred onto boats for the water trip to the East Coast. Chicago’s central role as a capital of commerce stemmed naturally from its prime location as a spot where goods were unloaded from one transport technology and loaded onto another one.

Eventually, rail also came to compete with the Great Lakes in connecting Chicago with the East. The first eastbound train out of Chicago was run by the Michigan Central Railroad, owned by one of the great railroad pioneers, John Murray Forbes. Although Forbes was himself born in Bordeaux, where his father was doing business, the Forbes family had settled in Boston. As I have discussed two chapters ago, Boston was experiencing an economic renaissance in the early nineteenth century based on bigger ships that could travel longer distances. One of the great sources of Boston’s wealth during this period was the China trade.

Forbes’ family members, most notably his uncle, were big players in this trade. After John Forbes’ older brother Thomas died in 1829, Forbes took over the role Thomas had played and found himself at the age of 17 in China exercising considerable responsibility trading with the Cohong, the guild of Cantonese merchants, and its wealthy leader Howqua. Forbes amassed a significant fortune in the China trade before he was 25 and he returned to the U.S. in 1837 looking for business ventures closer to home.

Forbes tried iron and coal with mixed success, but it was iron that eventually led him into rail. Forbes’ Mount Savage Ironworks in Maryland was a pioneer of heavy edged iron rail in the U.S. in 1843. Before this point, high quality rail was all imported from

66 Cronon, William. “Nature’s Metropolis, Chicago and the Great West.” New York: W.W. Norton & Company, 1991. 105

England. The introduction of a rolling mill at the Mt. Savage works meant that he could save the cost of transporting a key piece of transportation equipment across the Atlantic.

Armed with this novel production facility, Forbes decided to vertically integrate and bought a distressed rail line from the state of Michigan for $2 million. Forbes refurbished the line and extended it to Chicago. In 1852, Forbes’ Central Michigan railway ran the first eastbound trains into Chicago. Since there was already a water-route from the East to Chicago, and since trains were considerably more expensive to operate than boats, this line served mainly to cut travel times for people moving either west or east.67

Forbes’ also started buying up small railroads in Illinois that were eventually combined into the Burlington, Chicago and Quincy Railroad in 1856. This railroad initially served as people-movers, but its significance lay in the fact that rail could reach farms that had no water access to the Great Lakes. These rail lines connected Chicago with its own local hinterland. If the Canal was focused on grand trans-continental movement, the Burlington line was a much smaller operation that focused on serving the local farmers. These rails were in a sense natural complements to the canal that would enable goods from local farmers to reach the larger network and would enable goods coming into Chicago to be shipped by rail to its local customer base. Rails, like the Burlington, helped to turn the city into the dominant trade and industrial center in the region.

Larger trains were to follow. The Illinois Central railroad, completed in 1856, was at the time the longest railroad line in the world traveling from Cairo to Galena.68 Notably, Chicago was no railroad hub at this point—it wasn’t on the main Illinois Central line. However, the Illinois Central, recognizing Chicago’s importance as a hub for water-borne transport, built a branch line, “Centralia,” connecting the main line with the city.69 Over the next 40 years, rail would eventually come to supplant water transport.

67 All information on Forbes found in: Larson, John Lauritz. “Bonds of Enterprise: John Murray Forbes and Western Development in America’s Railway Age.” Cambridge, MA, Harvard University Press, 1984 68 Stover, John F.. “History of the Illinois Central Railroad.” New York, Macmillan Publishing Co., Inc., 1975. 69 Illinois Central Historical Society: http://icrrhistorical.org/. 106

The general pattern was that over time, more and more valuable commodities switched from water transport to rails. Chicago grew before the Civil War from 3029,000 in 1850 to 112,000 in 1860, but during this period, rail’s role was in moving people, not goods, to Chicago. During this early period, the waterways were reigned supreme. During and after the Civil War, rail became increasingly important. Rail carried livestock, which were valuable and expensive to feed during a long water trip, but grain and lumber traveled by boat. In 1870, it cost 33.3 cents to move goods from Chicago to New York by rail and 17.1 cents to move goods by lake and canals. It cost only 22 cents to move goods over a combined rail-water route that would end up being particularly attractive.70

Over time, more and more commodities traveled by rail. In the 1870s, rail began to compete effectively with lake transport for both corn and wheat. Rail made steady inroads carrying both types of grains, but corn was better suited to rail-travel. Corn’s higher water content made it more liable to rot in the damp holds of barges, whereas wheat has less moisture and could survive the long lake journeys with less waste. Still, in regards to both commodities, lake transport generally held its own, even in corn, through the 1880s. Equal quantities were being shipped by water and by rail, and with wheat, the Great Lakes continued to dominate. As late as 1905, 8,784 million bushels of grain traveled east along the Great Lakes.71 This steady competition between rail and lake was particularly valuable because it kept rail rates down.

Over the next fifty years, Chicago’s strength as a transport hub made it a center for both commerce and manufacturing. The Great Lakes and the canals gave it the ability to import and export to and from great distances. The smaller local railroads made it possible to connect regional farmers and ranchers. Just as New York’s manufacturing grew up around its transportation system, Chicago grew great because it was also well- connected. In this era, when transportation costs could be enormous, manufacturers

70. 71 Grains include corn (74.379 million) and wheat (13.232 million). All data from Tunell, George, G.. “The Diversion of the Flour and Grain Traffic from the Great Lakes to the Railroads.” The Journal of Political Economy, Vol. 5, No. 3, 1897, 340-375.

107

benefited greatly by being close to consumers or suppliers or both, and by being located at the center of a transport network.

Agricultural Productivity and Urban Growth

No one knew this better than Cyrus McCormick, who was a pioneer both in American agriculture and in the growth of Chicago. McCormick patented his mechanical reaper in 1834 in Virginia (hence its “Virginia Reaper” sobriquet). His success in Virginia was limited and by 1846, he had still sold fewer than 100 machines. He came to Chicago in 1847 to be close to his market of western agrarians. The reaper represented a large fixed cost investment for farmers and that cost was more justifiable if spread over large farms, which were more common in the Midwest. In a classic article on this topic, Paul David argued that farms needed to have at least 46.5 acres to justify buying a reaper in the early 1850s.72 Of course, as Alan Olmstead and Paul Rhode remind us, the scale needed in order to justify the purchase of a reaper could also be found by smaller farmers pooling their resources, which was a common practice in this period.73

In Chicago, McCormick first located his factory on the north bank of the Chicago River near Lake Michigan. McCormick proved to be as good a businessman as he was an inventor, and he gained international exposure by winning a grand prize at the London exposition of 1851. Proximity to the farmers helped both to cut shipping costs as well as to ease customer interaction. McCormick pioneered easy credit purchasing, and face-to- face contact made complex deals of this kind easier to start and to enforce. In the intellectually fertile urban environment, and with the help of constant feedback from farmers and intellectual borrowing from his competitors, he continually innovated, producing a string of improved versions of the original reaper.

72 "The Mechanization of Reaping in the Ante-Bellum Midwest." Publisher? Author? JEH 1966 earliest thing in a proper journal

73 Olmstead, Alan L. and Rhode, Paul W. “Beyond the Threshold: An Analysis of the Characteristics and Behavior of Early Reaper Adopters.” The Journal of Economic History, 1995. 108

In 1856, McCormick sold 4,000 reapers and by 1858, the McCormick Harvesting Machine Company had become the biggest American farm equipment producer. After the great fire of 1871, McCormick’s factory moved away from the center of town to a location on the south fork of the Chicago River. As the industry matured and as Chicago land prices increased, it made sense to locate an enlarged plant away from the urban core. This move was a precursor of the suburbanization of manufacturing that would be more important in the twentieth century. Notably, McCormick may have been ready to leave Chicago but he was not ready to give up the advantage of direct access to the waterways.

By 1880, Chicago had 7,000 workers in agricultural employment and McCormick was the largest employer.74 As I will discuss later, labor unrest at the McCormick works would provide the match that led to the Haymarket riots, but those riots didn’t stop the continuing expansion of the McCormick firm. His firm continued to grow and eventually merged with two other agricultural manufacturing giants to become International Harvester (since 1986 Navistar International). The firm is still headquartered in the Chicago region.

The success of the McCormick reaper had consequences for cities far beyond that of increasing Chicago’s employment. Over the nineteenth century, innovations like the McCormick reaper greatly increased agricultural productivity. A study by the U.S. Commissioner of Labor cited in Pudup (1987) shows that labor time per acre across all crops declined by almost 50 percent between 1830 and 1896 due to mechanization. The productivity improvement in wheat cultivation was even more stunning. According to the same study, the labor needed to cultivate an acre of wheat declined by more than 90 percent due to mechanical improvements like the reaper.

These productivity improvements in agriculture were an integral part of the growth of Chicago and other cities during the nineteenth century. At the start of the century, the nation was overwhelmingly agricultural, because unless enough men worked on the

74 All information about McCormick can be found in: McCormick, Cyrus. “The Century of the Reaper.” Cambridge, MA, The Riverside Press, 1931. 109

farms, there wouldn’t be enough food to feed the nation. As agricultural productivity increased, the same amount of food could be produced with far fewer workers. This freed up vast quantities of labor which was able to come to urban areas to find new ways to earn a living.

This basic mechanism explains the steady rise in urbanization over U.S. history shown in Figure 4-1. In 1820, 7.2 percent of the U.S. population was urban. By 1900, 39.7 percent of the U.S. population was urban and by 1920, a majority of Americans lived in urban areas. It would be hard to overstate the remarkable nature of this shift. For millennia, humans had lived tied to the land. Since the dawn of civilization, people were overwhelmingly farmers working in the dirt and measuring their lives by crop seasons. For the first time in history, a large share of the population lived crammed together in vast agglomerations, going about their lives, disassociated from this relationship with nature.

The fact that rising agricultural productivity greatly increased the size of our largest cities is also illustrated in Table 4-1. This figure takes the 10 largest cities in the U.S. as of 1860 and shows their growth over the next 60 years. Every one of these places had a remarkable expansion. Chicago was extreme, but it was not alone. The great migration of workers from farms to cities meant that all big cities were expanding at breakneck speed.

The same force meant that immigrants to the U.S. were increasingly finding it attractive to live in urban areas. The eighteenth century immigrants to the U.S. moved through cities but eventually settled in farms. There were certainly plenty of nineteenth century immigrants that ended up on farms, but an increasing share of those immigrants went to urban areas. New York City, which was the port of entry for the lion’s share of these 110 immigrants, also ended up housing more of them than any other big area, but Chicago was also a major destination for people coming from the old world to the new.

Immigrants flocked to nineteenth century cities for production and consumption reasons. As centers of production, cities had jobs that didn’t require large investment in land or machinery. As agriculture developed, the fixed costs involved in producing food competitively also increased. An eighteenth century farmer needed only land (which was cheap) and a few rough implements. With mechanization, the capital needed to produce competitively increased dramatically. Immigrants just off the boat from Ireland or Eastern Europe rarely had the capital to set themselves up as a productive nineteenth century farmer. Just as cars represent a barrier blocking immigrants from locating outside of urban areas today, the reaper raised the costs of locating outside of cities in the nineteenth century.

Cities also offered consumption advantages for recent immigrants. Clusters of immigrants of particular nationalities formed in urban areas. Since immigrants were frequently targets of nativist ire, there was safety in numbers. Agglomerations of non- English speakers made it possible for new immigrants to get by with little knowledge of English. These agglomerations also made it possible to produce specialized products, like German language newspapers, that catered to the tastes of the immigrant populations. Together these forces meant that big cities like Chicago both attracted immigrants and housed them in specialized neighborhoods that catered to their own desires.

Chicago became a town of immigrants. In 1900, when Chicago was America’s second largest city with 1.7 million inhabitants, it had 555,515 men in the labor force. Of this group, 276,000 were foreign born. Only 108,000 were native white workers with native white parents. More than three-quarters of the entire population was either foreign born or had foreign parents. More than one-quarter of the Chicago population had at least one parent born in Germany alone, which was the largest nation of origin for Chicagoans. In terms of the male workforce, Another 50,000 came from Scandinavia and 30,000 from 111

Austria-Hungary. Together these groups encompassed more than 40about 45 percent of Chicago’s male workforce.77 It was in many respects a Germanic city.

Chicago Occupations and Industries

What did all of these workers do? Among men, the five largest occupations were general laborers (about 135 percent of the male labor force), clerks and copyists (40,000 of them7 %), merchants and dealers (4%), “draymen, hackmen, teamsters, etc.” (4%) and salesmen (4%). Despite Victorian ideals about women in the workforce and separate spheres, Chicago also employed almost 150,000 women. Among women, the largest occupations were “servants and waitresses” (40,000 of them about 24% of the female workforce), dressmakers, clerks and copyists, stenographers and typewriter saleswomen, and seamstresses and tailoresses.

The Census’ definitions of occupations are not always clear to 21st twenty-first century eyes. I am not sure I could clearly define who is a dressmaker and who is a seamstress, but the general pattern does seem clear. Women were predominantly in service trades or Chicago’s large clothing manufacturing industry. The modal occupation for men involved hard physical labor in factories and stockyards, and the transportation industries also employed thousands moving goods over space. But vast numbers of men were also in more information intensive occupations; clerks, merchants and salesmen made their money with their wits more than their brawn. Even in Chicago, a city renowned for its broad shoulders, human capital was important.

There are also striking patterns within ethnic groups. Native whites formed an elite and were rarely found among the laborers; only six percent of male laborers were native white with native parents. Three-quarters of more than 45% these laborers were actually born abroad. There were 175,000 laborers in total with at least one parent born in Germany and 100,000 laborers in total with at least one parent born in Ireland compared

77 All statistics found in U.S. Census. Please see Table: Breakdown of Chicago Population and Employment 112

with a total of 600,000 Germans in Chicago and 300,000 Irish.78 , and among this group there were almost as many Irish as Germans, despite the fact that there almost twice as many Germans as Irish in the city as a whole. Unsurprisingly, there were few foreign born clerks and copyists. The Germans were spread throughout the occupations, but were particularly overrepresented among bakers and carpenters.

Census data also allows us to look across industries. In this case, in 1880, the five dominant industries measured by total employment were men’s clothing, slaughtering, “foundery and machine shop products”, furniture and printing and publishing. Employment in men’s clothing is evenly split between men and women, and there were women in publishing, but the other three industries are almost all male. Measured by value of capital, the top five industries were slaughtering, men’s clothing, “foundery and machine shop products”, “iron and steel” and malt liquors. By either definition, the two top industries—slaughtering and men’s clothing—stand far beyond “foundery and machine shop products.”

Yerkes often sold city bonds before he paid for them, carrying a debt to the city over short periods. This seems to have been standard practice, but in 1871, in the panic inspired by the Great Chicago Fire, the city demanded immediate payment. The panic made it impossible for Yerkes to pay, and unfortunately a court of law interpreted the fact that Yerkes had taken city property and was not able to pay for it as embezzlement. Yerkes was sentenced to 28 months in prison and served one-quarter of that sentence. It is probable that his time in prison probably helped sever any pre-existing urges he had to conform to social norms.

After his release, however, Yerkes immediately re-entered the financial fray and was able to recoup his losses “by being on the right side of the market when Jay Cooke & Company collapsed in 1873” (Roberts, 1961). While still in his early 20s, Yerkes had also dabbled in streetcars, becoming a part owner of the Philadelphia Seventeenth and

78 Statistics found in the U.S. Census of 1900. German is defined as being either born in Germany or with at least one parent born in Germany. Irish is defined as being either born in Ireland or with at least one parent born in Ireland. See Table: Breakdown of Chicago Population and Employment. 113

Nineteenth Street Passenger Railway Company. In 1875, Yerkes entered the field of transportation more seriously: “for four cents on the dollar, he bought the little-used and decrepit Continental Passenger Railway Company” (Roberts, 1961). The railway did well enough during Philadelphia’s 1876 Centennial Exposition that Yerkes was able to issue 20,000 dollars worth of debt and expand operations. Under Yerkes’ leadership, the firm’s stock price increased from 15 to 100 dollars per share.

Yerkes left Philadelphia in 1880 and went to Fargo, North Dakota, but left for Chicago one year later. Modern wage data suggests that the returns to talent are higher in big cities than in small towns. The wage premium associated with years of schooling is higher in big cities and today the largest fortunes are made in big cities. Cities appear also to have increased the returns to ability in Yerkes’ time; since he was unlikely to ever be able to get too rich in Fargo he returned to a big city. Presumably, the social embarrassment associated with his divorce in Fargo made a return to Philadelphia less attractive.

Yerkes spent five years trading stock and grain at the Board of Trade, but in 1886 he secured the option to buy a majority interest in the North Chicago City Railway Company, one of the two large companies still committed to the horse. He borrowed money from his Philadelphia associates Peter Widener and William Elkins, and bought the line. He then issued debt using the railways stock as collateral which was used both to pay back Widener and Elkins and to expand and modernize the company’s operation. This was essentially a nineteenth century leveraged buyout. The firm issued debt to finance buying its equity, thereby consolidating control in one man’s hands.

Using similar techniques, Yerkes obtained control over the West Chicago Street Railway, the other major line that had stuck to horses before Yerkes’ arrival. The Chicago City Railway Company, which operated in the South Side and which had modernized before Yerkes, was the only large transit company to remain in local hands. He had bought the most technologically backward firms, representing the greatest opportunity to profit from 114

improvements. Due to this Yerkes would build a personal fortune of $29 million dollars from his transit investment over the next ten years (Roberts, 1961).

There were really three separate sources of Yerkes’ transit fortune. First, he genuinely did invest and expand service. He replaced horse drawn cars with cable cars and then electric cars. He expanded the total miles of track in his areas of the city from 64 miles in 1886 to 575 miles in 1896. He built the elevated railway—the Loop— around the city’s business district. Along with his many less attractive characteristics, Yerkes was a real builder who played a major role in modernizing Chicago.

Second, he exploited his minority shareholders’ to the hilt. Expansion offered Yerkes’ an ideal setting for such exploitation. For example, the North Chicago City Railway, which was partially owned by Yerkes, paid the United States Construction Company, which was wholly owned by Yerkes, $10.7 million to build a cable line that cost $3 million to build (Roberts, 1961). Yerkes’ thereby transferred $7.7 million from the North Chicago City Railway to his own pockets. The United States Construction Company also modernized West Chicago Street Railway Company, charging double its costs to that firm.

But Yerkes is most famous for the third source of his wealth: the flagrant corruption of municipal and state government in the pursuit of the right to operate on city streets. In principle, the city government had property rights over city streets and good government policy would have been to get top dollar from firms seeking to use those streets. In practice, long leases were often given for nominal fees. In return, larger sums would find their way into the pockets of city council members.

This practice was not unique to Chicago. Lincoln Steffens’ The Shame of the Cities is replete with examples of city governments taking bribes in exchange for transferring city property to private firms. The early method of municipal corruption had been overpaying for city services. Boss Tweed pocketed millions in kickbacks for overpaying for construction projects, such as the Tweed Courthouse, or city services, like street cleaning. Gradually, this mode of corruption declined and was replaced by the even more lucrative 115

practice of essentially giving away city property in exchange for large bribes. In Chicago and Philadelphia, the payments came from traction monopolies. In New York, the city’s docks were allocated in exchange for payments. It is in this context that Yerkes clearly emerges as a creature of his times.

Eventually, however, Yerkes was stopped when he attempted to get a forty year extension of his traction licenses. The City Council was limited to twenty year licenses, so Yerkes turned to the state legislature to get an even longer license. A rural congressman, John Humphrey, introduced two bills that would have given Yerkes forty year extensions. These bills were eventually replaced by a bill that increased the extension to fifty years and that passed in the Illinois State Senate. Reformers finally rallied in opposition to this bill and through a massive effort of civic engagement they defeated the pro-Yerkes measures in the State Senate. Yerkes tried one more time but eventually gave up and sold his Chicago transit interests to Elkins and Widener and moved to London to try again in an even larger city.

There are many parallels between Yerkes and Jay Gould, the New York City investor and transit millionaire. Gould, like Murphy, started as a financial operator. His partnership with Jay Gould produced the legendary Gold Ring, where the partners tried and failed to corner gold. He later moved into traction and, like Yerkes, Gould was also adept in exploiting minority shareholders and manipulating local government. Like Yerkes, Gould also helped to build a transit system and left the profoundly mixed legacies that are so common among the late 19th century “robber barons.” Gould made himself enormously wealthy through unscrupulous means, but he also played a critical role in bringing new transit technology to New York City. The development of cities like New York and Chicago created great opportunities for men like Gould and Yerkes to make fortunes from public services.

116

The Consumer City

Chicago was not just a place of employment and production; it was also a center of consumption. Just as the city changed the way that businesses produce, the city changed the way that ordinary citizens lived their lives. The city’s large scale supported a thriving restaurant scene. Music halls and other entertainment venues abounded. The vast size of the city was able to support large forms of entertainment infrastructure like the Opera, the Art Institute and the Columbian Exposition. Perhaps even more importantly, the city’s density levels enabled people to interact with each others in ways that were impossible in rural areas. It is in this way that late nineteenth century cities began their transformation from unappealing places that were tolerated because of high wages to centers of attractive employment and quality of life.

The great burden of living in older cities had long been the awful health consequences of living at high densities. Just as cities help ideas move quickly from person to person, they also speed the flow of bacteria. High density levels also taxed the traditional means of providing clean water. In the previous chapter, I discussed New York’s construction of the Croton Aqueduct. Outside of New York City, the explosion in waterworks was a late nineteenth century phenomenon. In 1850, there were 84 waterworks in the U.S. and 61 percent of them were private. By 1896, there were 3,180 waterworks in the U.S. and 53 percent of them were public.79

This great increase in municipal water provisions had a tremendous impact on quality of life in urban areas. Water-borne diseases like cholera and typhoid became far less common as water became cleaner. Given the enormous impact of clean water on public health, it is reasonable to ask why it took so long to get clean water in most of America’s cities. One part of the answer is medical knowledge, which increased rapidly over the nineteenth century. But even at the start of the nineteenth century, civic leaders were relatively unaware of the link between epidemics and clean water, even though they had

79Cutler, David, and Grant Miller. “Water, Water, Everywhere : Municipal Finance and Water Supply in American Cities.” Corruption and Reform: Lessons from America's Economic History. Ed. Edward L. Glaeser and Claudia Goldin. Chicago : University of Chicago Press, 2006. Pgs. 168-169. 117

no idea why that link existed. A second part of the answer is the improvement in civil engineering that decreased the costs of building waterways. The number of engineers in the U.S. increased rapidly over the nineteenth century, and their increasing knowledge helped make clean urban water possible.

Cutler and Miller argue convincingly that the increasing competence of city government was at least as important as improvements in medical and engineering knowledge (Cutler and Miller 155). Over the late nineteenth century, city governments greatly increased their scope of activities. In particular, they gained the ability to borrow and it was this ability to borrow that Cutler and Miller claim lay behind the rise in public waterworks. For the time, the size of this activity was enormous. Municipal spending on water in 1900 was about equal to total federal non-military spending. Most of the discussion of nineteenth century civic governments focuses on their venality; certainly Yerkes’ rise reminds us of the extent of corruption. But at the same time, these city governments were capable of actually doing some important things—albeit usually at a pretty high cost— that greatly improved the lives of city residents.

In Chicago, there was no need to build vast aqueducts to get water from far away reservoirs. Lake Michigan provided an almost infinite supply of potentially clean drinking water. Initially the lake was used both as a source of clean water and as a depository for sewage, but a public water board was established in 1851 in response to a epidemic to oversee a more sensible water system. After that point, the bulk of waterworks construction in Chicago involved building pipes that would bring in hopefully clean water from the lake and then deposit dirty water in the Chicago River. As in most other cities, there was a tension over whether to extend pipes to poorer areas that would not provide high enough water revenues to pay for them. Eventually, however, the pipe was extended throughout the city in response to arguments that eliminating disease in the poorer areas of Chicago was both humane and sound policy; as epidemics that started in the poorest areas of the city posed a threat to everyone.

118

The great problem with a system that took clean water from the lake and dumped sewage in the river was that the river ran into the lake. Occasionally, the river naturally reversed its course and, starting in the 1860s, Chicago’s water board was considering using canals to reverse the river’s flow permanently. Just as in the case of waterworks more generally, it took decades between the time where the problem was understood and the time when the community rallied to solve the problem. The 1889 Sanitary District Enabling Act provided for the construction of a canal that would reverse the river’s flow. In 1900, the Sanitary and Ship Canal was built which permanently reversed the flow of the river.80 The project itself was enormous, in part because the canal was much deeper – 24 feet – than canals built only as a means of transportation. The total cost came to more than $700 million in today’s dollars, and was the largest feat of municipal earth moving in its era.81

An improved water supply was critical not only in fighting epidemics but also in combating another urban scourge of the era: fire. And, in 1871, Chicago had the greatest fire of them all. The fire appears to have begun in the barn belonging to Catherine O’Leary, although there is little evidence to support the guilt of any bovine arsonists. The abundance of hay, coal and other flammable substances in 1871 Chicago made the city something of a tinderbox. Strong southwesterly winds blew the fire from O’Leary’s barn towards the heart of the city while ships and lumber along the river enabled the fire to reach epic proportions and cross the Chicago River.82

By the time it was over, a 2,000 acre area had been consumed. 17,500 homes were destroyed which left 90,000 Chicago residents homeless. Total property damage was about $3 billion in 2005 dollars. The fire spread sufficiently slowly so that most people were able to flee although usual estimates suggest near 300 deaths.83

80Miller, David L., City of the Century: The Epic of Chicago and the Making of America. New York: Touchstone, 1997. Pg. 428. 81Ibid, 427. 82Croton, William. Nature's Metropolis: Chicago and the Great West. New York: W.W. Norton & Company, 1991. Pg. 344. 83Ibid, 345. 119

The city recovered remarkably quickly and well. Houses were cheap to build and the demand for the Chicago location was enormous. The durability of infrastructure means that some cities last long after their initial productive edge has disappeared. If a blaze were to destroy central city Detroit today, it seems unlikely that the city would be rapidly rebuilt. But fire or not, Chicago in 1871 had a superb location, and it should be no surprise that new infrastructure quickly replaced the old. In fact, there is a good argument that the fire actually strengthened the city by leading to improvements in safety and replacing older, more primitive homes with a more modern housing stock. This is not to say that the citizens were helped by the fire, but rather that the city ultimately became more attractive and productive because the fire led to an improvement in the building stock and improved public safety.

Urban Life

As the risks from disease and fire decreased over the nineteenth century, urban residents were increasingly able to enjoy the benefits that came from living in an urban area. The urban edge in quality of life comes from two related sources. First, physical proximity between people reduced the cost of interacting. Typical stories of farm life in the nineteenth century often emphasize the lonely and isolated lives of agrarians (Willa Cather's A Wagner Matinee: lonely family on a nineteenth century farm that are lonely and without access to music/culture). In big cities, it was easy to connect with many more people. Second, dense urban populations created large markets that could support the fixed costs of entertainment venues. At the extreme, only big cities can support large opera houses and art museums. On a more local level, density supported the existence of hundreds of taverns and saloons.

And nineteenth century Chicago was very much a city of saloons. In 1915, Chicago had about one for every 335 residents, with the highest ratio in poorer, immigrant areas.84 Saloons were lively social venues that served food and provided a local (albeit alcohol-

84Miller, David L., City of the Century: The Epic of Chicago and the Making of America. New York: Touchstone, 1997. Pg. 447. 120

based) social club. One way to understand saloons is that the lack of private space in dense Chicago created a demand for public space that could be occupied on an as needed basis. Saloons, like the London pubs of the same era, provided generally a more attractive physical area that could be enjoyed by people living in cramped conditions. Agrarians might have had more private space, but using common public space brought people together, and was, of course, more fun.

Saloons require fixed costs of construction and require sufficient crowds to break even. Art museums and opera houses require large cities to be financially feasible. Over the late nineteenth century, as Chicago became a great city, it also expanded its large-scale entertainment options. The Sullivan and Adler Auditorium building, which was the tallest building in its time and housed Chicago’s Civic Opera for many years, is an example of vast fixed infrastructure that would have been inconceivable without Chicago’s vast scale.85 The Art Institute of Chicago was founded in 1882 and likewise represented a large investment that only made sense in a big city. To this day, one of the advantages that big cities have as consumer cities is the ability to support arts on a grand scale.

Urban scale also supports specialized social activities. Chicago didn’t just have saloons and restaurants; it had saloons and restaurants that could cater to particular ethnicities. Customers stood up at the bar at an Irish saloon while German saloons were more likely to have tables. Chicago didn’t just have live music; it had varieties of live music ranging from German-language venues to high-brow opera. Again, each specialized activity requires its own investment and only big cities like Chicago could support a wide range of different specialized entertainment venues.

Chicago’s grandest entertainment venue relied not only on the scale generated by the city but on a vast inflow of consumers from throughout the U.S. The Columbian Exposition

85Miller, David L., City of the Century: The Epic of Chicago and the Making of America. New York: Touchstone, 1997. Pg. 361. 121

of 1893 represented fixed cost investment on a truly spectacular scale.86 The nation’s finest architects built a temporary white city while Frederick Law Olmsted created a magical landscape around the buildings. An entrepreneur named George Ferris invented a giant wheel that would carry people high up into the sky and Buffalo Bill Cody brought his vast traveling Wild West show to the city87. The south side of Chicago was transformed, but throughout the exposition’s existence, its backers constantly worried about whether it was attracting enough visitors to cover its vast costs.

Chicago’s size permitted scale in its entertainment and permitted scale in its stores. In the nineteenth century, small general stores were replaced by vast emporia that both sold goods and provided a shopping experience that was itself a form of entertainment. Marshall Field opened his first dry goods store in Chicago in 1852. His store burnt in the Chicago fire, but he re-opened a temporary store quickly.88 In 1879, Field opened a new store built by Daniel Burnham, one-time Jenney apprentice and the chief architect of the Columbian Exposition (which Field would also back). Marshall Field kept expanding and built a 20 story building in 1912 and the Merchandise Mart in 1930, one of the largest commercial buildings in the world.

Marshall Field was particularly focused on providing a pleasant shopping experience. He is credited with the quotation “right or wrong: the customer is always right.”89 Presaging modern mall developers, Field wanted his customers to enjoy their experience and spend as much time as possible in his store. To this end, he introduced the first department store restaurant and Marshall Field’s store contained a Tiffany-built ceiling with favrile iridescent glass. Field made shopping exciting by focusing both on sales force and spectacular infrastructure. His store could only have succeeded in a large city, and it represents another example of how Chicago became both a place with high wage and a place with special consumer amenities.

86Ibid, 488. 87Ibid, 489 to 491. 88Ibid, 168. 89Ibid, 258. 122

As striking as the glitter of the great exposition or Marshall Field’s department store may have been, for thousands of Chicagoans, the most important attraction of the city may well just have been the abundance of other people. Young people growing in rural areas had a small choice of possible mates or friends. Coming to Chicago offered much greater variety. The dense markets of urban areas enhance the ability of workers to match with firms, and also enhance the ability of people to match with each other. Chicago allowed people to shop for friends and dates just as much as it allowed people to shop for Mr. Field’s gloves.

Wealth and Poverty

Chicago helped the very talented and the very lucky become very wealthy. Cyrus McCormick, Gustavus Swift, Julius Rosenwald, Charles Yerkes and Marshall Field all became enormously wealthy. The wealth of McCormick, Swift and Rosenwald was based on Chicago’s location at the center of a national market. The wealth of Yerkes and Field came from the great size of the city itself. They coexisted with hundreds of thousands of less fortunate Chicagoans who were also drawn to the city, perhaps dreaming of making millions themselves, but more often just hoping for a somewhat more prosperous existence than on the farm or in their native Germany, Poland, or Ireland.

Extremes of wealth and poverty were a persistent feature of late nineteenth century America, but nowhere were those extremes more obvious than in the great cities like Chicago and New York where millionaires often lived less than a mile from immigrant ghettos. The basic tendency within Chicago was for the wealthy to gradually move away from the city center, except for a few areas marked by particularly splendid urban amenities like the Lake Front or Lincoln Park. By the late nineteenth century, the very wealthy in Chicago all had access to private non-pedestrian transportation (horse drawn carriages), the well-to-do could afford rail transit, and these groups lived away from the densest neighborhoods and places of work.

123

McCormick and the hotel magnate Potter Palmer lived on the Gold Coast, slightly north of the city, which was an easy carriage ride to Palmer’s hotel and McCormick’s first factory. Rosenwald, meatpacker William Armour, and Marshall Field lived on Prairie Avenue, which was a Grand Boulevard close to the downtown. Gustavus Swift and William Armour (after he left Prairie Avenue) lived in Kenwood, a wealthy enclave on the south side which was close (but not too close) to the Union Stockyards. The homes of these magnates made it easy for them to get to work.

Today, the Gold Coast’s lake views and proximity to downtown continue to make it Chicago’s richest residential district. The opening of the Michigan Avenue Bridge in 1920 just made it more accessible to people slightly less wealthy than Potter Palmer. Kenwood remains a neighborhood of splendid mansions, although its prices fell dramatically when the South Side became primarily an African-American enclave. Still, it provided homes to African-American elites like Mohammed Ali and Louis Farrakhan. Prairie Avenue, however, lost its shine by the end of the nineteenth century as first businesses and then higher density dwellings for the poor crowded in on the mansions. The rich residents of Prairie Avenue then moved further out.

Prairie Avenue’s transition typifies the process of neighborhood succession that was much studied among early Chicago School sociologists. The basic model is that a relatively wealthy group was gradually replaced by a poorer group, first immigrants and then African-Americans. In some cases, the population occupied the same homes that had once served the wealthier group. As homes deteriorated, they became increasingly appropriate for people with less means. This form of neighborhood succession is called filtering. In other cases, the poorer group lived in higher density dwellings that either abutted or replaced the older low density homes. In this process, the richer group fled because they disliked having so many neighbors of a different socio-economic status, and because improvements in transit made it easier to move further out.

Prosperous Yankees were the first to move out. They founded exclusive enclaves like Lake Forest, 27 miles north of the loop, and Kenwood. At the end of the nineteenth 124

century, immigrants clustered close to the city, but as African-Americans came to Chicago, immigrants also began moving outward. In the 1920s, the outer rim of the city became the “Bungalow Belt;” a moderate density region occupied to a large extent by the children of immigrants who had prospered and moved away from the city. The poorest Chicagoans remained at the center because of the need to walk to work and because of a greater willingness to live at extremely high density or in older buildings.

The high densities of poorer immigrant communities had attractive elements. They facilitated social connection and permitted the creation of ethnically specialized services. But just as high densities make it easier to engage in legal activities, the same high densities supported criminal activities. Goods need to be transported after a burglary just like they need to be transported after factory production, and short physical distances make theft easier. Street crime is facilitated by a steady flow of victims. There were 3,225 Chicago policemen in 1900, and they were certainly more focused on protecting the wealthier areas than on stopping the crime in immigrant enclaves.

The rise of ethnic gangs is often associated with an absence of trustworthy police in an ethnic neighborhood. As much as we now think of charging for protection as a racket, the term has its roots in the substitution of private for public law enforcement. As Jankowski shows with more modern gangs, immigrant turn-of-the-century gangs also provided services for businesses and residents of their neighborhoods.90 Of course, they also charged sometimes exorbitant rates for those services. The Italian gangs that would come to dominate Chicago’s crime scene in the era of Al Capone had their roots in the Italian neighborhood gangs that responded to a lack of reliable police protection.

Just as in New York in the first part of the nineteenth century, high urban densities also led to riots. If the New York City draft riots are New York’s paradigmatic uprising, the 1886 Chicago Haymarket riot was the great Chicago uprising. The back-story behind the riot involved constant labor troubles at the McCormick reaper plant and an increasingly well organized labor movement inspired by European ideas about socialism.

90Jankowski, Marin Sanchez. Islands in the Street: Gangs and American Urban Society. Berkley: University of California Press, 1991. 125

Chicago’s German character didn’t just mean beer gardens; it also meant activists who had avidly read Karl Marx.91

On May 1, 1886, 35,000 Chicago workers walked off their job demanding an eight hour day. Over the next three days, workers marched through the city calling on others to join in a general strike. Mayor Carter Harrison was eager to avoid bloodshed to keep his popularity; Chicago’s business leaders wanted the police to be far more active. Two strikers were killed by police at the McCormick plant on May 3. A “Revenge” meeting was called by anarchists for May 4 at the Randolph Street Haymarket. When the police ordered the protesters at the Haymarket to disperse, someone hurled a bomb at the police. In the ensuing mayhem, sixty policemen were injured and eight killed. No one knows the death toll among the crowd.92

The aftermath of the riot was widespread suppression of the labor movement, including meetings and marches. Although there was little conclusive evidence linking individuals with the deaths of the policemen, seven men were sentenced to death because of the Haymarket riot and five died. The Haymarket riot, like the New York City draft riot and the 1892 Homestead Strike, where steel workers clashed violently with Pinkertons, represented a peak in the physical power of the labor movement to upset society in the U.S. Similar strikes in European countries like Belgium, in 1892, or Finland in 1904, led to major institutional reform. European leftists continue to celebrate May 1 as a labor holiday in honor of the Haymarket riot. But in the U.S., these uprisings were generally crushed by the police power of the state and led to, if anything, demoralization among leftist camps.

While immigrant-led leftist groups failed to upend society, the extremes of wealth and poverty also helped inspire a more elite movement to correct social wrongs. The prohibitionists, who were wildly unpopular in many immigrant neighborhoods, saw themselves as campaigning for ethnic women and children who were being abused by

91Miller, David L., City of the Century: The Epic of Chicago and the Making of America. New York: Touchstone, 1997. Pg. 468 92Ibid, 473. 126

drunken men. More generally, the progressive movement which began to gather steam in the 1890s contained some elements that were deeply hostile to immigrants in cities, but the movement also contained intellectual leaders, like Jacob Riis, Upton Sinclair and W.E.B. Dubois, who were genuinely moved by sympathy for the poverty in their cities.

In Chicago, Jane Addams was the great progressive champion of the underclass. Addams came from prosperous Yankee stock; her father had been instrumental in the development of the Galena and Chicago railroad in the 1850s. After graduating from the Rockford Seminary, she borrowed the idea of the settlement house from English academics who had pioneered the notion of having university graduates live in poor neighborhoods and provide social support.93 Addams founded Hull House along this English model in 1889.

While Addams’ Hull House succeeded brilliantly as a model of social service provision in an immigrant neighborhood, Addams’ influence moved beyond her immigrant neighbors. She connected with the physically proximate sociology department at the young University of Chicago. Her maps and first-hand empirical knowledge made her an important figure in scholarly circles. She was a civic entrepreneur who was a founding member of both the American Civil Liberties Union and the National Association for the Advancement of Colored People. In 1931, she was the first American woman to win the Nobel Peace Prize.94 Jane Addams, like Julius Rosenwald and Gustavus Swift, was an innovator and the city of Chicago surrounded her with intellectual influences that helped propel her forward.

When Hull House was formed, Chicago’s poor were immigrants, but over the next century, Chicago would increasingly become an African-American city. The full path of that evolution lies beyond the time period of this chapter, but it is worthwhile stressing that African-Americans were drawn to Chicago for the same economic reasons as immigrants had been. Large scale African-American immigration to the city began during World War I, with booming demand for industrial labor and declining supply of

93 "Addams, Jane." Encyclopædia Britannica. 2006. 7 Nov. 2006 94Ibid. 127

European immigrants. The firm imposition of Jim Crow laws in the south between 1890 and 1910 helped push African-Americans out of the former confederacy.

African-Americans were highly segregated in Chicago from the very beginning. Even in 1890, Chicago was one of the two most racially segregated cities in the country. Segregation in Chicago continued to rise over the next seven decades, and the city has continued to be among the most segregated cities in the U.S.95 Early immigrants had a need to cluster out of fear of nativist violence; early black settlers had an even stronger incentive to band together because of violent white hostility. Blacks who tried to move into white areas were frequently greeted with threats and worse.

The Chicago Race Riot of 1919 vies with the Haymarket Riot in competition as the city’s most famous riot. The proximate cause of the riot was an African-American youth, Eugene Williams, who, while swimming in Lake Michigan, drifted over an invisible line marking the white beach from the black beach. Whites on the beach started throwing rocks at Williams and preventing him from coming to shore. Williams drowned. This spark set off a five day riot where white hooligans, perhaps including the young Richard J. Daley, launched attacks against the African-American population. There were almost 40 deaths and almost 400 wounded. With whites so ready to turn to violence to prevent African-Americans from moving into white areas, segregation was utterly predictable.

While the segregation of African-Americans had enormous costs, it also produced a remarkably vibrant urban society captured in St. Clair Drake and Horace Cayton’s superb New Deal era study of African-American life in Chicago. The community density fostered its own innovations in business, culture and religion. William Julius Wilson has argued that an unfortunate side effect of the decline of segregation is that successful African-Americans have left the ghetto. The ghettos of the 1920s and 1930s retained their leaders—doctors, lawyers, entrepreneurs and educators.

95 Taeuber, Alnia F. and Karl E., Negroes in Cities. Chicago: Aldine Publishing Co., 1965. Cited in: Kain, John F. “Housing Segregation, Negro Employment, and Metropolitan Decentralization.” Quarterly Journal of Economics 82.2 (1968): 177. 128

None of this is meant to suggest that African-Americans didn’t suffer terribly from white racism, but rather to state the fact that in response to this racism, the African-American community of Chicago still managed to thrive. Crime was a problem, just as it was in the poorer immigrant communities, and police were not a reliable source of protection. Economic opportunities were limited. Still, the community was vibrant, and for all of its poverty, Chicago’s Bronzeville in the 1920s was a big step up from the rural south. The magic of cities in general and Chicago in particular continued to work in providing economic hope and social excitement, even in the city’s poorest wards.

These industries show Chicago’s place as a regional capital, split between producing goods for its own Midwestern region (men’s clothing) and producing goods for export outside of the region (slaughtering). This split dual-role is typical of 19th century cities. They provided a central place for the production of goods that will then be consumed locally and a central place for processing commodities that will then be shipped elsewhere. The centralization of production in either case occurs to exploit scale economies. In principle, McCormick reapers could be produced in every small town in the U.S., but by building a large factory on the Chicago River, McCormick was able to use large machines that sped construction and reduced costs.

The rise of industrialization generally meant increasing the advantages of large fixed infrastructure. This happened first in the north of England where innovations in textile production, like the John Kay’s flying shuttle and James Hargreaves’ Spinning Jenny suddenly created incentives for building large mills, hopefully around a ready source of power. Early factories, like Samuel Colt’s Connecticut gun factory, brought together large numbers of workers to exploit the advantages of the division of labor that Adam Smith so fervently admired in the Wealth of Nations. The great 20th century factories, like Henry Ford’s massive River Rouge operation, combined the benefits of large machines and the division of labor to produce goods more cheaply than ever. In all of these cases, there were scale economies that made it more desirable to produce in one place than to spread out in many.

129

These scale economies imply concentration, but not necessarily urbanization. After all, the big story in late 20th century manufacturing was the movement of big factories away from urban centers, and in the early 19th century, large plants—like Lowell’s Massachusetts textile mills—were located away from urban areas to take advantage of river-produced power. Over the 19th century, as steam engines replaced river power and as those steam engines became smaller, industry grew in urban areas. After all, cities, like New York or Chicago, were located in transport hubs that provided easy shipping for finished products. Cities also had their own large consumer bases which provided some of the demand for a product. If you were going to have just one big plant, then you wanted that plant in a place that minimized the cost of transporting your goods: cities achieved this both by having their own, ready consumers and by generally being located at a nexus of waterways and rail.

A second advantage of urban areas was that they had workers that could easily commute to a factory. Sometimes, firms like the Pullman train car company built their own factory towns in which to house workers, but this required a big investment by the firm. In most cases, it was easier to locate where workers already lived. Firms then came to cities because they had workers and workers came to cities because they had firms. This circular process drove the growth of urban areas.

As Alfred Marshall noted in the late 19th century, multi-firm cities attract workers by providing a sort of unofficial job insurance. In a company town, workers have no opportunity to readily change firms if their current employer goes bankrupt, or decides to cut wages. In a multi-industry town, workers can move across industries if the demand in one particular sector falls. The general laborers who were so prevalent in Chicago, were particularly adept at moving from employer to employer as demand conditions changed. The large number of employers also enabled young workers, like the Theodore Dreiser’s character Sister Carrie —who came to Chicago in the late 19th century—, to hop from firm to firm and industry to industry until they found the right match for their talents and interests.

130

Meat Packing, Clothing and Grain

Chicago’s growth was fueled by many great industries, but it was the stockyards that both represented the biggest capital investment and made the greatest physical imprint on the City. Even though men’s clothing employed more Chicagoans, the clothing industry was hardly a unique feature of Chicago’s industrial landscape. After all, New York was the country’s clothing capital. While Boston and Philadelphia also made clothes, it was the vast scale of the stockyards that were really unique to the city.

Given Chicago’s location at the meeting point of several transport lines, it was a given that cattle and hogs would be coming through the city. It was not a given that anything would happen to those animals when they came through Chicago. Indeed, “as late as 1871, less than 4 percent of the cattle that arrived in Chicago were packed there” (Cronon, 1990, p. 232). The economics of meat packing is similar to the economics of sugar refining discussed earlier. The fundamental tradeoff in meat packing lies in the gains of increasing margins by reducing overall weight during shipping—encouraging early packing—and the basic quality losses associated with transporting unprocessed, dead animals is between the gains from eliminating excess weight and eliminating the need to feed and water livestock, which pushes towards packing early, and the potential losses in the quality of product associated with transporting dead animals.

Unlike grain, meat that is neither cured nor refrigerated goes bad quickly. This means that meat either needs to be shipped live or cured with salt, smoke or a combination. The curing process stems the growth of the micro-bacteria that spoil meat; the addition of salt, in particular, absorbs the water which helps these spoiling organisms to spread. These are ancient technologies that could preserve meat and fish for consumption long after the time of slaughter. They permitted lower density living because they made it possible for one family to consume a whole pig over time, instead of the more basic practice of communal consumption. These technologies also permitted the shipping of meat over long distances, and cured meat was a staple on sailing ships in the 18th and 19th centuries.

131

Both pork and beef can be salt-cured, but consumers have tended to prefer their pork cured and their beef fresh. Indeed, most of the more famous pork products, like ham, salami, bacon and sausages, are cured, and ideal for storage or shipping. Among beef products, “corned” is a synonym for “salt-cured,” but corned beef never became the dominant form of consuming beef. Given how difficult it is to explain human tastes, it is hard to say why curing seems to help pork sales and hurt beef sales, but this does seem to be a reliable fact. In combination with the fact that cattle are better at traveling than pigs, these preferences help us to understand why, until the 1870s, beef just passed through Chicago, but pork stayed, and became the basis for a large industry.

As William Cronon eloquently details, Cincinnati had been America’s “Porkopolis”—the great capital of killing, curing and packing pork, until the Civil War (Cronon, 1991, p. 225-230). Cincinnati’s location on the Ohio River and in the heart of rich agricultural land made it a natural spot for farmers to bring pigs to be sold and shipped. Additionally, Cincinnati was close to the abundant salt supplies that were needed to cure meat. Cincinnati’s southern location was helpful until the Civil War began, at which point proximity to southern states no longer seemed like such a plus. Northern hog farmers were far less interrupted by the war, and the Ohio River’s access to the Mississippi and the port of New Orleans became far less valuable than Chicago’s access to the Great Lakes and the port of New York.

Far more important to Chicago’s growing dominance in hogs was the growth of the corn belt in Iowa, Illinois and Kansas. In the mid-nineteenth century, the border states of Kentucky and Tennessee were major growers of the corn which served as the primary feed for hogs. After the war, the richer soil of Iowa made it the nation’s Great Corn State—a title it holds to this day. When Iowa passed Kentucky in growing corn and feeding hogs, Chicago was bound to pass Cincinnati as the capital of hog slaughtering. Thus, even without the war, Chicago’s transportation-related advantages would surely have pushed it past Cincinnati to dominate the pork business: the disruption of the Civil War ensured that Chicago surpassed its southern competitor simply expedited the overall process. 132

Throughout the 1870s, hog packing dominated the increasingly large Chicago meat industry. As in the case of textiles and mechanical reapers, larger and larger factories came to dominate the industry. These industries used machinery, notably a vast wheel that hung dead pigs where “workers at the eight points of its compass cleaned and gutted the animals in eight separate steps” (Cronon, 1991, p. 228). In 1865, a plethora of smaller stock yards were consolidated in the immense Union Stock Yards, which was strategically located for easy rail access. Machinery and the division of labor came together to increase productivity. Gradually, these capital-intensive plants brought in ice to allow all of this capital to be used even during the hotter months of the year. By cooling down the packing, it was possible to use efficiently clean, gut, and pack the animals year round. Since ice-cooled slaughtering plants were less available outside of the big city, this represented a scale economy that ensured the dominance of Chicago hog packing over smaller scale regional rivals.

But ice was far more important for pork than for rail. Gustavus Swift was a New England beef merchant who came to Chicago to do his buying. As a New Englander, he would have been well aware of Frederick Tudor’s ingenious long-haul transport of ice from New England ponds to the Caribbean. In Chicago, Swift saw the ice being shipped in to cool the hog packers. Swift would combine the ideas of refrigeration with the beef transport business and produce the first refrigerated meat cars. First, Swift shipped beef in open cars only in the dead of winter. Later, Swift put ice on his cars to keep beef cool, year-round, throughout the rail trip east. By exposing Swift to new ideas, the city of Chicago led him to his own innovation (Cronon, 1991, p. 233-234).

Refrigerated cars made it possible to ship dead cattle without salt curing. This meant that easterners could eat Midwestern beef without the large expense of moving the live cows themselves by rail. The savings were dramatic. Slaughtering in Chicago eliminated the difficulties involved in transporting live animals and as a result cut pounds off of shipments. Cronon reports that a 1,260 pound steer is transformed into 710 pounds of 133

dressed beef. (Cronon, 1991, p. 251). Of course, the ice wouldn’t last forever, so beef moved by rail and not by boat.

Swift’s refrigerated cars made it much easier to ship beef east, but they also changed Chicago. All of a sudden, Chicago became a center for slaughtering cattle as well as swine. The consolidation of the meat industry in Chicago drove great employment and continuing fostered innovation. Swift and his competitor Armour both excelled in devising new uses for meat by-products. As Upton Sinclair chronicled in The Jungle, not all of these innovations always seemed so benign—the Pure Food and Drug Act of 1906 was meant in part to limit the creative deceit used in meat packing. This shouldn’t be surprising: cities help create new ideas, they certainly don’t ensure that those new ideas meet any particular ethical codes.

While meat-packing may have been Chicago’s paradigmatic industry, clothing was its leading employer. Meat packing was dominated by a small number of massive producers and vast production facilities. In contrast, men’s clothing was spread out across hundreds of small producers owning little equipment beyond a sewing machine, which was the great technological marvel of the industry. Meat packing was primarily a male vocation, while clothing production employed both men and women. It is easy to see why Chicago became such a center of meat production—scale economies and transport cost advantages made incubated the stockyards—it is harder to see why so many in the garment trade came to Chicago.

In a sense, these two industries marked the two opposite extremes of agglomeration economies. At one end, agglomeration economies work within the firm and this leads to large plants that are more or less self-contained. At the other extreme, agglomeration economies work across firms, connecting smaller operations that operate independently but with close ties towards each another. The clothing manufacturers in 19th century Chicago were indeed independent firms, but they did not operate in splendid isolation. They subcontracted with each one another and bought and sold inputs from one another. A hierarchy of firms developed where larger firms bought products from smaller firms. 134

The advantages of proximity still helped the industry even though it remained in the hands of hundreds of small entrepreneurs.

Clothing manufacturers came to Chicago because of its central location and because of its growing population. The residents of the burgeoning city itself needed clothing, and in mid-nineteenth century, clothing production existed on a sufficiently small enough scale that made perfect sense for every major city to have its own clothing industry. The transport network that connected Chicago to the farmland of the Midwest enabled Chicago’s garment trade to grow as it servicing this demand. Chicago’s transport connections with the east ensured regular shipments of textiles that were the key inputs for the clothiers. As clothing was increasingly produced in cities, farmers were left free to do what they did best, specializing in agricultural produce

The scale of the clothing trade in Chicago grew with the size of demand in the city and with the size of the rural market that the city could serve. Some of Chicago’s great clothing merchants, like Marshall Field, focused on supplying local residents (Cronon, 1991, p. 329). Field’s vast emporium provides a classic example of the self-reinforcing process of city growth. An initial advantage tied to lumber, grain and meat boosted urban population both directly and indirectly, and suppliers come forth to cater to the initial residents.

But while Field built Chicago’s great department store, Julius Rosenwald was the clothier whose empire would reach throughout rural America. Rosenwald was born in 1862 in Springfield, Illinois, where he grew up just blocks from Abraham Lincoln’s house. His parents sent him to New York to learn the clothing trade. Then, as now, cities were a good place to accumulate human capital. New York was the epicenter of America’s garment industry and Rosenwald learned much from its diverse, innovative entrepreneurs.

Rosenwald returned to the Midwest in 1885 after his New York business failed. He began to specialize in summer suits using a system of men’s sizes that followed those 135

used by the army during the Civil War. He prospered, and in 1895 he bought an interest in a fledgling mail-order business started by Richard Sears (Cronon, 1991, p. 336). If Swift’s genius was to combine refrigeration with beef shipping, Rosenwald’s genius was to bring together the garment trade and the mail-order business.

In the 1880s, the young Richard Sears was working as a railroad station agent in Minnesota. Somewhat fortuitously, he acquired a shipment of watches that had been refused by a local retailer. His position in the transport industry meant that he had ready access to potential customers traveling on the railroad. Sears’ watches were particularly appealing to small town travelers who didn’t often get to big cities. Sears soon induced other rail agents to join him as watch salesmen. His watch business prospered and he moved to Minneapolis and founded the Richard W. Sears Watch Company. He continued to specialize in sales to rural consumers, advertising in local papers and selling watches by mail-order (Miller, 1996, 247).

His business continued to thrive and in 1887, Sears moved to Chicago to take advantage of its transportation hub. He hired a watch repairman, Alvah Roebuck, and together they formed Sears, Roebuck and Company, a promising watch business. In 1893, Sears sent his first watch catalog to further build up his rural business. Sears had developed a system of bringing big city goods to rural customers with the magic of catalogs and ordering by mail. In 1894, Sears began to branch out into goods like sewing machines and bicycles.

Rosenwald joined the firm in 1895 and he infused the firm with both cash and also radically increased the line of goods that Sears and Roebuck offered to their clients. It turned out that the rural customers were not just eager to buy Chicago watches and other domestic goods, but also Rosenwald’s clothes and pretty much anything else that they put into the catalog. Sears and Roebuck’s catalogs soon passed 500 pages in length and were sent to 3 million households by 1907. This vast circulation was only made possible by the advent of Rural Free Delivery in 1898 which brought catalogs directly to small town residents. 136

Julius Rosenwald became the President of Sears, Roebuck in 1908 when the firm began selling mail order homes. In an era when homes have become increasingly large and ornate, it is easy to forget that 100 years ago homes were often constructed by their residents, even in urban areas. Sears and Roebuck made this construction process easier by selling kits that contained all of the pieces need to construct your own home. By 1940, 100,000 of these homes had been sold, improving the quality of housing throughout rural America.

Sears and Roebuck brought big city commodities to rural areas, enriching the lives of America’s farmers, but mail-order goods were fundamentally an urban business. Chicago attracted the firm because of its transport network, but it also provided the workers who supported the business. Even more importantly, Chicago brought together the three entrepreneurs—Sears, Roebuck and Rosenwald—whose ideas came coalesced to create the business. Amidst Chicago’s smokestacks, there was an idea-oriented city that connected smart people and supported their innovations.

Chicago’s place as a center for the transmission of information is perhaps most obvious in the growth of the grain business and the Chicago Board of Trade. Grain started coming to Chicago at the end of the 1830s. The city’s geographic advantages meant that it would become the center for vast grain shipments, but its location alone did not dictate the remarkable changes in the grain trade that happened in Chicago.

As William Cronon describes it, the start of the grain trade involved sacks of grain moving along the water. These sacks were owned by their initial shipper, either the farmer or a rural wholesaler, until they reached their final destination. The shipper bore the risk of the shipment, and during this early era, insurance markets soon thrived as a means of protecting grain shippers against catastrophe en route (Cronon, 1991, p. 108). Each sack was idiosyncratic and its final purchase price would depend on buyers’ assessments of quality. The system involved a great deal of uncertainty and was designed around small sellers and riverboats. 137

The Chicago grain trade grew and increasingly involved trains as well as boats. Moving individual sacks was difficult and there was a clear gain from mechanizing the transfer of grain from one mode of transport to another. Oliver Evans, an American pioneer of steam power, had first worked out the principles of a grain elevator in the 18th century, but it is Joseph Dart of Buffalo, who is generally credited as producing the first steam powered grain elevator in 1842 (Cronon, 1991, p. 111). Buffalo, like Chicago, was a transport hub where grain was transferred from lake boats to barges that would travel through the Erie Canal into New York. Dart was a grain merchant who decided that mechanization could rapidly speed the loading and unloading of grain from ships’ holds.

Dart’s elevator used a conveyor belt with buckets that would scoop the grain out of the ship’s holds. The grain would then be carried by the belt to larger bins containing lots of grain. The grain could then be delivered from these bins to another ship or railroad car just by opening releasing a chute at the bottom of the bin. Dart’s elevator, which was tiny by later standards, had a capacity of 55,000 bushels and could unload 1,000 bushels per hour. This not only saved labor costs, but also meant that ships needed to spend far less time in the harbor, minimizing the downtime for those maritime pieces of capital. Chicago merchants quickly saw the advantages of Dart’s grain elevator and in 1848 Captain Bristol opened Chicago’s first steam powered grain elevator.

The scale economies offered by the large Chicago grain elevators was enormous: “A large elevator like that of the Illinois Central could simultaneously empty twelve railroad cars and load two ships at the rate of 24,000 bushels per hour” (Cronon, 1990, p. 113). But these scale economies were incompatible with the old system of shipping idiosyncratic bushels. First, the grain elevator’s buckets could only work scooping unbundled grain. Second, once the grain had been dumped in the elevator’s large bins, there was no chance of linking the quality of a particular grain shipment with its original shipper. The large machinery needed a more standardized product. Initially, the grain elevators tried keeping each farmer’s grain in its own bin, but this meant under-utilization of large bins. Then, some grain operators started to mix grain relatively indiscriminately, 138

but this meant that farmers of high quality grain wouldn’t receive a premium for their product. Grain operators on their own then started sorting grain by grade, so that better grains were separated from inferior product. This quality-based sorting allowed a form of standardization, but this standardization still depended on the idiosyncratic judgment of each individual grain operator. The lack of a uniform standard created something of a race to the bottom in grain quality and complaints among farmers that they were being underpaid for their product.

Solving this problem required coordination among grain merchants who came together in the Chicago Board of Trade. Starting in 1857, the Board organized a complex grading system for grain and appointed grain inspectors. By 1860, the Board separated the job of inspecting from the grain elevator operation so that the inspectors would seem to have more independence and integrity. The grading system completed the commoditization of grain. Instead of an idiosyncratic bushel, farmers sold grain that was classified as one of a number of different quality levels. When their grain entered an elevator, they lost any direct ownership over their own product, but received a receipt entitling them to grain of a particular quality level (Cronon, 1991, 117-119).

Idiosyncratic products have idiosyncratic prices, but with a uniform grading scale, a large national market suddenly developed in particular grades of Chicago wheat. It was no longer necessary for each farmer to negotiate a price for each bushel. Instead, he sold his wheat at the common price for wheat of that quality. In this way, Chicago created a market with well-defined prices that, in the long run, benefited both buyers and sellers.

Chicago’s role in the creation of a large wheat market illustrates the market-creating function that cities have had for millennia. In small towns, buyers and sellers are little monopolists. Each trade is unique and reflects only the bargaining skills of the individuals involved. In a large urban market, prices become common because there are hundreds of comparable transactions each day. As urban density speeds the information about these transactions, one price develops for each commodity. The move from haggling to one price eliminated vagaries and transaction costs, but it also means that 139

producers and consumers have a better idea of what they should expect to pay for a given product. The transmission of information about prices leads to a more informed economy and is a particularly attractive gift of urban commerce.

The Chicago grain markets ended up transmitting information not just about current costs, but also about future costs. In the grain trades, farmers would like to insure themselves against future price changes so they have an incentive to sell their grains early, before harvesting, at a fixed forward price. Buyers, who know that they will need a fixed amount of grain at some point of time in the future, have an incentive to buy early to lock in the price that they wish pay. The combined interests of buyers and sellers come together and create a demand for a forward market that permits the buying and selling of grain at some future date.

The Chicago Board of Trade was the entrepreneur of the largest forward commodity market in the world. This market required the commoditization of grain which was complete by 1860. At that point, the demand for forward contracts was driven by the U.S. Army—a big grain consumer if ever there were one. Quartermaster generals had a good idea of their future grain needs and had every incentive to lock in early to make sure that they would have their grain when they needed it. The Chicago Board of Trade worked to produce a commodity exchange that would enable the army to buy from farmers ahead of time. This exchange was the genesis of the Chicago commodity exchanges that still thrive today.

The futures market in grain soon dwarfed the cash grain business. By the 1870s, the futures market was ten times the size of the cash grain business (Cronon, 1991, p. 126). Some of the players in this market where, then as now, speculators, and sometimes these speculators artificially increased the volatility of the market. The great game of cornering a commodity thrived, where speculators would buy up futures contracts for a specific date while also accumulating the grain supplies. When the date arrived, they held a legal right to wheat and owned most of the available wheat. The sellers on the other side of the contract were caught in the corner and prices would spike. Still, despite these activities, 140

the basic role of the traders and speculators was positive as they ensured that prices would reflect the best available information about supply and demand conditions for commodities. Large urban markets provide strong incentives for information acquisition.

Skyscrapers and Streetcars

While the futures market in grain may be an innovation forever valued by financial economists, the skyscraper may be Chicago’s most visible legacy to cities throughout the world. No innovation changed the physical landscape of cities more than the skyscraper and no innovation did more to shape our views of what cities should look like how we imagine cities. In the late 19th century, New York and Chicago together led the push upward to taller and taller buildings, but it is Chicago’s Home Insurance building, built in 1885, which is generally credited as being the world’s first skyscraper (Miller, 1996, 309).

The push upwards reflected the interaction between demand for proximity and new technologies that made height possible. Most of the attention paid to skyscrapers has focused on the technologies that made particular supplies necessary for a tall structure possible, but from the perspective of an urbanist, the demand for all that height is at least as interesting. Building upward, then as now, was expensive and there was never any lack of land in Illinois. The demand for skyscrapers came from the value that people put on being in the thick of the city. In the years before the automobile, intra-urban travel was difficult. There was a great advantage of locating close to other firms, at the center of a dense downtown.

A striking number of the era’s largest buildings were built as the headquarters of insurance companies. Insurance companies were generally expansive and benefited from location in a single big building. Moreover, financial services, like insurance, are among the most information-intensive of all industries. Sales criss-crossed the continent and in the 19th century, large insurance deals involved face-to-face interactions where firms could appraise the risks involved with a particular client. Moreover, insurance companies 141

had the capital to invest in large real estate ventures. The high value placed on information in these industries increased the returns from locating in a dense city. The demand for proximity was driven by a demand for face-to-face interactions, and these interactions are particularly valuable because they facilitate the transfer of complicated information.

The demand for height came ultimately from a desire for proximity to people and firms. This desire for proximity then translated into higher land prices which increased the financial benefits of skyscrapers. Over the 1880s, the price of a quarter acre in the Chicago loop increased from $130,000 to $900,000. The high cost of an acre of land on Wall Street or in downtown Chicago reflected the willingness of businesses to be close to other businesses in those areas. The cost of land then determines the financial feasibility of building up. Simple cost minimization suggests that in cheap places, it makes sense to buy a lot of land and build low and cheap, but in expensive areas, it makes sense to buy much less land and spend more on the costs of building up. The push up was driven directly by high land costs which were themselves reflected the value that firms put on being at the center of great 19th century cities.

The demand for height could be met with supply realized because of three remarkable technological innovations: the elevator, load-bearing frames and improvements in building materials. Most obviously, the skyscraper rose with the elevator. It is certainly possible to climb steps up tall buildings, but if you try to create proximity by building a tall building without an elevator in the center of a big city, you are just substituting pedestrian travel within a building for pedestrian travel outside a building—and, to be sure, the former is less enticing. Building a tall building in the center is not that much more attractive than building a shorter building on the edge of the downtown; both structures would need a lot of walking.

Properly understood, the elevator belongs with the train and the car as a truly great transportation innovation. It is mass transportation that goes up and down. Men like Elisha Otis, Frank Sprague and Thomas Edison were pioneers in both vertical and 142

horizontal public transportation. The elevator’s closest vertical cousin, the cable car, also used an engine to pull a chamber that slowly hoisted passengers upwards. We have already seen primitive elevators in Joseph Dart’s grain elevator, where a conveyor belt lifted grain upwards. The steam- driven elevator got its start in moving heavy goods, like grain or coal.

Elisha Graves Otis was the pioneer who transformed elevators from a mechanism for moving goods into one of the great movers of human in history. In the early 1850s, Graves was working for the bedstead company of Maize and Burns which used elevators to move heavy equipment to the top floor of their factory. The problem with these early elevators was that when the hoisting cable broke, the elevator car and its goods tumbled to the ground. Otis saw this problem and solved it with a safety brake that locked when the elevator started to travel particularly quickly. Otis also invented a similar brake for railroads (Miller, 1996, 310).

Otis dramatically displayed his safety brake at the 1853 New York Crystal Palace exposition. He rode in an elevator himself and ordered the cable to be cut. The audience, expecting Otis’ imminent demise, instead saw the safety brake go into operation and stop his downward journey (Miller, 1996, 310). The fact that Otis demonstrated his brake with a human passenger rather than with heavy equipment nicely symbolizes the fact that the brake would have much more of an impact on passenger elevators than on freight. Before Otis, the risks involved in elevator travel made it unfit for passengers. His safety elevators transformed the market and suddenly made it possible for human beings to move up and down quickly and safely pulled by a machine.

Otis’ safety brake was the major innovation in elevators, but later innovations were as common in vertical transit as they were in horizontal transit. In 1880, Siemens introduced electric elevators which greatly increased speed and comfort. Gear problems were a particular obstacle to the development of long distance high rise elevators. In 1903, the Otis Company introduced the gearless elevator which eliminated these problems and set the stage for even taller buildings. 143

The second critical invention was the architectural transition from load-bearing walls to a load-bearing steel skeleton. Throughout most of human history, buildings were built upon heavy load bearing walls. In tall buildings, the lower walls needed to be enormously thick to carry the heavy weight created by the upper stories. Even one-story farm houses needed to have sizeable walls to be stable. Moreover, these traditional homes required large quantities of skilled labor to connect the large beams that made the structure.

A Chicago carpenter, Augustine Taylor, created the first balloon frame structure when he built St. Mary’s church in Fort Dearborn in 1833 (Cronon, 1991, 178). The essential innovation was to create a skeleton for the church made up of a modest number of standardized boards—two by fours, two by eights and one by tens. This skeleton nailed together and supported the weight of the rest of the structure. The walls were then nailed to the basic wood skeleton. It was lighter and cheaper and represented a step towards standardization. Hundreds of thousands of homes built by their own residents throughout America followed the balloon frame design. The Sears, Roebuck mail-order homes built across the country would follow the basic balloon frame model.

The balloon frame house was a Chicago invention that lowered the costs for building rural homes, but its basic concept would make skyscrapers possible. The genius who figured out how to use steel to solve the problem of building up was George Fuller. The general problem with building tall structures is supporting the weight of the building. If the weight is going to be borne exclusively by the walls of the structure, then heights have to be low. Fuller developed a series of steel cages which would bear the load of the building. Fuller’s Tacoma building is generally credited as the first building where the outside walls did not carry the weight of the structure.

William LeBaron Jenney was the urban innovator who combined the Chicago idea of a weight-bearing skeleton with the idea of taller and taller buildings to create the first skyscraper. In fact, LeBaron Jenney is given credit for building the first skyscraper—at 138 feet the Home Insurance Building was shorter than both New York’s Equitable 144

Insurance Building and London’s St. Pancras Chambers—but unlike those buildings, Jenney’s skyscraper was built using a steel load-bearing skeleton (Miller, 1996, 335-345).

In Jenney’s skyscraper, the masonry walls were secondary and ornamental: they attached to the building’s core steel structure. Later architects, like Mies van der Rohe, would peel off the masonry that connected skyscrapers with their thick-walled antecedents, leaving only the minimalist frame of steel and glass. In the skyscrapers of the 1880s and 1890s, it is still possible to think that you are looking at a traditional large building, like the Cathedral at Chartres, where the walls support the structure, but Jenney’s design was far more modern. Even though Jenney’s buildings look like they are made of stone, they are much closer in their engineering to modern steel and glass towers than to the stone walled structures that were built just a few years earlier.

Jenney had come from Boston and was educated at the Harvard Lawrence Scientific School and in Paris. Like John Forbes, Jenney came from a maritime family. As an engineer, he built fortifications for Sherman and Grant during the Civil War. He is better known for engineering genius than for aesthetic vision and he is responsible for developing the practical fire-proof buildings as well as the first skyscrapers.

The association of certain art forms with particular places reflects the fast transition of ideas through face-to-face contact. Jenney’s influence on architecture did not end with his own buildings, but is also seen in the efforts of his remarkable apprentices, Louis Sullivan and Daniel Burnham. The two in turn influenced a new generation of architects, like Frank Lloyd Wright who worked for Sullivan. Great artistic explosions, like the rise of Chicago architecture, usually include only a handful of artists who learn from one another and build upon one other’s masterpieces.

Louis Sullivan’s skyscrapers pushed Jenney’s innovations further. Together with his engineer partner, Sullivan built iconic buildings like Chicago’s Auditorium building (briefly the tallest in the world) and the Carson Pirie Scott department store (Miller, 1996, 363). It may, however, be Sullivan’s Wainwright building which was built in St. Louis in 145

1891 that represents Sullivan’s greatest breakthrough (Miller, 1996, 370). Where Jenney’s external building façades looked backward towards heavy, ornate masonry, Sullivan’s Wainwright building was spare and elegant. Its simplicity, reflected in Sullivan’s “form follows function” mantra, created a new look that would set the stage for modernist architecture. If it is hard to see the connections between Jenney’s work and van der Rohe’s Seagram building, the connection between Sullivan’s spare edifices and the New York glass tower is impossible to miss.

The steel skeletons also required better materials. Cheap, high quality steel was as necessary for Jenney’s skyscraper as good nails and two-by-fours had been for Taylor’s balloon frame church. Henry Bessemer had invented a process that allowed the mass- production of high-quality steel. Andrew Carnegie applied this steel process on a large scale, making it possible to build with a reliable steel structure. Innovations in concrete and glass were also part of the move upward. Californian E. L. Ransome combined concrete and steel to create the much more durable reinforced concrete.

The Chicago innovation quickly spread to other cities, often brought by the Chicago architects themselves. The Chicago general contractor George Fuller moved his business to New York City where it was housed in a dazzling skyscraper called the Flatiron building built by Jenney’s erstwhile apprentice Daniel Burnham. As land values were even higher in New York than in Chicago, the demand for height was even greater. The Chicago skyscraper would soon be even more common in New York City than in its home town.

In 1890, the New York World Building, home of Pulitzer’s newspaper, passed Sullivan and Adler’s Chicago auditorium in height and Chicago would not again have the world’s tallest building until the Sears tower was completed in 1974. In 1900, there were 24 buildings in the world which were more than 250 feet tall. Every one was in North America and, of these, 18 were in New York itself. The tallest building in the world was the Park Row building in Manhattan, erected in 1899, with 30 stories and soaring to 391 feet—forty feet higher than its closest competitor. The tall buildings continued to house 146

insurance companies and newspapers, but the era of the trophy corporate headquarters was soon to arrive.

Twenty years later, the Park Row building was no longer among the ten tallest buildings in New York. By 1915, Manhattan had six buildings which were more than 500 feet tall. The Woolworth building, built in 1913, was more than double the size of the Park Row building and had 57 stories. This remarkable explosion of height continued through the 1920s when the Empire State Building was begun in 1929 (completed in 1931). With its 102 stories, Empire State was 1,250 feet tall, more than 50 percent taller than the Woolworth Building. In a matter of 40 years, New York had gone from a remarkably flat place to having a skyline that is still distinctly recognizable today.

Public Transportation

At the same time that engineers were pushing the city upward, they were also improving the ability to move across Chicago horizontally. Throughout much of the 19th century, pedestrian transit was the norm and because walking was such a dominant form of locomotion, cities were by necessity dense. In the 2000 census, five of the nine American cities with more than one million residents (Dallas, Houston, Phoenix, San Antonio, and San Jose) had density levels below 3800 people per square mile, or six people per acre.

In 1900, the island of Manhattan had 27,899 people per square mile or 44 people per acre. The peak of Manhattan density occurred ten years later when it had 37,585 per square mile or 58 people per acre—ten times the density levels in the majority of big American cities today. Individual areas were denser still; one square mile in near west Chicago had more than 70,000 residents in 1900. These density levels radically understate the true density levels of downtown New York, because they include the much more sparsely populated uptown areas. Manhattan was at its densest long before skyscrapers were widespread. 147

Improvements in transit technologies represented a response to the desire for connectivity, just like skyscrapers. Skyscrapers enabled people to live and work close to one another. Faster transit enabled people to live and work farther from one another, but still make contact easily. As we will discuss in the next chapters, the twentieth century witnessed a battle between better transportation and taller buildings, with transportation ultimately winning out. In the nineteenth century, transportation improved, but not by enough to slow the rise of extraordinary densities.

In Chicago, the first form of public transit was the traditional horse drawn omnibus, which began service in 1852. As in New York City decades before, omnibuses were replaced by horse drawn railcars pulled along fixed lines. The first of these railways went into operation in 1859 (Miller, 1996, 134). Despite the slowness of horse and the vast quantities of manure they deposited on busy city streets, horse drawn cars dominated Chicago through the 1870s. The city that was so innovative in other areas remained behind the times in its transit network when new modes of metro transit were taking hold elsewhere.

In the 1880s, transit began to slowly move forward. In 1882, the Chicago City Railways company acquired cable car technology from San Francisco and mechanized their operation. In 1883, electric streetcars were demonstrated at the Chicago exposition, although these weren’t put into operation until 1888 in Richmond. In 1885, a great transit strike temporarily crippled the industry. As of 1886, Chicago had three major transit companies, each of which dominated one section of the city, only one of which had moved beyond horses.

Charles Yerkes was the entrepreneur who would enter into this transit backwater and modernize Chicago transit. Yerkes was the model for the fictional hero Frank Cowperwood of Dreiser’s “Trilogy of Desire” (Miller, 1996, 269). Like Cowperwood, Yerkes was born in Philadelphia and made his first fortune in that city’s financial markets after the Civil War. In 1868, at the age of 31, Yerkes became the primary marketer of the 148 city’s municipal bonds. He seems to have won the city’s account by aggressively buying the bonds himself and keeping their prices up.

149

Chapter 5: Los Angeles 1910-1950

At the start of the 20th century, visionaries imagined a world of increasingly dense cities where skyscrapers reached further and further towards the sky. They imagined vertical cities—like New York—with streets that were darkened by immense towers. Fritz Lang’s 1927 film masterpiece Metropolis provides a particularly striking vision of a menacing urban future with vast buildings and workers crowded in an underground city. 20th Century Fox produced a similar vision of 1980 New York crowded into vast towers. Predictably, the Hollywood version has a happier ending: its New York is a bright modern marvel, not a dystopia.

Great towers were the Modernist vision of humanity’s future in the 1920s. Brilliant architects, like William Van Alen, were designing iconic towers like the Chrysler Building and the Empire State Buildings. A vision of a “Titan City” was put forth in a 1925 exhibition by Hugh Ferris— the great delineator of skyscrapers—and Harvey Corbett. Raymond Hood proposed a plan of “Manhattan 1950” complete with sky bridges linking immense towers. Hood would be the lead architect of Rockefeller Center.

The prediction of a vertical future was so certain that some architects devoted themselves to finding ways to humanize the towers. Charles-Eduard Jeanneret --the French modernist known as LeCorbusier-- presented his “Contemporary City for 3 Million Inhabitants” in 1922 in which 60 story towers would be separated by gardens and linked by subways. By building high enough, it would be possible to create a vast city that still included plenty of green, open space. In this way, the supposed human need for greenery could be satisfied even in the densest of cities.

But 20th century America did not belong to the skyscraper, it belonged to the automobile. Cars, not elevators, became the key urban mode of transportation. Traditional cities would lose population as residents, and then firms, suburbanized. Even more strikingly, new cities grew that were far shorter and less dense than their 19th century predecessors. 150

The vision of “Titan City” remains only in the occasional piece of science fiction like Ridley Scott’s futuristic Blade Runner or Batman’s Gotham City.

Los Angeles, not New York, would ascend throughout most of the 20th century. The city’s modest densities and vast highway networks would be the model for the booming urban areas of the late 20th century from Atlanta to Phoenix. In so many respects, Los Angeles represents a dramatic shift in the course of the city. Densities, which had been rising for centuries, suddenly declined. Cities, which had been for millennia been located on waterways, were now built in the desert. Until Los Angeles, great American cities were located in ways which maximized productivity. Los Angeles, and its surrounding areas were designed to cater to consumers, not to firms.—and its sprawl was allowed in no small part because of the car.

Los Angeles is in many ways the antithesis of Chicago. Everything about Chicago’s location made economic sense. It grew at the connection between the Mississippi and the Great Lakes. It moved goods from the American heartland to the markets of the Europe and Eastern Seaboard. As soon as the Michigan-Illinois canal was announced, everyone knew that a great city would form where the canal hit Lake Michigan. The land at the center of this incredibly productive metropolis became extraordinarily valuable and people built up.

By contrast, nothing about Los Angeles seemed foreordained. It lies at the very edge of the country, perched on the western seaboard. Los Angeles didn’t initially even have a port, and even if it did, it would be hard to compete with San Francisco’s magnificently sheltered harbor, which was the natural connector hub to California’s gold wealth. A century ago, Los Angeles wasn’t a natural place to ship things or to make things. It was just a really beautiful spot with a wonderfully temperate climate.

Los Angeles began as the “Mission Nuestra Senora Reina de los Angeles” (Mission of Our Lady Queen of the Angels”) in 1781 on the banks of the Porciúncula River. This alluvial river was a modest water source yet was far too unpredictable to be a major 151 waterway. The Mission became a Pueblo, but the population remained a modest agricultural village. After a contentious fight between the state legislature and the governor, the city of Los Angeles was incorporated by an 1850 legislative act, shortly before California became a state as part of the compromise of 1850.

The Port, the Railroads and the Water Supply

In that year, San Francisco, not Los Angeles, was California’s dominant metropolis with almost 35,000 residents: Los Angeles was about one-twentieth its size with 1,610 people. Over the next 30 years, the Los Angeles agricultural community grew, but it still had only 11,183 residents in 1880 and was still less than one-twentieth of the size of San Francisco. While Los Angeles continued to dominate San Diego, which had only 2,637 residents, it remained a tiny town, with one-half of the population places like Somerville, Massachusetts or Wilkes-Barre, Pennsylvania (Fogelson, 56, 1967).

But by 1880, the transport network had started coming together that would turn Los Angeles into a major metropolis, began to coalesce. Three developments occurred that put Los Angeles in the center of a railroad hub. First, rail lines were built to connect Los Angeles to the harbor in San Pedro Bay, 20 miles to the south. Second, large scale government expenditures made the San Pedro Bay harbor far more accessible to ocean traffic. Third, the Southern Pacific railway chose Los Angeles as its western terminus. Without these man-made interventions, Los Angeles might have remained a small Pueblo without access either to the sea or to hinterland. With these improvements—which were almost entirely brought to frution by a tireless entrepuer named Phineas Banning—Los Angeles, Los Angeles became aascended to the status of a major transport center.

Phineas Banning, the “Father of Los Angeles Harbor,” was born in Wilmington, Delaware in 1830. After working in the Philadelphia Docks as a teenager, he made the arduous journey to Southern California in 1851. The journey to the west coast was incredibly long, and involved either the lengthy and perilous route around the Horn of South America which could take more than four months, or the considerably shorter route 152

via either Nicaragua or Panama Canal. Banning elected to take the latter route and eventually settled in the harbor town of San Pedro and began working as a stagecoach driver on the route between San Pedro and the inland town of Los Angeles (Pitt and Pitt, 37-38, 1997).

Banning became a transportation entrepreneur, operating a stagecoach network that connected the port at San Pedro with inland settlements like Salt Lake City and the military outpost at Yuma. After the San Pedro wharf was destroyed in a storm, Banning led a consortium of local investors who bought 640 adjacent acres to build a new and improved port. This area was incorporated in 1872 and named after Banning’s home town of Wilmington. During the Civil War, Banning donated land to the government to build Camp Drum, which would become the military headquarters for southern California. This military outpost, as Banning surely expected, led to greatly increased traffic in the port.

The combination of government support and private entrepreneurship continued to be the hallmark of Banning’s post-war, pro-port activities. In 1869, Banning opened the rail line, alluded to earlier, that linked the San Pedro Bay with Los Angeles. The rail line was a public-private partnership where funding was provided both by private investors, like Banning and his partner John Downes, and by the city of Los Angeles. Los Angeles did not have its own port—San Pedro and Wilmington wouldn’t be annexed by the city until 1909—but it did have a “high speed” connection to the sea.

Just as importantly, Banning was a tireless advocate for government spending to improve the San Pedro harbor. The port of New York had two great advantages: it was sheltered and it was deep. By contrast, the San Pedro harbor was shallow and not particularly well- sheltered. Indeed, San Diego was initially thought to have an edge as a southern California port because of greater depth and greater safety. (Fogelson, 108, 1967). But while natural advantage meant everything in 1800, technological progress since that date had greatly increased Americans’ confidence in their ability to mold nature to their own desires. 153

Between 1870 and 1912, the port of Los Angeles was made both safer and deeper. Banning used his political clout to get public funding for a breakwater positioned between the appropriately named Rattlesnake and Deadman’s Islands. Forty years later, federal funding would build the Angel’s Gate breakwater, which would form the largest such structure in the U.S. Public funds also dredged the harbor, first in 1871—again as a result of Banning’s agitation— to 10 feet; later in 1912 to -30 feet. (Fogelson, 108, 1967). (What about the 30 feet fact?) With massive effort and government funding, the port of Los Angeles had become a truly world class port. Today the port of Los Angeles ranks first in the nation in the value of the trade it handles. Together, the two San Pedro harbor ports—Los Angeles and Long Beach—handle 130 million tons of cargo.

Banning connected Los Angeles to the sea, but this just only made the city a potential drop off point for goods coming into Southern California. Since there was no river or lake network in the Southwest, rail provided the only possible means of making Los Angeles into any sort of a transport hub. The great transcontinental railroad connecting New York and San Francisco had been completed—with a golden spike hammered in by Leland Stanford—in 1869. The railroad had been built with massive government subsidies paid by federal government which gave both land grants and a direct subsidy of between 16,000 and 48,000 dollars per mile. The well-connected railroad men—Stanford was governor of California at the same time as he was president of the Southern Pacific—became enormously wealthy through federal largesse. The rails did radically shrink the distance between the coasts: by 1876, the trip between New York and San Francisco was made in 84 hours.

In that same year, the Southern Pacific Railroad completed a connection to Los Angeles, again with the help of government subsidies. With California governor John Downey’s approval, the city of Los Angeles bought the older “Los Angeles and San Pedro Railroad” and presented it to the Southern Pacific as a gift for building the connection to San Francisco (Fogelson, 52-56, 1967). This intra-California line was itself a massive undertaking, requiring engineering feats like the San Fernando Tunnel and the Tehachapi 154

Loop. The rail link to Los Angeles would become even more valuable when the Southern Pacific built a southern transcontinental rail line linking Los Angeles with the east along a southern route.

To a much greater extent than New York or Chicago, the city of Los Angeles owed its success to coordinated local boosters who led the city to invest in local infrastructure. The rail connections didn’t have to come into Los Angeles. After all, the ultimate destination of most goods was the harbor at San Pedro, not with L.A. But Los Angelenos arranged public spending to bring in the Southern Pacific, just as they had supported the earlier Downes-Banning rail line. The coordinated effort of local boosters also led to federal spending on the Angel’s Gate breakwater. In 1770s Boston, density brought together the American revolutionaries. One century later, proximity in Los Angeles led to the strong connection of local leaders who were effective at getting public spending for their pet projects that they saw as necessary to L.A. growth and vitality.

While there is little doubt that these expenditures enabled the city of Los Angeles to flourish, no one knows, in hindsight, which of these projects would have satisfied a cost- benefit analysis at the time. Projects that help specific communites are not always the best thing for people across the country. Today, far too many infrastructure projects are undertaken without making sure that they benefit the public at large enough to justify their vast costs. A particular example of the conflict between people and placelocal versus regional or even national interests—and another example of Angelenos’ determined efforts—was the project to bring water to the growing metropolis. Los Angeles Superintendent William Mulholland’s 233 mile Los Angeles aqueduct was (one of)s the longest aqueducts in the world. (Fogelson, 98, 1967). It began operation in 1913 and while there is little doubt that this water helped Los Angeles begin to thrive, there remains a heated debate about whether this infrastructure was beneficial for society as a whole, or whether this was just a transfer from the residents of the Owens Valley to Los Angeles. Mulholland’s later project, the St. Francis dam, was a far more costly piece of public infrastructure: It collapsed in 1928 killing more than 500.

155

Los Angeles’ Economy

With its rail and water network in place, Los Angeles began to grow. In the 1880s, Los Angeles’ population increased almost fivefold to 50,000 inhabitants, making it the 57th largest city in the country. Between 1890 and 1900, the population doubled to more than 100,000 inhabitants. In 1910, the city had more than 300,000 inhabitants and in 1930, it had 1.24 million, making it the fourth largest city in the country.

What did all those people do? In its Pueblo stage, Los Angeles was an agricultural community, and for much of the middle years of the 19th century, the town served as a commercial center in the middle of the area’s ranches and farms. In the early nineteenth century, the Rancheros specialized in cattle hides and tallow. The great advantage of both of these commodities is that their durability made them ideal for shipping across vast distances. In fact, Los Angeles was one of the far-flung outposts of the early nineteenth century Boston commercial empire, as Boston traders bought Californian hides to use in New England shoe factories. Tallow is rendered beef fat (fat that is purified by through melting) that can be stored for the long time periods and used as candles, soap, animal feed or even to fry McDonald’s french fries. Before the Mexican- American war, Los Angeles was a modest local trading hub specializing in the sales of bovine produce.

The gold rush caused a boom in the Los Angeles cattle industry. Suddenly, there was a huge demand for meat to feed the prospectors in Northern California and cattle prices temporarily soared, but this success was soon followed by the catastrophic drought of the early 1860s that destroyed many herds. After the Civil War, sheep came to replace cattle, especially in the hilly country around Los Angeles. Like hides and tallow, wool is also durable and is ideal for growing in a place so far from eastern markets. For the same reasons, the settlers of Australia and New Zealand, two places even more remote than nineteenth century Los Angeles, also specialized in wool.

Sheep continued to dominate local agriculture through the early 1880s, but more intensive uses of the land offered higher profits, especially with the opening of the 156

intercontinental railroad. The railroad made it possible for Los Angeles to export products that were still hardy, but more vulnerable than wool and hides. Oranges and wheat, for example, depreciate more than leather and tallow, but they could both be shipped comfortably eastward by rail. Irrigation, at first principally with artesian wells, which are wells created by drilling into the earth until underground water shoots up because of high pressure, enabled Los Angeles agriculturalists to switch into more intensive agriculture and exploit the region’s remarkable climate. First wheat and then oranges became the agricultural mainstays of the region.

Agriculture was the export of the region in the early years, but the city of Los Angeles itself was a remarkably diversified, non-industrial regional commercial center. If anything, the city was dominated by trade and transportation which in 1900 employed about one in three of Los Angeles’ workforce of 42,000. Merchants, salesmen and clerks were the dominant occupations in this overwhelmingly male group. Domestic and personal service employed about nearly one-quarter of the city’s labor force in 1900. There were almost 3,000 servants and waiters, representing about eight percent of the labor force.96

While Chicago was dominated by big manufacturing industries, Los Angeles was not particularly oriented towards manufacturing, and its manufacturing was diverse. In 1900, about more than one-quarter of its workforce was in manufacturing. The two largest manufacturing occupations were carpenters and dressmakers, providing goods for regional consumption. About three percent of the labor force was a carpenter and 2.5 percent were dressmakers. The remainder of the labor force was employed in professional services (less than eleven percent of the labor force) and agriculture (less than five percent of the labor force).

In the early years of the twentieth century, Los Angeles developed industrially. By 1910, the city had over 2,500 workers in foundries and machine shops. More than 201,500

96 See Table: 1900 Los Angeles Occupation Breakdown 157

people were building transportation equipment.97 Cars would later become a significant industry in Southern California, catering to the region’s voracious demand. Henry Ford opened a plant in Long Beach in 1927, and Chrysler and General Motors soon followed. Goodyear and Firestone produced tires in the area. In all of these cases, production followed demand. Unlike Chicago, where an industrial comparative advantage created a city, in Los Angeles, production followed the city’s growth and demand.

Oil appears to be the great exception to the rule. After all, Los Angeles sits on top of large petroleum deposits, some of which seep to the surface in areas like the La Brea tar pits. The legacy of oil magnates like Edward Doheny and J. Paul Getty helped give Los Angeles distinguished cultural institutions—enhancing the place as a consumer city. The oil wealth of these magnates came in part from the natural resources of Los Angeles, but their commitment to the city, had more to do with Los Angeles’ edge as a consumer city than the oil that lay beneath its land.

The easy accessibility of Los Angeles’ oil meant that prospectors started drilling oil wells in the area as early as the 1860s. But the big strike was made by Edward Doheny who found oil in downtown Los Angeles in 1892 when he noticed chunks of brea, or pitch, oozing from the ground (Davis, 22). In the five years after Doheny’s discovery, Los Angeles built 500 derricks (the tall framework over an oil well that supports the hoisting and lowering of pipes). The Los Angeles region would eventually produce one-quarter of the world’s petroleum in the 1920s.

Doheny was an Irish-American born in Wisconsin. His parents were part of the great migration following the Potato Famine. Doheny went west to seek his fortune in the ground and spent his 20s prospecting for gold and silver in Colorado. He then moved to California and had considerably more success in petroleum. His base of operation was southern California, but he also became a major player in the development of Mexican oil wells. He became infamous for a $100,000 “loan” to Secretary of the Interior Albert Fall, which was then followed by a lease to the Elk Hills Naval Petroleum Reserve.

97 Please see Table 5-1 158

Doheny’s loan became the crucial piece of evidence leading to Fall’s conviction in the Teapot Dome Scandal. Somewhat ironically, Fall and Doheny’s harshest critic was another son of Wisconsin, Senator LaFollette.

Doheny was relatively unique in early Los Angeles in being a Catholic millionaire. He and has wife were generous supporters of the church and funded an entire church:the entire construction of the magnificent Marian-themed St. Vincent De Paul’s (Davis, 185). Estelle Doheny, an erstwhile telephone operator, would end up a Papal Countess (Davis, 277).98 Los Angeles started the twentieth century with much less significant architecture and many fewer significant cultural institutions than its eastern competitors. The largesse of new money millionaires like the Dohenys helped turn Los Angeles into a consumer city that could compete in both natural and built man-made environments.

While Doheny pioneered Los Angeles oil, J. Paul Getty would end up being the city’s wealthiest oil magnate. Getty’s father was a prosperous lawyer in Minnesota who moved to Oklahoma to prospect for oil in 1904. George Getty founded the Minnehoma Oil Company, made a quick fortune and moved to Los Angeles. The move seems as likely to have been driven both by a desire to get in on the California oil boom as by a preference for living in Los Angeles rather than Oklahoma.

His son made his first fortune back in Oklahoma, with the help of his father’s financing, but soon returned to Los Angeles to live a Southern California lifestyle. J. Paul Getty seems to have liked work too much to just relax, and he expanded his father’s fortune immensely by developing Los Angeles area oil. In the 1930s, Getty purchased the large California area Tidewater Oil Company after years of struggle with his mother for her support, as well for the financial support of George F. Getty, Inc, over which she had control after the death of his father. Getty restructured Tidewater and created a vertically integrated company that controlled an entire supply chain from research and development to retail sales. After World War II, Getty expanded his fortune by investing in Middle

98 Davis, Margaret Leslie. “Dark Side of Fortune: Triumph and Scandal in the Life of Oil Tycoon Edward L. Doheny.” Berkeley, University of California Press, 1998. 159

Eastern oil. He also dabbled in aircraft design and production with the Spartan Aircraft Company in Tulsa, Oklahoma. While Getty eventually left California for England, his fortune would contribute a dazzling art center to Los Angeles’ consumption palette of entertainment.

The Gettys provide a remarkable story about oil wealth in Los Angeles. The origin of their money was in Oklahoma, and J. Paul Getty made much of his wealth after 1945 in the Middle East.99 Still, their cultural endowments came to Los Angeles because George and J. Paul Getty wanted to live in that city. Even Los Angeles’ oil wealth came in part from its attractiveness as a city to live.

Two other industries would dominate Los Angeles in the middle of the twentieth20th century: movies and aviation. The main reason for these industries to locate in Los Angeles is that its weather allows year round movie-making and year-round flying. In other words, the same climatic amenities that made Los Angeles such a nice place to live make the city a marginally more productive place to film and to fly airplanes.

But nice weather isn’t the only reason why aviation and film located in the city. Both of these industries are—like wool in an earlier era—marked by extremely low transport costs. Moving completed movies across space is essentially costless relative to the price of making the movies. The defining characteristic of aviation is that its product moves really quickly. There was a real productive advantage that explained why these industries moved to Los Angeles, but these industries were also particularly geographically footloose because transportation costs were so low.

Los Angeles’ aviation industry represents a somewhat typical innovation cluster, where entrepreneurs and inventors work with each other, learn from each other and eventually start their own companies. In the case of Los Angeles aeronautics, the heart of the cluster is the network of Glenn Martin, Donald Douglas, Jack Northrop and Allan Loughead (Lockheed). Glenn L. Martin was the pioneer who started flying planes in

99 Hewins, Ralph. The Richest American: J. Paul Getty. New York, E.P. Dutton & Co., Inc., 1960. 160

Santa Ana in 1909. Martin was a car dealer who sold Fords and Maxwells, and he soon moved from just flying planes to making them as well. Martin made up for his lack of technical training by using car mechanics to help build his first planes. Martin also hired a remarkable number of engineers including Donald Douglas and James S. McDonnell (McDonnell Douglas). Glenn Martin spent only four years producing planes in Santa Ana and then, after an unsuccessful merger with Wright Aviation, moved to Cleveland.100 In those years, the aviation industry was still centered in the industrial heartland of the Midwest.

Martin’s chief engineer Donald Douglas, who had only joined the firm in 1916, made the move to Cleveland. But as the Boeing Corporation’s official website notes (Boeing eventually absorbed McDonnell Douglas Aircraft) “In chilly Cleveland, Douglas and his family missed the balmy California climate, so in January 1920, his wife took their two sons back to Los Angeles.”101 Douglas’ return west was motivated by consumption, not production. Douglas found funding from David R. Davis and built the Cloudster, which was the first plane to carry a useful load greater than its own weight. Douglas soon bought Davis out and thrived on a series of military contracts, first building Navy torpedo bombers.

The Douglas Company bridged the gap of commercial and military aircraft well. The civilian model of the Douglas DT-2 torpedo bomber was the Douglas World Cruiser, the first plane to circle the world. Douglas’ great commercial success was the DC (Douglas Commercial) series. The DC-3 was allegedly the first commercial plane that could turn a profit just by hauling passengers. The same model proved to be a workhorse military transport plane during World War II. The war provided a great boom to the entire aeronautics industry, and Douglas expanded from his original production facility in an abandoned Santa Monica film studio to factories in Long Beach and El Segundo.

100 Martin biography from The Maryland Aviation Museum: http://www.marylandaviationmuseum.org/history/martin_aircraft/index.html 101 Douglas’ biography from Boeing: http://www.boeing.com/history/mdc/douglas.htm 161

The second branch of Los Angeles aviation network starts with the Loughead brothers, whose mother had come to California from Illinois. Victor Loughead was an automotive engineer who had moved back east to Chicago. He began his involvement with aircraft as the writer with of the 1909 classic “Vehicles of the Air.” The success of this book led Victor Loughead to design his own aircraft and he hired his younger brother Allan to work as a mechanic. Their collaboration was not a success and Allan returned to California and began collaborating with his other brother Malcolm.

Allan and Malcolm Loughead built their first plane, the Model G, in a garage in San Francisco. They made a pile $6,000 carrying passengers in this three passenger seaplane during the Panama-Pacific exposition of 1915. Using this cash and additional financing brought by the Model G’s notoriety, the Loughead brothers began producing an even larger seaplane in Santa Barbara. At this point, they became linked to Jack Northrop, a talented draftsman who designed the hull and wings of their F-1 seaplane. After a record- breaking flight from Santa Barbara to San Diego, they were able to sell their plane to the U.S. Navy.

The end of World War I was a disaster for the Loughead brothers. Not only did their Navy contract dry up, but the armed forces sold off its surplus planes, saturating the commercial market. The Lockheed S-1 was an aeronautic success but a commercial failure, and the Lougheads shut down in 1921. Jack Northrop moved shop to Donald Douglas’ firm where he continued to innovate and learn working next to that other Los Angeles aviation pioneer.

Allan Loughead tried anew in 1926, again joining forces with Jack Northrop. This time, Loughead changed his name to Lockheed and started production in beautiful, downtown Burbank. Loughead, now Lockheed, and Northrop used designs they had patented when building the S-1 and a Wright-Whirlwind air-cooled radial engine to produce the Vega, which proved a great success. While a prototype Vega was lost in an attempt to win a $25,000 prize offered by a pineapple magnate for the first flight from North America to 162

Hawaii, the third Vega became the first plane to cross the Arctic. Lockheed and Vega would sell 127 Vegas and they were the fleet that would establish the Lockheed name.102

Neither entrepreneur would last that long with the Lockheed Company. Northrop left in 19289 to start his own Northrop Aircraft. Allan Lockheed himself left the company in 1929.103 Lockheed itself closed its door briefly in 1932, only to reopen under the new management of Robert Gross. Gross moved Lockheed into metal bodied airplanes and thrived during World War II with the production of the P-38 Lightning fighter. After World War II, Lockheed continued its success with the Constellation airliner, produced in Burbank. Lockheed Martin eventually merged with Martin Marietta, the successor to Glenn L. Martin’s company, and moved its headquarters to Bethesda, Maryland. The dependence of Lockheed on armed services contracts made proximity to Washington, D.C., more valuable than California sunshine.

Jack Northrop had formed the Avion Corporation after leaving Lockheed, but lack of funds led to his company’s absorption into the United Airlines and Transport Corporation. When that large holding company wanted to move Northrop east, however, his desire to remain in California caused him to leave and partner with Donald Douglas. The Douglas-Northrop partnership continued until 1938, when Northrop again went off on his own, forming the Northrop Corporation in 1939. Northrop thrived as a government contractor, producing important bombers during World War II. It eventually merged with Grumman Aerospace, an aerospace contractor. It remains a vast corporation headquartered in Los Angeles.

These pioneers— Martin, Douglas, Lockheed and Northrop— were a network that built vast companies around a new transportation technology. The technology was well suited for Los Angeles, as the great distances of the west made aircraft particularly useful and good weather made year-round flying easier. This was a network of ideas; each one of

102 Centennial of Flight: http://www.centennialofflight.gov/essay/Aerospace/Lockheed_early/Aero13.htm 103 Loughead biography from the National Aviation Hall of Fame: http://nationalaviation.blade6.donet.com/components/content_manager_v02/view_nahf/htdocs/menu_ps.as p?NodeID=-1449208259&group_ID=1134656385&Parent_ID=-1

163

the innovators learned from each other and pushed the technology forward. Their proximity in Southern California helped the flow of ideas. Finally, at least in the cases of Douglas and Northrop, they were drawn to Los Angeles in part because they wanted to live there, not just simply because there were job opportunities in that city.

Of course, the industry that is most closely associated with Los Angeles is film production. The association of Los Angeles with film has become so strong that one might think that the city’s employment was dominated by entertainment. But this is not the case today and it never was the case. In 2005, Los Angeles County had 130,000 workers in arts, entertainment, and recreation arts. By contrast, Los Angeles has 53,000 car and cars parts dealers in the city alone. The county has 560,000 workers in manufacturing and 3.9 million workers overall. Although one may think that the entertainment industry is well paid, it receives only 2.5 percent of the total payroll while employing 2.9 % of the total workers.104. While the industry only represents two percent of employment, it represents almost five percent of total payroll. Still, it is important to recognize that although movies may be Los Angeles most famous export, they do not and never did dominate the Los Angeles economy.

Movie technology was actually invented far away from Los Angeles. Austrian, Belgian, English and French inventors were all responsible for important advances in creating moving pictures. Within the U.S., Menlo Park, New Jersey, not Hollywood, is the birthplace of film. Thomas Edison patented his Kinetoscope in 1891, which enabled single viewers to see moving pictures in a mechanical box. Two years thereafter in the same annus mirabilis, Edison opened his New Jersey film studio, patented his movie camera, the kinetograph, and displayed the kinetoscope at Chicago’s Columbian exposition and by 1894 he had. He opened a kinetoscope parlor in New York City, Chicago and San Francisco in 1894.

Motion picture technology would of course quickly move from Edison’s personal viewing machines to screens. A four-eight minute boxing movie shown in New York City in 1895 was the first movie publicly shown on a screen. The aptly named Lumiere

104 Please see Table: 2005 Los Angeles Occupation Breakdown 164

brothers displayed films on their Cinématographe in France in 1895. Edison unveiled his vitascope in 1896. While the Vitascope was billed as an Edison invention, it was based on the Phantoscope, invented by Jenkins and Armat, from whom Edison actually bought the rights to the Phantoscope from Armat.105.

For the next 15 years, the American film industry remained clustered around New York and northern New Jersey. Edison’s studio pioneered narrative film-making with the wildly successful 1903 “Great Train Robbery,” which was filmed in the great open spaces of northern New Jersey. The New York area was also attractive because of the steady supply of Broadway-based acting talent, like the Barrymores. Edison formed a trust in 1908 that included the ten major film studios, and together they tried to use their patents to control the growing industry. The trust lasted until 1915 when it was dissolved by the Supreme Court.

Edison’s trust, the Motion Picture Patents Company, contained ten firms, and their locations and origins give us some idea of the importance of innovative clusters in this industry. Four of the firms, Edison, Biograph, Kalem, and Vitagraph, were in the greater New York area and all of them stemmed from Edison’s initial operation. Biograph was a spin-off started by Edison engineer William Dickson, who is probably more responsible than Edison himself for developing film technology. Kalem founders Frank Marion and Samuel Long had been managers at Biograph. Vitagraph was formed by a journalist who got his ideas by interviewing Edison. Chicago was the second city of film with Essanay, Selig and William Kleine Production. Pop Lubin was a Philadelphia film-maker who had used technology borrowed from Edison. After fighting a costly battle with Edison over the right to use that technology, he joined Edison’s trust. The two other members were Paris-based Pathe Freres and Georges Melies, and they used the rival Lumiere technology.

105 Ramsaye, Terry. “A Million and One Nights: A History of the Motion Picture.” New York, Simon and Schuster, 1926, 76-166. 165

Like many Angelenos, film-making came to Los Angeles for the weather. Chicago producer, William Selig, a self-appointed Colonel, “influenced by a Los Angeles Chamber of Commerce brochure promising 350 days of sunshine, sent actor-turned- director Francis Boggs, along with actors and crew to finish filming an outdoor scene for the Count of Monte Cristo.”106 The Pacific Ocean is also a lot warmer than Lake Michigan, which made it easier to shoot the scenes of Edmond Dantes emerging from the sea after his watery escape from the Chateau D’If. Boggs was a native Californian and convinced Selig to set up a studio in Los Angeles’ Eddendale district in 1909. Selig operated his own zoo to provide animals for his films; Los Angeles’ Griffith Park Zoo began with Selig’s collection.

D.W. Griffith, the son of Kentucky Colonel “Roaring Jake” Griffith had joined Biograph in 1908. His prodigious talent soon made him their principal director, and in 1909 he took the Biograph troop, including Mary Pickford and Mack Sennette, to Los Angeles to shoot Ramona. Griffith sought California weather to increase filming productivity and because he had never really gotten to like northern weather. Griffin returned in 1910 to shoot “In Old California” in the little village of Hollywood.107 He would then stay and become a fixture of the California film industry.

Mack Sennett, an actor who had come with Griffith, started his Keystone Studios in Edendale in 1912. Keystone featured not only the Kops, but also “Fatty” Arbuckle, Charlie Chaplin and Gloria Swanson. Cecil B. DeMille started making pictures in Hollywood in 1913 with his partner Samuel Goldwyn.

A basic pattern for the film sector seems to be that theater owners moved into production. Adolph Zukor, Carl Laemmle and William Fox all started off in early five cent movie theaters called nickelodeons. Zukor would end up running Paramount, Laemmle would found Universal, and Fox’s studio would become 20th Century Fox. Zukor moved to Hollywood in 1912, Laemmle moved west in 1915, and Fox moved his Fort Lee, New

106Pitt, Leonard, and Dale Pitt. Los Angeles A to Z: an Encyclopedia of the City and County. Berkeley: University of California Press, 1997. Pg. 335. 107Ibid, 336. 166

Jersey, operation to California in 1918. The four Warner Brothers moved from owning a theater in New Castle, Pennsylvania, to film distribution, to opening their own studio on Sunset Boulevard in 1918.

The early push to vertical integration was partially driven by a desire to avoid paying the monopoly prices associated with Edison’s film trust. It is alleged that some of the early movers to California were motivated by a desire to avoid prosecution for violating patent laws. California had such climatic advantages that these early movers were joined by later studios, even after the courts ended Edison’s trust.

Marcus Loew, the greatest movie theater owners of them all, started buying movie studios during the First World War to vertically integrate his business. He bought Metro pictures in 1916, Goldwyn pictures in 1917, and Louis B. Mayer pictures in 1924.108 Metro-Goldwyn Mayer was the public name of the studio that Mayer run with Irving Thalberg, but its legal name was Loews, Inc. By this time, it was a given that any new studio would be centered in Hollywood as Mayer had himself earlier moved from being a theater owner in Haverhill, Massachusetts, to a movie producer.

Los Angeles’ continuing strength in entertainment today owes little to its sunshine-based productivity advantages. After all, outdoor shooting for big budget films is often filmed in locales far from California and there is no “Los Angeles” advantage to interior shots. Nevertheless the city retains its dominance which reflects in part the agglomeration economies associated with a large labor pool. In the film industry, a self-sustaining cycle emerged: aspiring actors flocked to Los Angeles hoping to be discovered and film producers stayed in Los Angeles because that was where the talent located.

While the stockyards were tied to Chicago because of rivers, rail, and proximity to farmland; the film industry reflects a more modern pattern. Firms located to take advantage of the supply of labor, and the rising importance of labor’s location meant that factors—like sunshine—that attracted workers were becoming more and more important.

108Ibid, 322. 167

If Chicago is the quintessential nineteenth century city, located in a place that had innate production advantages, then Los Angeles is the quintessential twentieth century city, located in a place where quality of life drew workers and firms followed.

The Consumer City

Los Angeles foreshadows the great rise of American consumer cities—cities that are built to make residents happy, not to make firms productive. Los Angeles was hardly the first place to be influenced by quality of life. Boston had, after all, been built for consumption, not production. Winthrop and his co-settlers were more focused on creating a godly community and thwarting the Jesuit menace, than on making profits. The failure of southern cities to grow in the nineteenth century certainly owes something to the disease and discomfort that characterized pre-modern tropical cities.

But changes in the American economy meant that urban location was going to be increasingly dominated by consumption rather than production. The Los Angeles model—a city sold on a lifestyle—would eclipse the Chicago model of a city built on a stockyard. Two factors led to this change. The first, which I have already discussed extensively, is that transportation costs were becoming low enough so that it became increasing feasible to have great cities 3,000 miles from the Atlantic. Rail and the Suez Canal lessened the production advantages of manufacturing in Chicago rather than Los Angeles. Eventually the rise of the Asian economies, which was still far in the future, would erode the geographical advantages of the Atlantic coast even further.

But the rise of the consumer city wasn’t just the result of declining transport costs; it was also the result of rising income levels. People on the edge of starvation won’t accept lower real wages to thrive in the California sunshine. As a wealthier class of Americans emerged in the late nineteenth century, California would attract those who were willing to trade off a little income for the splendid climate of southern California. Indeed, the past pages have been filled with examples of prosperous men—George and J. Paul Getty, Donald Douglas, Jack Northrop and D. W. Griffith—who all were attracted to Los 168

Angeles for lifestyle reasons. If they were starving immigrants, it is doubtful that they would have been willing to make the same decision.

Given Los Angeles’ current status as a diverse center with substantial population of Asians and Latinos, it is somewhat surprising to recall that the city of angels had fewer immigrants in 1910 than most other large American cities. Fogelson notes that in 1910, the percentage of Los Angeles population made up of foreign born whites was 19 percent. The comparable percentage in New York was 40 percent and Chicago was 36 percent.109 Other western cities built around production rather than consumption, like Seattle and San Francisco, had significantly more immigrants than Los Angeles. Indeed, since Mexicans were classified as foreign born whites during this period, it is somewhat amazing that despite its close proximity to the Mexican border, Los Angeles had such a low percentage of immigrants.

The reason, of course, that Los Angeles appealed so much more to natives than to immigrant was that immigrants were much less likely to be able to trade off high eastern wages for the benign western climate. Furthermore, Los Angeles early settlers came overwhelmingly from the prosperous Midwest. In 1910, 5,541 percent of native Angelenos who were not born in the Pacific region came from the Midwest while the poorer states of the south sent almost no one to Los Angeles.110 Similar to Eastern European immigrants, southerners were rarely in a position to trade productivity against quality of life. D. W. Griffith, with his New York fortune was the unusual southerner in L.A wealthy enough to make the trade-off while still supporting himself.

The rich black soil that had helped Chicago surpass Cincinnati as America’s pork capital, also helped make Los Angeles. Some of this influx of Midwesterners came as retirees. Fogelson described the community of retired Iowa farmers living in Long Beach.111 The rich black soil that had helped Chicago surpass Cincinnati as America’s pork capital, also helped make Los Angeles. Those Iowa farmers were some of the most prosperous

109Fogelson, Robert. The Fragmented Metropolis. Berkeley: University of California Press, 1967. Pg. 80. 110Ibid, 81. 111Ibid. 169

agrarians in the world, and given the cold of Iowa winters, it isn’t surprising that they decided to use their corn dollars to buy more sunshine.

While there is no question that Los Angeles’ consumption advantages made it a mecca for retirees, the city was not just a retirement village. In 1910, 17 percent of Los Angeles population was over 55, as opposed to 11 percent in Chicago or 14 in San Francisco. But 17 percent is still far from a dominating share; 55 percent of Los Angeles’ population was between 20 and 54.112 While there were plenty of retirees, especially for this early period, the more usual pattern was that Midwesterners would come to Los Angeles while still of working age and just find a way to thrive despite the distance from eastern markets.

Los Angeles’ consumption amenities particularly appealed to prosperous authors. While book production remained based near the older population centers, prosperous writers – whose finished manuscripts were easy enough to ship – preferred Los Angeles. In the early days of the twentieth century, L. Frank Baum came to L.A. from Chicago. Zane Grey had been a dentist in New York, and wrote his first westerns, like Riders of the Purple Sage, in Lackawaxen, Pennsylvania. After these successes, he moved to a mansion just north of Los Angeles. Edgar Rice Burroughs had worked selling pencil sharpeners in Chicago. In 1912, he wrote his first Tarzan movie. Seven years later, the success of the ape-man enabled Burroughs to move his family to Los Angeles, where he lived on his Tarzana ranch. Even a Socialist author, like Upton Sinclair, thought that moving to Los Angeles was a good way to spend the revenues from his muckraking.

California’s great consumer amenities were produced by nature, even if man needed to make them usable with aqueducts and rail line. The consumer amenities of the older cities are man-made: museums, restaurants, universities and architectural monuments. When Los Angeles was young, its quality of life edge over New York City appealed to a particular group of people, like Zane Grey and Burroughs, that valued climate over culture. Many other rich people, who could have moved to Los Angeles, preferred New

112Ibid, 83. 170

York, even after they had ceased to actively manage their firms. Andrew Carnegie, Jay Gould, J.P. Morgan, the Astors, and the Vanderbilts, all stayed firmly tied to New York, even if they had country estates away from the New York area.

Over the twentieth century, Los Angeles would develop other consumer amenities that would enable it to compete as a cultural center. Wealthy Angelenos built museums and universities and the city invested in a world-class orchestra. Its restaurant scene developed quickly due to wealth and the demand it created, and its increasingly ethnically diverse population created supply. While the boosters of New York or Boston will still maintain that the cultural superiority of their own cities to Los Angeles, these claims have much less substance than they once did.

Modern empirical work on local consumer amenities relies on a framework developed by William Alonso and Sherwin Rosen. The basic assumption of this framework is the usual economist’s assumption that there is no free lunch; when a city is cheap there is something wrong with it. Likewise, when a city is expensive, something good is going on there, otherwise people wouldn’t be willing to pay such high prices. Wages—labor productivity—are one thing that makes a city attractive, but if a city’s prices are high, controlling for wages, then the place must have something else going for it. Economists crudely group together these non-pecuniary advantages of living in a city and call them consumer amenities.

Using 1990 data on housing prices and income, I used this logic to create a city-level index of consumer amenities.113 This index essentially reflects the extent to which a city has especially high housing prices relative to its income level. Table 5-2 shows the metropolitan areas in the U.S. which have the highest and lowest amenities values according to this index. According to this index, Los Angeles has the fifth highest level of consumer amenities in the U.S. It is beat by three other California metropolitan areas

113Glaeser, Edward, Jed Kolko, and Albert Saiz. Consumer City. Cambridge: Harvard University, 2000. Pg. 36. 171 and Honolulu. Indeed, it is striking that nine of the ten cities with the highest amenity index values are in California.

By contrast, the ten cities with the lowest amenities are spread throughout the U.S. A number of these low amenity cities are located in the coldest areas of the country, like Anchorage, Alaska and Rochester, Minnesota. In these places, cold weather is the disamenity that causes housing prices to be so low relative to income. Other places, like Midland, Texas, are warm but with other disamenities that keep housing prices so low. Stamford is an oddity on the list; most people tend of think of it as being reasonably attractive. However, its housing prices historically have been quite low relative to its extraordinarily high income level, which suggests that at least something is unusual about the place.

Over the course of the twentieth century, high amenity places have attracted population much more steadily than low amenity places. Figure 5-1 shows the correlation between the amenity index and population growth between 1980 and 2000. As incomes have risen and transportation costs have fallen, cities like Los Angeles that offer a milder climate and a beautiful locale, have attracted more and more Americans. Los Angeles is only the largest of these consumer cities, most of the other attractive places have also grown significantly.

The Streetcar and the Automobile

One of Los Angeles’ key consumption advantages, at least initially, was its friendliness to the automobile. Older cities, like New York and Boston, were built around walking or public transportation. Almost no tourist to either city can drive there without complaining. Streets are narrow and in the oldest, often densest areas of the city, crooked. The water that encircles Manhattan and that surrounds Boston was a great boon in the days of water-borne transport, just like Venice’s canals were during its heyday. In the age of the automobile, these liquid barriers become moats that must be crossed with 172

massive infrastructure projects. Boston’s sixteen billion dollar Big Dig is only one example of how difficult it is for a seventeenth century city to retrofit itself for the car.

Twentieth century cities were developed in the age of the automobile. They are less likely to be disrupted by rivers and more likely to be laid out with generous streets, ideal for both driving and parking. They included vast freeways that could be built without tearing apart existing neighborhoods. The car makes it possible to live at much lower densities, but it also requires lower densities to be efficiently used. A pedestrian requires at most 25 square feet to be comfortable walking. A car needs 250 square feet of highway space to drive safely at slow speeds, and if the car is moving quickly, recommended distances can increase space needs to 500 feet or more. The need for space means that when dense areas convert to the automobile, congestion is unavoidable. Los Angeles, until the last 30 years, was built at densities low enough so that driving was comfortable.

The complementarity between low densities and automobiles meant that Angelenos found cars attractive as soon as Henry Ford made them affordable. In Los Angeles County, motor vehicle registration increased from 20,000 in 1910 to 100,000 in 1920 to 800,000 in 1930.114 As Figure 5-2 shows, per capita motor vehicle registration was soaring in the U.S., but L.A. county adapted to automobiles far more quickly then did the U.S. as a whole. The city’s lower densities made the transition to cars easier and the prosperous Midwesterners who have come to Los Angeles were able to afford Model T’s.

In time, the car would be seen as a great villain. By the 1970s, the Los Angeles basin created thermal inversion which made the city famous for its smog. New highway construction ultimately failed to keep up with increased car ownership and the freeways became more noted for frustration than for pleasant driving. In 2000, the average commute in Los Angeles was 29 minutes, four minutes above the national average,

114Fogelson, Robert. The Fragmented Metropolis. Berkeley: University of California Press, 1967. Pg. 92. 173

although still far less than the 40 minute commute in New York City.115 In the early days, though, there was neither pollution nor congestion, and the automobile seemed tailor-made for Southern California.

The main reason for the automobile’s success, both in Los Angeles and elsewhere, was, of course, speed. Today, the average commute by car in the U.S. is 23 minutes; the average commute by public transportation is 47 minutes.116 Figure 5-3 shows the strong relationship between commute times and the share of a city’s population that took public transportation in 2000. This doesn’t mean that cars dominate in every setting—it still makes sense to take a subway in Manhattan—but on average cars are much faster and large gaps in commute time have existed for as long as we have data.

The speed advantage of the automobile shouldn’t be surprising. The defining characteristic of public transportation is large vehicles carrying large numbers of people between defined stops. Inevitably, this means that people need to walk from their starting point to the stop, wait for the train or bus and then walk from the final stop to their final destination. The travel to-and-fro the stations and the waiting time create a fixed time cost involved in public transportation. Today, the average fixed time cost involved with public transportation is about 17 minutes.117 Since car commutes only average 23 minutes, this means that a public transit trip is almost as long as a car trip before the train or bus has moved a mile. Once the train or bus starts going on average it is still a bit slower than the car, but the big difference is in the fixed time cost.

These time differences mean that once people’s value of time is sufficiently high, they tend to prefer cars to other means of transport. Today, nearly nine out of ten Americans commute by automobile.118 A large share of those people using public transportation is in New York City. Outside of New York public transportation is overwhelming a mode

115Glaeser, Edward and Joshua Gottlieb. Urban Resurgence and the Consumer City. Cambridge: Harvard University, 2006. Pg. 35. 116Ibid, 10. 117Ibid. 118Glaeser, Edward and Matthew Kahn. Sprawl and Urban Growth. Cambride: Harvard University, 2003. Pg. 21. 174

of transportation used by the less well off, for whom cars remain an expensive luxury. None of this is meant to argue that cars are an unadulterated boon, but any discussion of the car should at least start with the recognition that cars are an impressive technology that saves billions of hours annually.

When Henry Ford was just getting his assembly lines moving, cars remained expensive for most Americans, but travelers in Los Angeles still wanted to take advantage of the car. The result was the jitney, a 1914 Los Angeles innovation that is still widespread throughout the developing world. The first jitney was a Model T driven by L. P Draper; he charged a nickel for a short journey.119 Jitneys soon became popular in many western cities, as small-scale entrepreneurs started picking up passengers in Model Ts. Jitneys typically picked up passengers as streetcar stops, so they didn’t avoid all of the time fixed time cost; their advantage lay mainly in their driving speeds which were 50 percent faster than streetcars.120 In the winter of 1914, Eckert and Hilton reported that there were about 3000 Jitney round trips daily in downtown Los Angeles.121

Streetcar operators immediately saw jitneys as a threat and responded accordingly. They used their political pull to put forward regulations and taxes that would make jitney operation economically infeasible. They gave holidays to their workers to let them carry voters to the polls to put these measures through. Los Angeles required jitney operators to post an $11,000 bond and to travel the whole distance of a rail line. Jitneys, which always operated on razor-thin margins, were no longer able to compete with rail. In the short run, this helped give streetcars a few more years. In the longer run, the end of the jitney just led to the dominance of the personal car.

The rise of the automobile in Los Angeles is tied to the demise of the Los Angeles streetcar. The Los Angeles Railway Company carried 255 million passengers in 1925. By 1933, this was down to 140 million. Even more disturbingly, by the 1930s, the Los Angeles Railway and the Pacific Electric Company were regularly losing money. During

119Eckert, Ross and George Hilton. “The Jitneys.” Journal of Law and Economics. 15.2 (1972): pg. 294. 120Ibid, 296. 121Ibid, 298. 175

this era the firms still covered their operating expenses, but because of the debt payments owed for building the rail infrastructure, they lost money. The last streetcar would run in Los Angeles in 1963. The city would from thenceforth depend on the car and the bus— Los Angeles today has the country’s second largest bus system.

There is a healthy debate about an alleged conspiracy where GM killed the streetcars. This conspiracy is perhaps most amusingly presented in “Who Killed Roger Rabbit?” where Christopher Lloyd’s deliciously vile villain uses a toon-destroying liquid called the dip and a pack of weasels to foist a freeway on Los Angeles. There is certainly some truth behind the conspiracy theories. General Motors does seem to have been interested in replacing streetcars with its own products, and occasionally may have even used less than competitive methods to maximize profits. After all, that is what businesses do. Streetcar operators were themselves renowned for their ability to bribe city councils to achieve their own local monopolies.

Still, the skullduggery of different transportation magnates shouldn’t lead us to the mistaken view that America would be a nation of streetcars without some malign interference. Cars are subsidized through highway construction, but even that subsidy is modest relative to private spending on automobiles. Total highway expenditures by all levels of government is 127 billion dollars, but about two-thirds of this amount is financed by user fees.122 The total net government subsidy per household is about 300 dollars or about five percent of total spending on cars. The share of public transportation’s costs that are covered by subsidies is far higher.123 Given that much of the subsidy can be associated with highways in remote areas, cars would surely have become ubiquitous even without the subsidy.

The U.S. could have followed the European example and taxed gasoline enormously. Across countries, higher gas taxes are associated with lower car usage and if taxes were sufficiently high, Americans might have stuck with streetcars. Of course, since the early

122Glaeser, Edward and Matthew Kahn. Sprawl and Urban Growth. Cambride: Harvard University, 2003. Pg. 29. 123Ibid. 176

Ford cars could also run on ethanol, presumably the government would have had to tax corn as well. This could certainly have deterred car usage, but again, the fact that government policies were relatively laissez-faire can’t be interpreted as saying that the government killed the streetcar.

Cars and buses replaced streetcars due to their technological superiority, not to conspiracy. Because time is valuable and the streetcars were the slower form of transportation, automobiles rendered streetcars uneconomical. The success of automobiles reflects the common desire for speed as well as, and the desire to live farther away from the workplace in the low densities that only cars could accommodate low- density suburbs.

From its beginning, Los Angeles was always less dense than many older cities, but the car ensured that its development would continue to be different. All previous technologies required one to walk from the streetcar stop to one’s final destination. This inevitably meant that neighborhoods had to remain fairly compact. By contrast, cars operate from point -to -point and, as a result, people could live on much larger lots. Indeed, the car led to the suburbanization of America. In Los Angeles, a city totally built around the car, densities are modest almost everywhere.

Low densities are particularly attractive in warmer climates where people want to spend a greater portion of their more time outdoors. A large lot is more highly valued in Los Angeles than in Chicago or Boston, because whereas Midwestern and Northeastern climates mean that it is mild enough for outdoor activity, it is pleasant to be outside year- round in southern California. A half-acre lot is therefore used much more frequently in California than in Massachusetts, and for this reason, the move to cars was particularly favorable to the sunbelt.

177

Controlling the Neighborhood: Palos Verdes and the Rise of California Zoning

The commitment to preserving certain living standards such as density and quality of life in Los Angeles made the city an early leader in land use planning, an effort that sought to restricted higher- density development. Since many Midwesterners had come to Los Angeles for its natural beauty, it should not be surprising that there was great demand to protect that beauty by restricting the landscape by moderating development. The experience of Chicago and most major eastern cities, as where streets first built for the wealthy rapidly became crowded by commercial and low-income residents or low income neighbors, taught the Angelenos that they could not trust the marketplace to preserve keep their neighborhoods static. After all, the hallmark of competitive land markets is the dynamic allocation of space to the party that is willing to pay the most for it. That process may mean that a tenement goes up right next to a millionaire’s mansion, which may understandably pique the millionaire just as it benefits provides benefits for the tenement dwellers. The great landscape architect Frederick Law Olmstead articulated this issue said in 1871: “Suppose I [meaning a man of means and refinement] come here [from the city to one of its suburbs’], what grounds of confidence can I have that I shall not by-and-by find a dram-shop on my right or a beer-garden on my left, or a factory chimney or warehouse cutting off this view of the water?” (Fogelson, 2005)

The nineteenth century person’s solution to Olmstead’s problem was just to buy a big enough estate so that one would not have to look at anything one could not directly control. The great nineteenth century entrepreneurs who had made their fortunes in cities built their country estates on a grand scale. Rockefeller’s Pocantico Hills had 6,000 acres just up the Hudson from New York. George Vanderbilt built his Biltmore Estates, and had Olmstead himself design the grounds, on 125,000 acres in North Carolina. Up the California Coast from Los Angeles, Hearst built his castle on a 250,000 acre ranch. Thus, the truly rich could control their environment without having to deal with zoning or restrictive covenants.

178

The 20th twentieth century saw the rise of a great movement that brought this power to similarly empowered middle- class homeowners by enabling them to control their environment. Throughout the course of the last century, people have tried not only to control not only their own lots but also the lots of their neighbors as well. Of course, it would be a mistake to think that land- use controls were unknown in the 19th nineteenth century. Novak (1996) details how the municipal regulations contradict belie that era’s reputation as a time of untrammeled laissez-faire. Fire regulations, for example, often significantly restricted the structural characteristics of homes. However, these nineteenth century regulations bear little resemblance to the comprehensive zoning codes and neighborhood associations that rose to prominence in the 20th century (Novak, 1996).

The fight to control the neighborhood can be divided into two different campaigns: one of which employed the tools of the state as the other relied on a private model. The statist approach to land use specified zoning ordinances, such as Los Angeles’ pioneering 1909 ordinance and New York’s 1916 height control system, both of which restricted building. These rules focused both focused on restricting density and on restricting use. The fixed separation of industrial, commercial and residential neighborhoods was a particular aim of early urban planners. Also implemented at this time, the second approach, which started contemporaneously, involved the development of planned communities, such as the Palos Verdes Estates, which placed development rights in the hands of community associations.

Although these two approaches reflected the same desires and appear to have achieved similar ends, but their economics of them are quite different. Community associations are designed by developers to maximize the value of their own land. They do not impinge on anyone’s right to develop, at least initially, even though owners buy in later knowing that their rights will be curtailed. Public zoning is more complex. At its best it forces development to take into account the cost that it imposes on its neighbors. Yet in all cases, it involves some sort of a taking, where owner’s rights to build are being restricted. The economist is predisposed to think that private land use controls are efficient, in the sense that as they maximize total property value, even if they are socially 179

exclusive. Frequently, in some settings, public controls are both exclusive and inefficient.

Fogelson (2005) presents the best chronicle of colorfully documents the rise of private land use restrictions in the U.S. In the 1850s, courts had firmly established the legality of restrictive covenants that limited a buyer’s ability to use a piece of property. The landmark case of Brouwer v. Jones in 1856 “upheld a trial court’s decision to enjoin the defendant, who had bought two lots in a Greenwich Village subdivision that prohibited dangerous, noxious or offensive trades, from operating a sawmill that spewed smoke, dust and soot on the adjoining lots” (Fogelson, 2005, p. 49).

The ability to restrict uses became particularly appealing as developers tried were trying to induce a growing middle class to move to the suburbs in the late 19th nineteenth century. The earliest suburbanites took longer commute times for in exchange for improvements in quality of life. Such people were generally well-off, since commuting was expensive. The trade of time for amenities was only attractive if those amenities could be guaranteed, and as a result, suburban developers imposed scores of restrictions on their properties. Many of these restrictions limited obvious nuisances, like manufacturing and hogs, but gradually the restrictions became more and more complex.

A particularly infamous form of restriction concerned the race or religion of potential buyers. Subdividers happily appealed to the prejudices of their purchasers and imposed restrictions against sales to blacks, Jews and, particularly in California, Asians. In 1948, the Supreme Court ruled in Shelley v. Kraemer that enforcing restrictive covenants on the basis of race violated the 14th amendment. Although this ended the age of race-based restrictive covenants, but more generally restrictive, many restrictive covenants and rules enforced by community associations are alive and well today. Millions of Americans seem to want to live in a community where they can surrender control over their own property in exchange for their neighbors simultaneously surrendering their control and be certain that their neighbors have surrendered theirs. (Shelley v. Kraemer, 1948).

180

California developed these planned communities on a grand scale. In 1913, Frank Vanderlip led a group of investors in buying the 16,000 acre Palos Verdes Peninsula. He hired Olmsted Brothers, the renowned East-Coast architectural firm,d’s son to plan the community. The development took a decade to open, and when it finally did, it had a stunning array of restrictive covenants. Fogelson (2005) describes the community’s various restrictions on race (no sales to anyone “not of the white or Caucasian race,”), nuisances such as “sanitariums, and cemeteries, and saloons,” and aesthetics. The suburb had its own Art Jury that was required needed to approve all new construction (Fogelson, 2005).

Bel-Air may be an even more famous restricted community within Los Angeles. It was also founded in 1923, by oil magnate and Los Angeles developer Alphonzo Bell, who developed communities throughout Los Angeles. The Bel-Air Association today remains an active force in maintaining control over the area and regulating, especially any new construction and or remodeling. The Association’s website states: “Before construction is started, if there are currently Deed Restrictions on your property you must secure written approval from the Bel-Air Association’s Architectural Review Committee which is charged with the responsibility of determining that plans for construction conform to your deed restrictions” (Bel-Air Association). One result of the increasing importance of aesthetics in California urban life was the increasing power given to review boards.

The other product was the increasing use of municipal restrictions to limit new development. In 1909, Los Angeles imposed its first city-wide zoning ordinance, dividing the city into seven industrial districts plus one residential district. The barring of industrial nuisances from residential areas was the first widespread implementation of land-use power. Gradually, new forms of state control were adopted. Minimum lot sizes, for example, became more common after World War I. Over time, a large set of controls would come to restrict property development of various forms. The great reason to use governmental land- use restrictions, rather than private covenants, is of course that the latter covenants are hard to impose on people unilaterally. I will return to this issue in 181

Chapter Seven, when I focus on the growth of Santa Clara County, and California more generally, since 1970.

The Rise of the Sunbelt outside Los Angeles

Los Angeles is the paradigmatic consumer city built around the automobile. Apart from its great distance from major East Coast cities, which became increasingly irrelevant as transport costs plummeted and as population people moved in large numbers to the West Coast, it became the perfect spot for a 20th twentieth-century city. Its newness meant that its infrastructure could be designed around the automobile. Constant construction kept housing prices low, which meant that firms could come to Los Angeles and hire at relatively modest wages. Workers were attracted to the region despite modest real wages, because of the region’s area’s remarkable consumer amenities.

But while, Los Angeles is the just one extreme case, many other sunbelt cities thrived over the course of during the 20th twentieth century. Miami, Atlanta, Houston, Phoenix, Las Vegas and San Diego stand today as great metropolises built around sunshine and the automobile. Figure 5-4 shows the correlation between population growth between 1930 and 2000 and the average January temperature in the city. The strength of this correlation is strikingly strong, as it illustrates the power of climate in an era where proximity to the Great Lakes isn’t highly valued.

There are differences among the sunbelt cities, however, some of which I will return to in Chapter 7. California is, in fact, relatively unique in having both a mild winter and a mild summer. As such, its rise only needed transportation technology that made it accessible to the East Coast. Moreover, because many sunbelt cities become uncomfortably hot in the summer without air conditioning, the rise of the non-coastal sunbelt cities as consumer cities therefore depended on cheap air conditioning as well.

The Texas cities grew somewhat before air conditioning, but they were based on production, not consumption. For example, Houston was the 14th largest city in the U.S. 182 with almost 600,000 inhabitants as early as 1950 because of the petroleum industry. In 1960, there were three Texas cities—Houston, Dallas and San Antonio—ranked among the 20 largest American metropolises (U.S. Census, 1960). But then, as now, Texas had high real wages, suggesting that its growth was built on economic productivity, mostly associated with petroleum, not on a comfortable lifestyle.

The great technology change that had the greatest impact on living standards in the sunbelt was air conditioning. This breakthrough began at the start of the 20th twentieth century. In 1906, Willis Haviland Carrier patented his “Apparatus for Treating Air,” which was a device originally valued more for dehumidification than for cooling. In 1921, Carrier created the “centrifugal refrigerator chiller,” which made it possible to cool large areas. Large department stores and movie theaters were among the first users of this remarkable technology. The Senate was first air conditioned in 1929 (Ingels 1952).

Air conditioning was particularly important to the rise of southern manufacturing. Manufacturing plants use a great deal of energy and therefore produce a great deal of heat. As a result, manufacturing in Southern summers before the advent of air conditioning was deterred not only by a lack of convenient waterways, but also by high temperatures the awful heat. Large- scale air conditioning made it possible to open steel and automotive plants south of the Mason-Dixon Line. It also made Benjamin “Bugsy” Siegel’s casino in Las Vegas, the Flamingo, a pleasant place to lose money year round.

Residential air conditioning, though, was even more important for the growth of the old south and the desert cities of Las Vegas and Phoenix. Carrier patented a residential air conditioner in 1928, but the depression and the war that followed decreased people’s willingness to pay for creature comforts. Mass production of residential air conditioners really took off after the Second World War. Inexpensive window units first went on sale in 1951, and between 1960 and 1980, air conditioning really only became practically ubiquitous in the region between 1960 and 1980. During those years, the share of southern homes with air conditioning increased from 18 to 73 percent. Suddenly living 183 in the south was no longer horribly unpleasant for three months out of the year (Aresenault, 1984).

Although air conditioning and cheap transport were enough to spark the only things that were needed for the growth of the desert cities, but two other changes were necessary for urban growth in the old south to occur. First, in the 19th nineteenth century, southern cities were still mired in disease. Their water-infrastructure lagged behind that of the northern cities due to their insufficient funding and backward-looking political culture. Moreover, southern heat made the health costs of bad water even greater than in the northern cities. Southern cities also continued to face challenges such as hookworm and malaria. These diseases were only, which were gradually eradicated due to massive public health efforts. Some of these efforts were privately funded, such as those initiated by the Rockefeller Sanitary Commission to combat, which took on hookworm. On the other hand, the eradication of malaria, which was even more important, was primarily a triumph of public health.

The second obstacle to southern growth was its pre-Civil Rights era political structure. The one-party states and Jim Crow governments were often corrupt and rarely open to outsiders. Northern investors faced an uncertain legal environment, in which where extra-legal violence was often used to achieve political ends. As I will discuss later when I turn to Atlanta, political reform was also enormously important in the rise of the sunbelt.

America’s urban evolution is not just made up of winners, as the rise of the sunbelt was accompanied by the equally dramatic decline of the an older, colder less temperate industrial heartland. In the following section, I will turn to the consequences of the sunbelt’s rise on the cities of the North.

184

Chapter 6: Detroit, 1950-1975

The third quarter of the 20th century saw the great triumph of sun and sprawl over dense, cold cities. Table 6-1 shows the populations of the ten largest cities in the country in 1950 and the ten largest cities in 1980. In 1950, there was only one sunbelt city in the top ten: Los Angeles. In 1990, one half of the ten largest cities were in the sunbelt. Moreover, every one of the country’s ten largest cities other than Los Angeles lost at least one-tenth of its population between 1950 and 1980. Detroit, Cleveland and Boston lost about 30 percent of their population over those three decades, and St. Louis lost 45 percent of its population over those years.

These big cities, which were built at pre-car densities in cold places, got hit both by the move to warmer cities and the rise of the automobile. Figure 6-1 shows the relationship among the fifty largest cities in 1950 between population growth between 1950 and 1980 and median January temperature in the city. Figure 6-2 shows the relationship between population density and population growth over the same period. Sun and sprawl drove growth. Generally, rustbelt suburbs, which suffered from the cold but were at least built around the car, increased in population, although not as much as the suburbs in the sunbelt. But colder central cities got particularly hammered by both trends.

While cities like 19th century New York and Chicago and 20th century Los Angeles can grow spectacularly—doubling in population over a decade—urban decline is a slower process. Rarely do declining cities lose more than one-tenth of their population over the course of a decade. The critical force mediating decline is the durability of housing and other infrastructure. Homes are extremely valuable assets and it takes a lot to leave them empty. But as long as houses are occupied, people remain in a place. Only slowly, with the gradual depreciation of housing, do people desert their homes.

This fact helps us to understand the strong connection between urban decline and increases in poverty and social distress. When declining transportation costs eliminated much of the productive advantages associated with access to rivers and the great lakes, 185

Midwestern cities lost their productive edge. New firms were more likely to start up in the sunbelt, and more skilled Midwesterners moved to the booming, warmer cities. But the houses remained, and less skilled people saw the appeal of increasingly cheap housing. Over time, once vibrant central cities became centers of poverty. This process was compounded because older homes depreciate in value, making them less appealing to the well-to-do.

This process—where declining productivity caused the rich to leave, but the poor to remain because of cheap housing—compounded the process of urban decline. Great concentrations of poverty cause depreciation in quality of life. Safety and schools degenerate further, pushing out the wealthy. A vicious circle where decline causes poverty and poverty causes decline created urban distress throughout the rustbelt. The flip side of the success of Los Angeles is the collapse of once-great cities like St. Louis and Cleveland.

While there are other places, like Flint and East St. Louis, that are poorer than Detroit, no city combines a more spectacular rise and more distressing decline than America’s Motor City. That metropolis is hardly unique, but it is a particularly striking and tragic example of the costs associated with urban change. . Detroit’s Rise

Like Chicago, Detroit has a tremendous location in the age of water transport. It lies along the Detroit River that links Lake St. Clair and Lake Erie, a critical link along the Great Lakes system. The city was founded by French Fur Trappers in 1701 and was taken by the English in 1760 during the Seven Years War. The English held the city throughout the American Revolution, and Detroit only passed to American control in 1796 when Jay’s treaty was signed. Its geographic prominence made it the capital of Michigan between 1805 and 1847.

186

Until the opening of the Erie Canal, Detroit remained a small frontier outpost. By 1830, Detroit had only 2,222 residents.124 But just as the canal made Chicago, it made Detroit. The city grew spectacularly after 1830 as a transportation hub along the waterways that linked the east coast to the west. Its population rose to 9,100 in 1840, 21,000 in 1850, 46,000 in 1860, 80,000 in 1870, 116,000 in 1880 and 206,000 in 1890. The city was growing steadily, all before Henry Ford set foot in the town.

During this early period, the city was primarily a center of commerce and trade of raw goods. Coal, iron ore, lumber and grain were the most important commodities being shipped through the river. In 1907, three times as much tonnage passed through the Detroit River as did through the ports of either New York or London. Just as in the case of Chicago, the train network soon supplemented the river network.

Also as in the case of Chicago, manufacturing moved to the city to take advantage of its transportation-cost related advantages. Cigars were a major industry in 19th century Detroit where immigrants rolled Cuban tobacco to supply the Midwest. The lumber industry thrived in Detroit making use of the great forests of Michigan. In 1890, there were more than 2,000 workers in Detroit specializing in lumber, which was more than five percent of the total manufacturing labor force. (US Census Statistics in Cities: Report on Manufacturing Industries in the United States 1890.) Abundant lumber and water access to both the east and the west also made Michigan a natural center of the carriage industry. At its height, Michigan had 125 carriage companies employing 7,000 workers. At the dawn of the automotive era in 1890, Detroit had 33 carriage-making establishments. (Ibid.)

The vast flow of waterborne trade passing through the city made it a natural place to supply and fix transport equipment, and Detroit established an early trade in machine engines. Detroit’s two largest manufacturing industries in 1890 were “foundry and machine shop products” and “steam railroad cars.” The combination of engines and carriages would be the basis for Detroit’s greatest industry. Detroit became a one

124 factfinder.census.gov/home/saff/main.htmil?-lang=en 187 industry town in a way that was far more extreme than any other major American metropolis. Already in 1910, almost a fifth of Detroit’s manufacturing jobs were in automobile manufacturing. By 1930, 110,000 wage-earners in Detroit and Grand Rapids, representing one half of total industrial workers, were in automobiles.

The two founders of America’s largest automobile companies came from those two distinct trades. Henry Ford, a native of what is today Dearborn, Michigan, was an engineer who had worked on steam engines and even run a sawmill. Billy Durant of Flint, Michigan made his first fortune selling two-wheeled horse-drawn road carts. Durant was a network builder who connected a large number of small automotive entrepreneurs within the umbrella of General Motors. Henry Ford was much more of a lone innovator, albeit one whose innovations built on the knowledge circulating in the Detroit region.

Henry Ford was born on a farm in Dearborn Springwells Township (a town later incorporated in the city of Dearborn) in 1863 and arrived in Detroit in 1879 where he apprenticed as a machinist first to fire hydrant innovator James F. Flower & Brothers and then to the Detroit Dry Dock Company. The Dry Dock Company was founded by a Great Lakes ship Captain, named Kirby, who sent his son east to get formal training at the Cooper Institute (founded by train innovator Peter Cooper) and hands on experience at the Brooklyn ship yards. The younger Kirby brought his human capital back west and along with his father built some of the biggest ships catering to the Great Lakes trade. Larger ships needed larger engines, and Ford was learning from one of the leaders in engine technology. Thomas Edison, an even more remarkable inventor, had also apprenticed with Detroit Dry Dock.

Ford returned to his father’s farm in 1882, but even in this more rural setting he gravitated towards engineering. Steam engines were increasingly being used on farms; through hands-on experience, Ford became an expert in the use and repair of Westinghouse engines. He soon became an employee of Westinghouse, but then moved over to work as an engineer for the Edison Illuminating Company. He became their chief 188

engineer. Given the importance of advanced education in the 21st century, it seems somewhat remarkable that Ford, with almost no formal schooling, had become a top engineer at one of the world’s more technologically advanced companies in his early 30s. His skills came from experience and the nexus of knowledge in the greater Detroit area. He interacted with smart people and developed a great mastery of late 19th century engines. (Douglas Brinkley. Wheels of the World: Henry Ford, His Company, and a Century of Progress. London: Penguin Books, 2003.)

By the mid-1890s, automobiles had been around for about 110 years. Nicholas Cugnot had invented a steam power tractor in 1769. In the 1830s, Robert Anderson, a Scot, started building electric cars. Through the 1890s, both steam and electric cars still seemed to have some potential to replace the horse-drawn carriage. New York City had electric taxis in 1897, and Massachusetts was developing a steam car industry.

But the internal combustion engine proved to be far more powerful and practical than its competitors. Internal combustion engines, running on gas, were used to power vehicles in the early 1860s, but it was Gottlieb Daimler in 1885 who built the first practical internal combustion engine. In the next year, Karl Benz would patent a gas-fueled car. In 1891, Benz built his first four wheeled car.

Ford’s interests in engines naturally brought him to this new technology. A friend of Ford’s, Charles King, had built Detroit’s first car and Ford watched its test drive in 1896. In that year, working in his basement, Ford developed his first car: the quadricycle. Thomas Edison himself was impressed and in 1899, with backing from his employer, Ford started production. (Brinkley, 23). Ford’s first company failed, allegedly because Ford was more interested in developing new technology than in selling cars. Ford founded and then left a second company in 1900, but it was Ford’s third venture, founded in 1903, that would change the world.

Ford had decided that he wanted to affect this change by mass producing an affordable car. This wasn’t exactly a new idea. Ransom Olds started the first automobile assembly 189

line in Detroit in 1901. Ford borrowed his physically-proximate competitor’s idea and improved upon it enormously. Ford’s 1908 Model T was an innovative, simple car whose simplicity allowed it to take full advantage of assembly line production. While Ford didn’t invent the assembly line, he did understand the advantage of catering car design to the new production technology.

In the years before 1908, Ford turned his remarkable talents to designing a truly cutting edge automobile. In the years after 1908, Ford’s genius turned to making production more seamless and efficient. Ford’s Model T was initially priced at 950 dollars. It was produced for another 19 years and its price eventually dropped to 260 dollars. Ford would eventually sell a total 15.5 million Model T’s in the U.S. making automobile usage both affordable and widespread (Brinkley, 111, 150-155.) The Model T would change the city and eventually the country and serve as the model for all mass-produced cars.

Ford’s contributions to car manufacturing were not limited to engineering. He also created great savings for car manufacturers by breaking George Selden’s patent. Selden has patented a road engine in 1895 and, despite the fact that Selden never made a single car, he was entitled to royalties from every American car manufacturer. Ford fought Selden in court. A judge even ordered a car built to Selden’s specifications: It wouldn’t run, and in 1911, Selden’s patent was overturned. Ford also innovated as an employer, paying his workers five dollars a day. He claimed that one reason for these high wages was that he wanted his workers to be able to afford Model Ts.

Ford’s fervor for increasingly cheap Model Ts would eventually lead to his company’s dominance over General Motors, which under Alfred Sloan’s leadership offered “a car for every purse and purpose.” GM was founded in 1908—the year of the Model T—by William Crapo Durant. Durant was the grandson of lumber magnate and Michigan Governor Henry Crapo. He came to cars from the carriage industry, where he made his first fortune. In 1904, he took over as general manager of young car company called Buick.

190

David Dunbar Buick had begun building his innovative cars in Flint in 1903. Buick had invented the overhead valve engine, but he was a better inventor than businessman and Durant was brought in from the carriage business to bring his sales acumen to the struggling company. Buick thrived under Durant’s leadership and became the largest car company of its day. General Motors was originally a holding company for just Buick, but Durant quickly acquired Oldsmobile, Cadillac, Elmore and Oakland.

Oldsmobile was of course Ransom E. Olds’ firm that had pioneered the assembly line in Detroit. Cadillac was the latest incarnation of Ford’s abortive 1901 motor company and Elmore was a car producer in Pontiac Michigan. Only Oakland Motors, based in Ohio, came from outside the Detroit area. General Motors, in short, assembled a number of small, mainly Michigan producers under a single umbrella with the hope of exploiting scale economies. Durant’s buying spree left him overextended and he was forced to leave GM in 1910 (Brinkley, 241)

In 1911, Durant re-entered the car business with Louis Chevrolet, a Swiss race car driver. Chevrolet built a five passenger touring sedan that proved sufficiently popular that Durant was able to buy a majority of shares in General Motors. He regained control of GM in 1916 and Chevrolet became part of GM in 1918. Durant’s return was short lived however (Brinkley, 297). He lost control of the company for good to Pierre S. DuPont in 1920, who installed Alfred Sloan as president in 1922. Durant maintained a lively business career afterwards building cars with his Durant Motors and making and losing fortunes on Wall Street.

General Motors didn’t just envelop a network of Detroit automobile entrepreneurs, it also spun off some of them as well. Charles Nash, GM’s president from 1912 to 1916, started Nash motors when he was pushed out by Durant. Walter Chrysler worked at Buick from 1911 to 1919 when he left first to run Willys-Overland in Ohio and then to start his own Chrysler Corporation. Just as Los Angeles aviation was built by a network of connected entrepreneurs, Detroit’s automobile industry was also the output of a network of automotive innovators. 191

Henry Ford’s assembly line was the defining feature of all these mass production automobiles, and the key to the assembly line was scale. By splitting work up among more and more workers, Ford was able to duplicate on a vast scale the economies of specialization discussed by Adam Smith in his famous analysis of the pin factory. To further reduce costs, Ford and then GM built increasingly large plants. Ford built his River Rouge plant in 1928. The Rouge plant was 1.5 square miles with 16 million square feet of factory space. At its height, it employed more than 100,000 people. It contained 100 miles of interior rail lines, its own docks, its own electricity plant and its own ore processing (Brinkley, 282-293). The low prices of Ford cars came from the massive economies created by this vast edifice.

Large scale economies made Detroit. At this central location, with ready access to water and rail, it was possible to produce and ship millions of cars throughout the U.S. These scale economies ensured that a great city would rise wherever the automobile manufacturers decided to locate. The legacy of carriages and engines and the luck of having a network of innovators meant that Detroit was that city. Of course, Detroit’s central location also made it a quite sensible place to manufacture cars, since it had been a sensible place to make engines and carriages.

Throughout the middle years of the twentieth century, Detroit prospered. World War II was a boon to the industry, just as it had been a boon to aviation. Through the 1960s, automobiles continued to thrive. But paradoxically, just as Detroit’s rise was built on the automobile, the car would also be its undoing, as cars enabled workers to flee the central city and live in the suburbs.

Suburbanization

The story of Detroit’s decline is really two separate stories. The first is about suburbanization and the flight, particularly of well-to-do whites, from the central city. This process occurred throughout the twentieth century. After all, Detroit’s maturity was 192

driven by the car and that same car enabled suburbanization. Suburbanization always results in population losses, but for the city the worst aspect was that it was the poor who were left behind. This process occurred almost everywhere, even in booming Los Angeles, where suburbanization left behind large areas of poverty in the older downtown.

Unfortunately Detroit also got hit by a second shock, one that impacted almost all rustbelt cities but almost none of the growing areas of the sunbelt. The economic vitality of the region declined as foreign competitors bested Detroit with lower prices and higher quality. Automobile manufacturing first left the city, and then left the metropolitan area, heading not only south to cheaper states, but also across the ocean. It was the combination of the long, car-based process of suburbanization and the decline of Midwestern manufacturing that came together to make conditions in inner city Detroit so tragic.

This second shock didn’t really take effect until 1970. In the 1960s, incomes in the Detroit metropolitan area went up by almost 40 percent. The population of Wayne County stayed steady, even as its central city Detroit’s population continued to decline. Only in the 1970s did Wayne County start losing population and the Detroit area’s income start to fall. The suburbanization of Detroit started, however, long before that, at the dawn of the Car Age.

The earliest car manufacturing took place in the city of Detroit. Ransom Olds started in Lansing, but he moved his plant on the corner of Jefferson and Concord in the heart of downtown Detroit in 1900 (Zunz, 1982). Henry Ford’s early plants were on Mack Avenue and then Piquette Avenue, also downtown. In the early days, a central urban location was valuable because the early manufacturers bought parts from machine shops and other suppliers that were located in the central city. Cadillac’s Detroit location made sense because it bought its bodies from the Fisher Brothers, which was also located in Detroit. It made sense for all of the shops to cluster in order to save the costs of moving the heavy inputs that went into automobiles.

193

As automobile companies became vertically integrated, they also became self-contained. They needed plenty of space but they didn’t need to be downtown. Ford moved his production facility first to Highland Park in 1910. It was in Highland Park, a separate town now fully surrounded by Detroit, that the assembly line would become fully operational in 1913. Seven years later, Ford opened the massive River Rouge facility in Dearborn, a distinctly suburban location, but one that was easily accessible to urban workers.

The General Motors story is somewhat different. The different companies that came together to make General Motors were already spread throughout Michigan. Cadillac was in Detroit, but Buick had moved from Detroit to Flint to be close to Durant’s carriage works in 1903. Oldsmobile would continue to have a plant in Lansing, where Ransom Olds first started out. Pontiac, formerly Overland Motors, was unsurprisingly produced in Pontiac. Since General Motors’ key selling point was the diversity of its products, it never had the same impetus as Ford to centralize production. It kept some of its production downtown but as its output grew, the bulk of its cars were made outside the central city.

Detroit was, however, the site of General Motors’ corporate headquarters. Even if manufacturing could be dispersed, the brainpower at the top of the company needed to be in one place at the center of the empire. Moreover, since the headquarters didn’t require much space—at least relative to a Chevy factory—it made sense for it to remain in the higher cost, central location where it could access business services and more easily connect with visitors. Even as production decentralized, the comparative advantage of the city in helping the flow of ideas kept the GM downtown. Interestingly, GM and Chrysler found a connection to urban density and to the rest of corporate America so important that they both built large towers in Manhattan.

The story of suburbanization in Detroit is therefore the opposite of that in most of America, where people suburbanized first and then firms followed. In Detroit, it was the large auto manufacturers that left once as soon as their plants didn’t need require close 194

proximity to the small shops downtown. It would then be the workers that followed. Rising incomes, cheaper car prices and an increasingly suburbanized employment all pushed pulled them away from the central city.

When Ford’s Highland Park plant opened in 1910, workers would have still wanted to live in a dense area. They couldn’t yet afford cars themselves and urban density made it possible for their families to get around by foot. With the five dollar day and decreasing car prices, it became increasingly possible for the automobile workers to switch to a car- based lifestyle at lower density regions. The area around Detroit grew rapidly as automobile workers took advantage of the cars that they were producing so quickly.125

Moreover, like Los Angeles, Detroit was also a new city that didn’t have a lot of pre- existing barriers to the car. Also, Detroit’s relative youth meant that it didn’t have the consumer amenities that held some New Yorkers to the city of Manhattan. Even more than in Los Angeles, car manufacturers were politically dominant, and the state government quickly provided infrastructure to facilitate car use. Abundant highways made driving easy. Today, the median commute time in Wayne County remains a reasonably speedy 25.8 minutes.126

Detroit’s population peaked in 1950 at 1.85 million residents. In the 1940s, there were still plenty of Detroit workers who weren’t earning enough to afford a car-based lifestyle. By the 1950s, increases in productivity and stronger unions meant that almost all of the steady workers at the Big Three could afford at least one car. Detroit’s decline started then, as the ever more prosperous automobile workers embraced car-based living in the city’s suburbs. In the next 20 years, Wayne County and the region would continue to grow, but the city of Detroit lost more than 9 percent of its population in both the 1950s and the 1960s.127 The cars that Detroit produced were eating away at their urban parent.

125 Ford Company History. www.ford.com 126 127 See Table “Detroit Population 1900-2000.” http://www.census.gov/population/www/documentation/twps0027.html 195

Cars are, of course, expensive both to buy and operate. Even with Henry Ford’s assembly line, car-based living wasn’t really for every purse. While the more prosperous auto workers suburbanized, the poorer ones remained. The city also housed those area residents who weren’t highly paid members of the United Auto Workers and who appreciated the ability to survive without multiple automobiles. The older housing stock of the city was cheap, and this also appealed to the poor. As in almost every American city, as the prosperous wealthy suburbanized, the poorer residents of the city remained at the center.

This process was compounded by two other forces. First, as I will discuss in the next section, many of Detroit’s poorest citizens were African-Americans and in the 1950s, even after restrictive covenants were eliminated by Shelly v. Kramer, many suburbs remained quite hostile to people of color. Second, concentration of poverty can be self- fulfilling if the rich particularly dislike living around the poor. Once a center of poverty starts to form, the well-to-do shun the area, and a downward spiral commences where poverty begets poverty.

The mechanism of this second process is related to the tipping point phenomenon first articulated by Thomas Schelling. This is an example of where agglomeration economies start to fail. A community that was bound together by people who want to live near one another starts to collapse as those people start leaving. The benefits from agglomerating in the area start falling with the exodus and finally everyone wants to leave, at least until prices fall.

Schelling discussed race-based tipping points, but this process can occur with any poorer phenomenon as well. Once a neighborhood is disproportionately poor, it often acquires a number of characteristics that accompany poverty, including crime, weaker schools and a loss of prestige. The well-to-do are willing to pay more to avoid these areas and they then proceed to flee these areas that have become poor. The poor don’t particularly like living in poor neighborhoods either, but because they have less money, they are less willing to pay to move elsewhere. In this way, a poor neighborhood may stay poor 196 despite an attractive location, and because richer workers suburbanize, an initial push towards poverty can snowball until a city becomes a vast center for the poor.

The Rise of the African-American Community

Today, African-Americans are a significant presence in almost all of the older American cities of the Northeast and Midwest. In five of the ten largest cities in the U.S. as of 1950—Baltimore, Cleveland, Detroit, St. Louis and Washington, D.C.—African- Americans today represent a majority. Chicago, New York and Philadelphia do not have an African-American majority, but neither do they have a majority of whites. Boston and Los Angeles are the only two of those top ten cities that are majority white. But Detroit stands out among these older cities because it has so few whites. Less than one in eight of the city’s population is white and eighty-two percent of the city is African-American. Its racial composition is not unique but it is extreme. 128

The rise of African-American Detroit is a recent phenomenon. As late as 1940, Detroit was less than ten percent black. As Figure 6-3 shows, the African-American share of the population has increased steadily. In the middle years of the 20th century, this increase reflected primarily the growing numbers of African-Americans in Detroit. In the last decades, the increasing share of African-Americans reflects a white exodus. In the 1990s, the number of both blacks and whites in the city declined.129

Detroit has an old black population. In its earliest days, its proximity to Canada made it a stop on the underground railroad and a free black population made up about 3 percent of the city’s population on the eve of the Civil War. Between 1870 and 1910, the city’s African-American population grew from 2,235 to 5,741, but this modest growth was far less than that of the city as a whole. As a result, the share of Detroit that was black actually declined over this forty year period from 2.8 percent to 1.2 percent. Certainly, before World War I, like most northern cities, Detroit was an extremely white town.

128 See Table 6-2 129 See Table “Detroit Population by Race”. http://factfinder.census.gov/home/saff/main.html?_lang=en

197

Northern cities were not particularly friendly to African-American migrants. The Chicago Race Riots were hardly unique to that city. Moreover, the steady flood of immigrants kept wages low. Detroit may have been white, but it was also quite diverse. Like Chicago and New York, but unlike Los Angeles, Detroit was a magnet for the immigrants flowing into the U.S. between 1890 and 1910. Zunz (1982) beautifully describes the rich tapestry of ethnic communities in Detroit before the First World War. Detroit had far more Irish and Germans than it had Blacks.

Between 1910 and 1920, the Black population of Detroit increased seven-fold from less than 6,000 to more than 40,000. While African-Americans worked in many different occupations, Henry Ford was their dominant employer. Maloney and Whatley (1995) reported that Ford employed almost 9,000 African-American men in 1922. As there were only 19,000 employed African-American males in total, about one in two African- American men in the city worked for Henry Ford.

Throughout the pre-World War II era, Ford continued to employ the lion’s share of African-American males. While other car manufacturers kept segregated factories, Ford almost doubled his employment of Blacks to 17,653 in 1940. When his competitors kept lily-white shop floors, one in five of Ford’s workers was Black. Given Ford’s reputation for anti-Semitic prejudice, his openness to Black employees was indeed remarkable and far ahead of his time.130

No one quite knows why Ford did it. One explanation given is that employing African- Americans appealed to his healthy sense of paternalism. To an economist, it is more congenial to believe that Ford hired Blacks because it was profitable. In principle, racial discrimination in the labor force always enables non-discriminating employers to profit by hiring minorities cheaply. Ford actually paid his Black workers quite well, but he did disproportionately give them the toughest jobs and, since no one else was hiring, he could

130 Maloney, T.N., Whatley, W.C.. “Making the Effort: The Contours of Racial Discrimination in Detroit’s Labor Markets, 1920-1940.” The Journal of Economic History, Vol. 55, No. 3, 465-493, Sep., 1995.

198

cherry-pick the most capable workers and use them for particularly tough jobs, like working in the grueling foundry.

Of course, if the hiring of Blacks were extremely profitable, then we still need to understand why Ford did it and Sloan didn’t hire them over at GM before World War II. Certainly, Sloan doesn’t appear to have been any more racist than Ford. One plausible explanation is that discrimination was partially kept in place by social sanctions against whites who violated the unwritten color rules. An employer who hired blacks might have been looked at strangely in the country club or perhaps faced hostility from his white workers. Sloan was a social creature connected with mainstream culture. Indeed, it was this connection with mainstream American society that helped him understand how to market GM. Ford was, and knew that he was, an American icon. Throughout his life, he showed himself willing to do things that offended vast numbers of Americans. Perhaps then it isn’t a surprise that Henry Ford, the publisher of the notoriously anti-Semitic Dearborn Independent, was also a pioneering employer of blacks. Both actions showed a remarkable imperviousness to prevailing social norms.

While the Black population of Detroit had increased by 30,000 in the 1930s, between 1940 and 1970 the Black population increased by 150,000 each decade.131 Across three decades, the Black share of Detroit’s population rose from less than ten percent to 44 percent. The first event that sped up the influx of Blacks into Detroit was the war. World War II had three important effects on Black employment in the Motor City. First, a large number of auto workers joined the Armed Forces, which created a negative shock to labor supply. Second, Detroit switched production to the supply of military material and became the central “Arsenal of Democracy.” This increased labor demand.

Third, fighting a war against a regime defined by its hatred of minorities gave discrimination a bad name within the U.S. When the great African-American union leader A. Philip Randolph threatened a march on Washington, Franklin Roosevelt

131 See Table “Detroit Population by Race”. http://factfinder.census.gov/home/saff/main.html?_lang=en

199 established The Fair Employment Practices Committee to enforce Executive Order 8802. This order decreed that "there shall be no discrimination in the employment of workers in defense industries or government because of race, creed color, or national origin." In 1943, Roosevelt went further and decreed that all contracts had to have a non- discrimination clause. These rules were spottily enforced in the still-Jim Crow south, but in the North, Detroit automakers who wanted vast government contracts had to end their policies of not hiring blacks.

Rising labor demand, falling labor supply, and federal pressure to decrease racism led auto-manufacturers to send recruiters south. Black workers by the thousands came to Detroit in the early years of World War II to work in the booming factories. White workers used to working in segregated factories all of a sudden began rubbing shoulders with African-Americans. The rapid infusion of African-Americans combined with Detroit’s traditions of racial intolerance joined to create an explosive atmosphere.

Detroit’s history of racial antipathy goes back to its earliest days. In 1863, an allegedly black man named Thomas Faulkner (he denied being black) allegedly raped a young white girl. Mobs gathered around Faulkner’s trial, and as he was being brought back to the jail, the mob attacked him and his guard. The guard shot one member of the white mob, after which the mob set off to attack other African-Americans in the community. During the 1920s, Detroit would become one of the Midwestern centers of the second Ku Klux Klan (Jackson, 1967). In 1924, the Klan’s mayoral candidate almost won the Democratic primary with more than 100,000 write-in votes.

Detroit has also long been one of the most segregated cities in the U.S according to dissimilarity index, one standard which measures racial segregation. It measures the share of either the white or African-American populations that would need to switch neighborhoods for there to be a flat distribution of races across all the neighborhoods a given community. Cutler, Glaeser and Vigdor find that Detroit has been one of the most 200

segregated cities in the U.S. since 1890.132 Even when Detroit’s early African-American population was small, it was highly segregated. This segregation worsened over much of the 20th twentieth century.

Figure 6-4 shows the dissimilarity indices for Detroit and the U.S. from 1890 to 2000. Segregation levels in both the U.S. and Detroit increased from 1890 to 1960. During this earlier period, segregation increased the most in cities with growing African-American populations. Hostility toward African-Americans seems to have been correlated increased with the size of the African-American population. Perhaps, as W.E.B. Dubois suggested, this hostility was a response to because of greater northward migration of African-Americans from the rural south, which reduced the average skill level of African-Americans in northern cities. An alternative view is that northern whites only bothered to organize to create anti-African-American institutions once the size of the African-American population became sufficiently large. The success of the Klan and the effectiveness of the routine racial barriers against African-American workers suggest that Detroit’s high levels of segregation were supported by a deep-seated racism towards African-Americans.

This antipathy exploded into a massive race riot in 1943. In June of that year, 25,000 Packard workers went on strike to protest the promotion of three African-American workers. While the UAW did end up being a strong supporter of racial equality, the overall track record of unions is more mixed. Later in that same month, racial violence erupted on the bridge leading back to the mainland from the integrated amusement park on Frederick Law Olmsted-planned Belle Isle. The many small, inter-racial fights that occurred throughout the day culminated in a skirmish between. The day had been full of small inter-racial fights, but on that bridge 200 African-Americans and whites, many of them sailors, entered in a huge melee. A group crowd of 5,000 whites soon crowded stood at the end of the bridge blocking the black’s, many intending to block the exit from Belle Isle (Craig and Shogan, 1964) to the mainland.

132 Cutler, David L., Edward L. Glaeser and Jacob L. Vigdor. 999. "The Rise and Decline of the American Ghetto," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 455-506, June. 201

Rumors of white violence against an African-American black mother spread in the African-American community, while reports of and African-American rape of a white woman spread in the white community. White mobs attacked African-American coming home from the Roxy Theater and going to work in streetcars. Meanwhile, an African- American black mob targeted white shops. Eventually, 6,000 federal troops were brought in to restore order. Once the violence subsided, 25 African-Americans were reported dead; 157 shot by policemen. A total of nine whites had also died (Humphrey and Lee, 1943). This was by far the largest race riot the country had ever seen, with m There were more than 675700 others injured and over more than $2 million dollars of property damaged (Craig and Shogan, 1964) in property damage. This was the largest race riot in America up to that point.

Just as in the case of the Chicago race riot of 1919 and the New York draft riot of 1863, urban proximity again facilitated mass violence. The closeness of African-Americans and whites in the city created the potential for conflict. Rumors could spread to large numbers of blacks and whites quickly because people lived at such high densities. Those same high densities also made it easier for mobs to find targets and, at least initially, overwhelm local police.

The 17 African-Americans shot by the police in the 1943 race riot is just one example of the conflict that existed between police and the African-American community. Farley, Holzer and Danziger write that “half of the more than fifty persons killed by Detroit’s police in 1925 and 1926 were blacks, even though blacks made up only 8 percent of the population” (2000). Detroit policemen were recruited from southern cities, and “Blacks assumed that this was done to ensure that officers would be tough with African Americans” (Danziger, Farley and Holzer, 2000). As late as the 1970s, “law-and-order” mayor, Roman Gribbs, created a special unit of the police department, STRESS, which gained a reputation for brutality in the African-American neighborhoods. In Detroit, as in many American cities, African-Americans often saw the police as an enemy. 202

Despite the rioting, the racism and the segregation, African-Americans continued to settle in kept coming to Detroit. Facing enormous opposition, they had carved out begun forming a livable community for themselves in Detroit, a place which for many proved more livable than. The Jim Crow south was no picnic either. This was largely because pay on the assembly line outpaid labor in the cotton field, even if northern life could be as brutal as life under Jim Crow. After World War II, the mechanical cotton picker reduced demand for southern agricultural labor and boosted migration to the North, which became even easier for African-Americans once. The shock of World War II and the implementation of the Fair Employment Practices Act permanently ended automakers’ practice of only hiring only whites. Thus, after 1945, African-Americans would still face enormous discrimination discriminated against, but they would not be almost completely banned fro be allowed to seek better employment opportunities working at major car companies.

The economic logic behind cities is the existence of agglomeration economies, —the idea that people are more productive working close together than far apart. As I have repeatedly stressed, these agglomeration effects work outside of the production sector as well. Often it is attractive to live in a place because others are there. This defines an agglomeration economy that is, similar to the agglomeration economies that lie behind urban success more generally. In this case, the agglomeration economy is at the group level and operates outside of the workplace. The group-level agglomeration economy is that makes coming to a place becomes more attractive because your group is already there because it ensures protection from outsiders, the presence of people with common backgrounds, and the availability of group-specific goods. These effects help explain ethnic neighborhoods and enclaves of the wealthy, and suggest they also explain why Detroit became more attractive to African-Americans as their numbers in the city grew.

The main agglomeration effect for African-Americas was that as their numbers increased, they were better increasingly able to influence political leaders. In 1943, when Blacks were still a small voting block, then-Mayor Jeffries was slow to protect African- Americans from the white mob. Not surprisingly, in the aftermath of the riot, blame fell 203

unfairly on the African-American black community. The failure of municipalities to offer equal protection to African-Americans was typical in the North, and was the rule in the South, where African-Americans were not allowed to vote.

However, as the African-American population of Detroit grew, African-Americans became an increasingly powerful political force, and political leaders gradually became more supportive of the African-American community. For example, in 1949 Detroit elected conservative Albert Cobo who “adamantly opposed ‘Negro invasions’ and public housing” (Sugrue, 1996). But Cobo was replaced by Louis Miniani who “recognized the power of blacks as a swing vote and tried, unsuccessfully, to accommodate both white neighborhood groups and blacks”(Sugure, 1996). Eventually, Miniani’s centrism led to hostility from both white and African-Americans. A ands a result, he lost to the far more liberal, 33-year old Jerome Cavanagh in 1961.

Cavanagh would never have been elected without African-American support, and with his election, the Mayoralty became far more sympathetic to African-Americans. Cavanagh’s police commissioner was George Edwards, a former UAW organizer and public housing advocate. Cavanagh walked with Martin Luther King in the 1963 March for Freedom. He obtained large quantities of federal dollars through the “Model Cities” program and for the “War on Poverty” in Detroit. In particular, he particularly focused on underprivileged youth, founding the “Mayor’s Committee on Community Action for Detroit Youth” in 1962” and securing funding for helped to start the ““Detroit Metropolitan Youth Center Special Youth Employment Project”” in 1963. By any objective standard, Cavanagh represented a watershed. Here was a mayor who understood that he needed African-American support to be successful and acted accordingly (Fine, 1989).

Given his groundbreaking stance on issues pertaining to African-Americans, one might guess that Cavanagh’s mayoralty would have substantially reduced racial conflict in Detroit. However, , but it was during his term that Detroit’s horrendous 1967 riot occurred. On a hot Saturday in July, 1967, police busted an illegal after-hours saloon, or 204

“Blind Pig,” in an African-Americana black neighborhood. But because the police came with too few men to be able to quickly bring all of the detainees back to the station, and they had to hold 85 people outside the bar. A crowd began to gather and harass the police. By morning, there were 3000 people on 12th Street. As the crowd grew, the chance of being arrested for a crime dropped, and people moved from throwing bottles at the police to destroying property. Chaos engulfed the city: “Rioters looted and burned 2,509 buildings, $36 million in insured property was lost and undoubtedly millions were lost by those without insurance” (Sugrue, 1996). The National Guard was brought in, and more than seven thousand people were arrested.

Detroit’s riot fits a recognizable pattern: a large crowd surrounded the disliked police in an African-Americana black neighborhood and then began to the crowd started destroying property. The earlier Watts Riot in Los Angeles has an almost identical story, although the Watts Riot erupted when predictably for that city, the police were arresting a woman named someone (Marquette Frye) for driving erratically. The race riots of the 1960s differed from earlier race riots in that the protagonists were African-American. Earlier riots, like Atlanta’s in 1906 or Chicago’s in 1919, involved white mobs targeting African-Americans. Even in Detroit’s 1943 riot, whites and African-Americans participated equally. However, by the 1960s, race riots involved African-American citizens squaring off against white police.

The 1960s riots present a puzzle for historians. They riots were justified by some as a response to racial inequities. The commissions set up to investigate those riots generally concluded that they could be explained by African-American the poverty and racism. Even Sugrue’s wonderful book on the racial history of Detroit emphasizes the decades of Detroit racism. Sugrue, and the Kerner Commission, and every liberal who blames the riots on social inequality were at least partially right. In the 1960s, African-Americans still lived in a racist country that had perpetrated monstrous crimes against their race.

But the puzzle is that these riots occurred as the economic well-being of African- Americans in the North was visibly improving over that decade, and the while Southern 205

riots remained comparatively rare in the southern cities that had the worst living conditions for African-Americans. In fact, across cities, there is no connection across cities between riots and either the level of African-American poverty or the differences in wealth between African-Americans and whites.133 While it is probably correct to think that the riots would have been less severe if African-Americans had been a whole lot richer, social science does not the usual social science tools don’t support the idea that the riots were “caused” by poverty.

Three observations can help us make sense of the fact that the riots occurred in the late 1960s, when the status of African-Americans was on the upswing. First, the desire to destroy poverty is fueled by perceptions of injustice, not by injustice itself. We need only to turn to instances of whites rioting in anger against the generally innocent African- Americans in the early 20th twentieth century to see that it is beliefs about malfeasance, not malfeasance itself, that motivate violence. In the 1950s, African-American leaders were far more muted in their criticism of white society than in the 1960s. The success of the Civil Rights Movement led to an empowered African-American leadership that emphasized vocally the injustice of American society. This means that African- Americans in the 1960s were almost surely more focused on racial injustice than African- Americans ten years earlier, even though the reality was that Detroit was far less fair under Mayor Cobo than it was under Mayor Cavanagh.

A second factor which helps us to understand the absence of southern riots is that riots are deterred and stopped by counter-violence. Cities with more police had less bloody riots.134 In the 1950s, and still in the South in the 1960s, southern police were even more brutal than they were in the north in the 1960stheir northern counterparts. As police brutality waned, it decreased the chance that a rioter would be shot without trial by an angry cop. Again, there were still plenty of rioters shot by police, but a comparison of

133 DiPasquale, Denise and Edward L. Glaeser. 1998. "Incentives and Social Capital: Are Homeowner's Better Citizens?," NBER Working Papers 6363, National Bureau of Economic Research, Inc. 134 Ibid. 206

Detroit’s two riots in 1943 and 1967 shows that police were far less prone to violence during the later riot.

Finally, in the 1960s, the size of the African-American communities in Northern cities increased in the 1960swas much larger. Since riots ultimately come as a result of crowds overwhelming police, more people meant bigger crowds and more riots. The size of the African-American community is ultimately the most important variable for explaining the size and quantity of riots in the 1960s.135

The Decline of Detroit Manufacturing

The prosperity of the 1960s was unevenly distributed. Suburban whites enjoyed unprecedented wealth while urban African-Americans remained much poorer. But during the 1960s, Detroit’s overall income growth continued to be quite strong. In the 1960s per capita income in the Detroit metropolitan area increased by almost 430 percent. In 1969, per capita income in the Detroit metropolitan area was 185 percent higher than in the U.S. as a whole. A thriving car industry supported this growth. The car industry was thriving. Thus, the observables suggested that Detroit continued to be an economic powerhouse (U.S. Census Bureau).

Still, even before 1970, there were signs that the car industry might not be able too continue to power the Detroit economy much longer. Although national automobile production continued to rise, employment in the Detroit automobile industry had stagnated between 1950 and 1970 (Danziger, Farley and Holzer, 2000). Starting in 1950, the growing car industry had stopped increasing employment in the Detroit area. Three factors help us to understand why Detroit’s automobile employment fell flat, while the car industry as a whole was expanding.

First, automation increased the ratio of capital to labor. Henry Ford’s original assembly line was extremely labor- intensive. The cars moved along the line, but people did most

135 Ibid. 207

of the work. However, over the last century, changes in technology have meant those people have increasingly been replaced by machines. Automation has meant means that rising production does not necessarily imply mean rising employment.

Second, the success of the unions made labor much more expensive. Starting in 1937, unions had become become increasingly successful in pushing their demands for higher wages and benefits on automobile manufacturers. The post-war period was the golden age of the United Automobile Workers union, whose president Walter Reuther pressured the companies (he’d go after one company first and then force the others to match the concessions) into implementing large pay increases. Detroit’s high and growing incomes in the 1960s were in part from the power of the union influences. But high wages create incentives for firms to hire fewer workers, and indeed, automation itself was partly in part a response to the high cost of labor.

Third, car manufacturers increasingly decentralized their automobile production throughout the U.S., transplanting factories into areas with lower costs. They first moved first move had been to suburbs outside of the central city, like Dearborn and Highland Park. They then shifted outside of Michigan altogether, often to less densely population places with lower taxes and friendlier labor relations, often outside the state of Michigan. Improvements in transportation technology had eroded Detroit’s water-made advantages, and lower taxes in Ohio, for example, helped push Ford to open a highly automated plant in Cleveland. By 1970, only one-third of the nation’s automobile production was done in Michigan. As transportation costs continued to decline, the next move would be manufacturing outside of the U.S. altogether.

In 1970, the car industry was still healthy, only less concentrated in Detroit. However, over the next 35 years, in fits and starts, American automobile producers would be overshadowed by foreign competition. The first wave of earliest foreign imports, which included the Volkswagen, was cheaper than American cars. Japanese automakers in the 1960s paid their workers far less than American manufacturers did and therefore could offer more affordable cheaper products. The foreign emphasis of foreign companies on 208

cost-cutting low cost often meant that they produced smaller vehicles, which and these became particularly attractive after oil prices skyrocketed boomed in the 1970s. By contrast, Detroit had focused on building the kind of ever more opulent, full-sized automobiles big cars that became a lot less appealing when gas prices soared.

Over time, Detroit’s quality edge eroded. The well-educated workforce of Honda and Toyota, combined with a management that relentlessly focused on quality, created cars that just seemed better to many Americans. The best selling cars in the U.S. are now the Toyota Camry and the Honda Accord. Foreign technology—Japanese or German— gradually became seen as superior to American so that Chrysler’s merger with Mercedes- Benz was trumpeted as a way of getting German technology into American cars.

The U.S. responded to the decline of the car industry by pushing voluntary quotas on foreign producers. The UAW mounted a campaign with the theme “if you sell here, build here” that helped push the Japanese and German automakers to open U.S. plants. These foreign producers, however, opened their car plants far away from the Motor City and the UAW in right-to-work states -where companies like Honda have generally been able to avoid unionization.

The Detroit manufacturers were not stupid or incompetent, but it is a big world, and it is not surprising that there existed companies that proved to be better at making cars than three pre-war firms. Detroit became a center of automobile production because of its ideal location and, even more importantly, because it happened to be the center of a cluster of real innovators. For a time this initial advantage kept the industry in Detroit, even as transportation costs declined. Eventually Detroit had to face world-wide competition; it became increasingly cheap to ship from Japan or Korea and when new plants opened in the U.S., there was little reason to put them in Detroit.

The rise and fall of local industries happens to all cities. New York City was once the capital of American clothing manufacturing, it is no longer. Cambridge, Massachusetts, was once a great candy manufacturer. NECCO stands for New England Confectionary 209

Company; the firm’s old factory is now a biotech building that houses Novartis near M.I.T. In cities with many different industries the decline of one industry doesn’t lead to an overall urban collapse. While there is a period of distress where wages and rents fall, other industries soon grow.

But Detroit was so dominated by a single industry that the city depended on movements in that industry. In the 1940s, when America’s automobile industry was robust and centered in the city, Detroit thrived. When the industry decentralized, Detroit stood still: when the industry declined, Detroit collapsed. The most obvious analogy is that undiversified cities are like undiversified portfolios; they are vulnerable to isolated shocks.

Urban diversity seems to do more than just reduce variability; however, it also seems to make a city more innovative. Jane Jacobs argued that since new ideas come from combining old ideas, diversified cities have more of a chance for bold thoughts moving across industrial boundaries. Jacobs compared diversified Birmingham and concentrated Manchester and saw more innovation in the more diversified town. Over the past 30 years, cities with diverse industries and lots of little firms have grown much more quickly than cities with few industries and big firms (Glaeser et al., 1992).136

Benjamin Chinitz, in his comparison of thriving New York and stagnant Pittsburgh, argued that because Pittsburgh was focused on a few large companies, it lacked the infrastructure, especially independent suppliers, to support start-ups.137 Detroit’s initial automotive success was made easier because small entrepreneurs, like Ford and Olds, could buy parts from the many small manufacturers in the city. By the 1950s, the industry was completely vertically integrated and it was hard for any start-up to succeed.

136Glaeser, Edward, Hedi Kallal, Jose Scheinkman, Andrei Shleifer. “Growth in Cities.” The Journal of Political Economy 100.6 (1992): 1126-1152. 137Chinitz, Benjamin. “Contrasts in Agglomeration: New York and Pittsburgh.” The American Economic Review 51.2 (1961): 279-289. 210

Coleman Young’s Detroit

The immediate response to 1967 Detroit riot was a lurch rightward. The 1969 Mayoral candidate pitted the city’s first major African-American candidate for mayor, Richard Austin, against Roman Gribbs, who promised to crack down on lawbreakers. In a city terrified by the prospect of more violence, Gribbs won. For another four years, the administration tried to recreate the conservative Cobo years. This was a last hurrah. In 1973, Coleman Young became the city’s first African American mayor; narrowly defeating the white police commissioner. Young ultimately had five terms as mayor and won each of his reelection campaigns handily.

Coleman Young is one of the most compelling urban leaders of the past thirty years. His life and term as mayor contained good and bad, both in heavy doses. Young’s great triumph was to ensure that blacks in Detroit would no longer be second-class citizens; during his years Detroit was a proud bastion of Black power. Young’s great defeat was that the city itself sunk further and further into poverty and social distress. Detroit’s decline started before Young and would have continued under any mayor. The suburbanization of the middle classes, the decline of the rustbelt and the troubles of automobile manufacturing were too big for any mayor to really overcome. But while some mayors put in policies that slowed the decline, Young almost certainly exacerbated Detroit’s economic problems.

Young was born in Tuscaloosa, Alabama in 1918. His parents joined the wave of Black migration northward and came to Detroit in 1923. Like many African-Americans in the 1930s, Young worked for Ford and quickly became involved in the left wing of the labor movement, organizing for the CIO. His activism soon got him fired, but he found work (again like many African-Americans) with the postal service. He kept up his progressive activism in his new job, and was part of the protest against racial segregation in the Sojourner Truth housing project. His involvement in that protest got him fired again.

211

In 1942, he joined the army as a second lieutenant, but was transferred to the Air Corps where he became America’s first black bombardier, and was one of the famous Tuskegee Airmen. His civil rights work didn’t end during the conflict. Young was one of the organizers of a sit-in protesting a racially segregated officer’s club known as the Freeman Field Mutiny. Young was jailed, but the protest worked, the officer’s club became integrated.

When the war ended, Young returned to union work, and was elected Director of Organization of the Wayne County AFL-CIO in 1948. He became a leader of the National Negro Labor Council and was summoned to appear when the House Un- American Activities Committee was investigating communism in that group. Young’s performance in front of HUAC gave him his first national prominence. He defiantly proclaimed: “I have indicated to you, to this committee, I am no stool pigeon … I consider it an un-American activity to pry into a person's private thoughts, to pry into a person's associates. I consider that an un-American activity."138 This courage and the disdain for his opponents would mark Young's entire career.

Young was never an economic success in the private sector. His political activities made him anathema to many employers and he clearly was more interested in the Civil Rights struggle than in striving within the system. No one more clearly repudiated Booker T. Washington’s philosophy of Black economic action and political inaction than Coleman Young. His extremism was a better fit with the 1960s than with the 1970s and Young won election to the state senate in 1964. In 1966 he became the Democratic floor leader. His biggest legislative coup may have been a law forcing arbitration in disputes between public sector unions and municipalities. As a union leader, he naturally supported this pro-union bill. Later as mayor, he came to regret the power that it gave to the unions on the opposite side of the bargaining table.

138“Coleman A. Young Biography.” Coleman A. Young Foundation. 2001. 212

In 1973, Young was elected mayor and made himself a lightning rod. Quick to use profanity, he had a natural appeal for many of the cities’ rougher residents. After centuries of repression, Young relished his power, especially over whites. Predictably, he was vilified by his white opponents, who regularly accused him of corruption and reverse racism. Like James Michael Curley, the early mayor of Boston who stood for the poor Irish against the wealthy Brahmins, Young made his poorest supporters feel empowered and represented.

Like Curley, Young’s actual achievements were less impressive than his rhetoric. Under Young taxes increased and public services often declined. Crime rates were high and Detroit became known as America’s murder capital. In the 1980s, unchecked by police, Detroit’s citizens came to regularly burn their own city in an annual ritual known as Devil’s Night. Detroit’s crime is explained primarily by the high levels of concentrated poverty, but Young was more interested in ending racism within the police force than in using it to suppress criminal activity. The combination of Young’s rhetoric, high taxes and declining services levels further encouraged whites to leave Detroit. In this light it is hard not to see Young as being a contributor to the fact that by 2000, only one in eight residents of Detroit were white.

Young did manage to get businesses and federal projects for a number of high profile projects, such as the Renaissance Center, the Joe Louis Arena and the Detroit People Mover. While these projects did create some construction jobs, they certainly didn’t turn the city around. Like most large-scale urban renewal projects, they were done with little attempt to calculate whether their benefits could in any way exceed their costs.

Young’s most controversial urban renewal effort was General Motors' Poletown plant. Young convinced GM to build a new plant within city boundaries by using the powers of eminent domain to evict more than 4,200 residents of predominantly white Poletown (the name came from the presence of Polish immigrants).139 The use of eminent domain was

139Nolan, Jenny. “Auto plant vs. neighborhood: The Poletown Battle.” The Detroit News. 12 Dec. 2002. 213

fought up to the Supreme Court, which ruled that the use of eminent domain for economic revitalization was constitutional. One of the odd features of the current debate regarding Kelo v. New London is that the outcry over this case suggested the court’s stance on eminent domain was changing. Nothing could be further from the truth; for good or ill, the court has regularly stood by municipalities taking land for economic objectives. Poletown, like Kelo, generated huge protests and it yet again increased the white exodus from Detroit.

Some of Coleman’s critics have alleged that he actually wanted to push out the white voters who opposed him so regularly in the polls. There is no hard evidence proving that Young actually wanted them to leave Detroit, but his rhetoric and actions also provide little evidence that he wanted them to stay. Young had spent a lifetime battling whites in the civil rights struggles, and his electoral interest strongly pushed him towards making his town as black as possible. After all, he was hated by many whites and was generally a hero to the African-American community.

I have named the phenomenon where a political leader impoverishes his community in order to get a more favorable electorate “the Curley Effect” after Boston’s James Michael Curley. Like Young, Curley was extremely popular among his poor supporters and despised among the wealthy Brahmins. When a British recruiter came to Boston during World War One, before America’s entry into the war, and asked Curley whether it would be alright for him to recruit Bostonians of English descent, Curley replied “Go ahead, take every damn one of them.” Curley waged war against his city’s wealthier English citizens, and as they left, the city became poorer, more Irish and more likely to vote for Curley. Young was in the same situation. Every middle-class white that left was one less vote against Young. It shouldn’t surprise us that he didn’t fight hard to get them to stay.

The Curley Effect undoes the usual benefits of local government competition. At their best, municipalities will compete to attract people and businesses. The battle to increase the tax base will stop municipalities from raising taxes unnecessarily and makes them more attuned to the needs of their citizens. However, when the Curley Effect operates, 214

leaders become interested in shedding people, not attracting them. In this case, leaders face the perverse incentive to make their city less attractive not more attractive.

The Curley Effect can only operate when ethnic divisions are strong. Without ethnic divisions, mayors will gravitate towards policies that attract the rich and keep the city’s coffers full. Policies that attack the rich will backfire because the poor will see that the mayor is impoverishing the city. Only when ethnic or racial divisions ensure that the Mayor has little chance of wooing the wealthy and that his base is truly secure, will it become attractive to push out the wealthy. This is one of the reasons why ethnic politics and ethnic divisions can wreak such havoc on cities. The political debates then focus on age-old grievances rather than on what the government has done to improve public services.

The Rest of the Rustbelt

America had ten cities with more than 800,000 people in 1950. Nine of those cities were in the northeast and the Midwest. Only Los Angeles was in the Sunbelt. As Table 6-1 shows, between 1950 and 1980, every one of those cities lost population, and every one of those cities—except for New York City—lost population in each one of those three decades. Only New York managed to grow during the 1960s. Five of the cities— Boston, Cleveland, Detroit, St. Louis and Washington, D.C.—lost more than one quarter of their 1950 population in 30 years.140

The durability of the housing stock makes these population declines all the more remarkable. For a city to lose population there must be either large numbers of vacant homes or smaller households occupying older units. In these cities between 1950 and 1980, both phenomena occurred. In the older cities, houses increasingly got boarded up, as no one was willing to live there at any price. Everywhere in the U.S., families became smaller and real estate consumption per capita increased.

140Glaeser, Edward, Joshua Gottlieb. “Urban Resurgence and the Consumer City.” Harvard Institute of Economic Research. Cambridge: Harvard University, 2006. Pg. 41. 215

These declining cities were all hit by the same two phenomena that hit Detroit: the transition to the suburbs within metropolitan areas and the transition across metropolitan areas to the consumer cities of the sunbelt. In retrospect, both phenomena were completely inexorable. Car-based living on the suburban frontier offered a lifestyle that seemed much more attractive to most Americans. They were able to live in bigger houses, surrounded by their own lots, and at the same time enjoy relatively speedy commutes – especially after employers suburbanized. The sunbelt’s lure also seems quite understandable, and quite difficult to defeat.

In every one of the declining cities, population loss was accompanied by increased poverty and urban distress, just like Detroit. Cars were a technology for the well-to-do. Moving to the sunbelt was also a bit of a luxury, especially when such cheap housing remained in the inner cities. Moreover, African-Americans faced housing market discrimination that made suburbanization a struggle. As a result, the middle classes left and the poor stayed, especially the African-American poor. Cities have always had plenty of poor people, so this wasn’t exactly new. The difference was that people were increasingly fleeing when they earned enough to afford a car and a suburban ranch house.

In all of these cities, just as in Detroit, concentrated poverty meant increases in crime which further repelled the rich. This rise in increased poverty also occurred during a time when Americans were losing control of their streets. Figure 6-5 shows the crime rates in the U.S. between 1933 and today. Looking at U.S. Crime rates between 1933 and today, there is a striking increase in American crime between 1960 and 1975 that has never satisfactorily been explained.141 Some of this increase can be attributed the changing demographics of the baby boom, but the best estimates suggest that this can only explain one-quarter of the rise. Riots, too, crippled most of the large cities in the late 1960s.

The decline of America’s once great central cities did not go unnoticed in the 1960s and 1970s. In the 1960s, people still thought that with enough will these trends could be

141A fantastic collection of graphs exhibiting different crime rate increases in this period can be found at: McDowall, David, Colin Loftin. “Are U.S. Crime Rates Historically Contingent.” Journal of Research in Crime and Delinquency 42.4 (2005): 360. 216 reversed. In the optimistic days of the Great Society, and in the days of panic following the urban riots, it was thought that with enough urban renewal dollars the powerful trends moving people to sun and sprawl could be reversed. As a result, billions of dollars of federal money were spent to reverse the process of urban decline.

I think that there was plenty of good in the Great Society. There were successful programs, especially those that focused on improving childhood education. Increased welfare expenditures did create perverse incentives for couples to remain unmarried, but they also did put money in the hands of the poorest Americans. But even if a case can be made for the large-scale redistribution of the Great Society, it was much harder to make the case for much of the urban renewal of the 1960s, especially the billions of dollars spent on federal housing projects.

In the 1950s, rebuilding neighborhoods was thought to be the great tool for reversing urban decline. Since old decaying neighborhoods were poor, and newer areas were rich, the thought was that by turning old neighborhoods into new neighborhoods decline could be reversed. This was the prevailing wisdom of the 1950s and 1960s and, as a result, urban renewal generally took the form of neighborhood rehabilitation as great towers were erected where tenements once stood.

There are three logical problems with building new housing as a strategy for urban renewal. First, in the free market, the relationship between new building and economic vitality did not occur because the buildings created vitality, but rather because the vitality led to new construction. Building up is the natural way the construction industry reacts to the demand created by economic success. This doesn’t mean that construction actually creates economic success. Second, in the wake of decline, property values plummeted. In a declining city with plenty of cheap housing, it is actually counter-productive to build more because you do nothing but make the housing cheaper. For the cities to be healthy, they needed more housing demand—which comes from high wages or high amenities— not excess supply piled onto an already glutted market.

217

The third problem is inherent in the urban renewal business: place-oriented policies aren’t well targeted to help the people that live in those places. A people-oriented program like Head Start gives something directly to the people who enroll in it. A public project that replaces a sleazy neighborhood like Scollay Square with government buildings is unlikely to help those who live in the neighborhood. It might help those who live next to the park, except if they are renters and see their rents go up in response to the improvement. The only clear winners are the abutting property owners, and that’s assuming that the government project actually makes the place more attractive.

Edward Logue ran Boston’s Redevelopment Authority in the 1960s and replaced Scollay Square with the new Government Center. Logue led the New Haven Redevelopment Authority in the 1950s and the Urban Development Corporation in the 1970s. By all accounts, he was decent, enormously capable, and strongly committed to making cities better. Logue was supported by Mayors such as John Collins of Boston and Richard Lee of New Haven, who were idealistic and competent—a major improvement along most dimensions from their more corrupt predecessors. With their support, Logue tore down and rebuilt, changing the built environment of both Boston and New Haven in the process.

Douglas Rae’s superb chronicle of Lee and Logue in New Haven demonstrates, however, changing the built environment was not enough to halt New Haven’s decline. Even massive federal subsidies—New Haven was the poster-town of Johnson’s Model Cities Program and received far more per capita than any other city—couldn’t fix the city.142 There is a reasonable debate about whether urban renewal actually made things worse. Rae’s view was that the forces demolishing New Haven—the flight to sun and sprawl— were unbeatable between 1950 and 1980. I think that this is right. Swimming against the great tides of urban history is just too hard.

But it is less clear whether the Logue projects should be seen as helpful projects overwhelmed by history or as mistakes that helped New Haven decline. It is not clear

142Rae, Douglas. City: Urbanism and its End. New Haven: Yale University Press, 2003. 218

how we can ever know the answer to this question. I do believe that these projects did suffer from the great flaw of putting place before people. Logue’s goal, and the goal of the Model Cities program more generally, was to fix cities not to help people. No one actually subjected these programs to a cost-benefit analysis that asked whether their benefits to the people of America were worth their costs. I also believe that the tendency to vilify these people is surely an error. They were civic-minded and operating according to the best knowledge of their times. They may have been mistaken, but they weren’t evil.

While the impact of Logue’s projects is ambiguous, other government policies, particularly large scale public housing projects and busing, were much worse for the cities. Large scale public housing projects represent a great social experiment of the post-war era. Small, human-scale tenements were leveled. Massive towers took their place. The vision echoed that of LeCorbusier who thought that big towers surrounded by green space would be a great way to house everyone. At the very least, these projects really did offer nicer housing units with better amenities than the tenements that preceded them.

But the housing projects turned out to be something of a social disaster. Even while the massive public housing boom was going on, Jane Jacobs argued the towers were being built with complete ignorance of how space impacts social interactions. Jacobs’ magnificent Death and Life of Great American Cities, almost surely the greatest American book on cities in the twentieth century, describes the workings of an older neighborhood. The shorter buildings made it possible for people in windows to monitor the streets. The mixed-uses of the neighborhood assured that the streets always had people. The neighborhoods worked because they were on a human scale and enabled the neighbors to keep control of their streets.

The vast towers that replaced them were not on a human scale. Residential skyscrapers work perfectly well with well-to-do tenants who can afford doormen to protect the building. Burglary rates are actually lower in apartments than in single family detached 219

housing. Apartments are easier to defend. But people who live in apartments are much more likely than home dwellers to be victimized by street crime, especially if they are poor. The tall buildings make it hard to monitor the street and solely residential buildings lead to less street traffic. When poor people are concentrated in massive towers, crime is almost guaranteed to follow.143

The great public housing projects of the 1950s and 1960s ended up putting vast quantities of poor people in an extraordinarily concentrated area. The residents may have improved their physical surroundings, but their social surrounding just got worse and worse. The projects soon became a synonym for crime and social distress. By the 1980s, the vast towers—the hope of the 1950s—were being demolished. While there are still advocates of public housing, there are few defenders of the large-scale projects of the post-war era. Logue’s projects may have been a mixed blessing for their cities; the great housing projects were surely a curse.

A final government policy of the 1960s that ended up doing great damage to cities was busing. The roots of busing are noble. The Coleman Report documented the importance of peers in driving educational outcomes.144 African-Americans were being sent to schools with a high concentration of disadvantaged children. It seemed that integrating the schools with busing would ensure more equality of education opportunity for Americans of color. The courts accepted this not illogical chain of reasoning and forced cities to bus children across neighborhoods to ensure a more equal distribution of school resources.

From the perspective of cities, the great mistake of busing is that it enforced integration only within city limits. Any white who wanted to escape having his child bused only needed to move outside the city’s boundaries. In Millikan v. Bradley, the Supreme Court

143Glaeser, Edward, Bruce Sacerdote. The Social Consequences of Housing. Cambridge: Harvard University, 2000. Pg. 14-15. 144Bosco, James, Stanley Robin. “Coleman's Desegregation Research and Policy Recommendations.” The School Review 84.3 (1975): 352. 220

ruled that forced busing across school district lines was unconstitutional.145 The desire to avoid busing just created another reason for middle class whites to leave the city. Again, the proponents of busing were neither villains nor fools, but their policy did end up having a deeply pernicious effect on America’s cities. The urban stress caused by busing reminds us that laudable aims can end up wreaking great havoc.

Again, these government policies may have helped cities decline, but they weren’t the critical factors. Rising income and revolutionary transport technologies were increasingly making dense, early twentieth century cities, built in cold climates around waterways, seem obsolete. Cars let people move to the suburbs and firms quickly followed. The great centralizing technologies—railroads and ports—became less important with the rise of trucks and the interstate highway system. Declining transport costs allowed everyone to move to sunnier climes. In 1975 the urban centers of the northeastern quadrant of this country pretty much all looked doomed. The great surprise of the last 25 years is that many of those cities were able to revive. That is the subject of the next chapter.

145Milliken v. Bradley, 418 U.S. 717 (1974). 221

Chapter 7: Colder Cities since 1975

In 1975, urban America seemed to be divided into cities like Detroit and cities like Los Angeles. While the sunbelt continued to thrive, almost every cold, dense city was in trouble. New York itself, the greatest city of them all, seemed locked in a spiral of industrial decline and fiscal distress. New York and every one of the ten largest Northeastern and Midwestern cities in the country lost more than five percent of their population in the 1970s—some, like New York and Chicago lost saw their populations slip by close to ten percent (Census). The combination of suburbanization and the move to sunnier climes hit all of these cities. Since the poor had stayed disproportionately in the central cities, these cities ended up having more social distress and fewer resources to address that distress.

In the midst of all that chaos, the older cities just seemed doomed. The academic literature of the time was full of the pessimism about whether cities could ever come back. The popular literature was split mainly between whether urban decline was the result of natural cycles or whether the cities hastened their own declines. Only booster politicians, whose opinions everyone discounted anyway, argued the old, cold cities were going to come back.

But the past 25 years ended up being more nuanced than just sunbelt growth and rustbelt decline. The rustbelt ceased to be a single urban story, but instead has unfurled in two stories. One set of cities, New York, Boston, even Chicago, managed to reinvent themselves and thrive in the age of information and finance. A second set of cities, Detroit, St. Louis, Cleveland, were much less successful. The success of colder cities is remarkably correlated with the skill level of the city as of 1980. Figure 7-1 shows the correlation in the Northeast and Midwest between city population growth between 1980 and 2000 and the share of the city’s population with college degrees in 1980. The story of the rustbelt over the past 30 years involves a growing divide between less fortunate places and skilled cities that have managed to make the high densities that once eased the flow of goods, now serve to speed the flow of ideas.

222

The story of the sunbelt also involves a divide. The demand for warm weather appears to have continued unabated, but increasingly California, the most temperate of all states, has wielded land use regulations to slow the production of new housing. The number of people living in a place is fundamentally tied to its housing supply. Through most of U.S. history, housing supply was sufficiently flexible, so that the demand for a particular place—which itself comes from wages and amenities—drives its growth or decline. But starting in the 1960s, localities presented developers with increasing barriers to new development; these barriers meant that it was impossible to react to increased demand with new construction. With construction shut down, prices soared.

The story of the sunbelt since 1980 combines coastal California and the inland sunbelt, especially the cities in the desert. In coastal California, rising demand has been met with limited supply and the result has been astronomical prices and limited population growth. In the inland sunbelt, housing supply has been quite accommodating, and increases in demand have led to very modest increases in prices but huge increases in population. Both coastal California and the inland cities have boomed since 1980 in their own way. In Las Vegas and Phoenix and Houston and Atlanta, rising demand has led to new construction and rising prices. On the coast, rising demand has mainly just pushed up prices.

In this chapter, I will discuss the division within the Rustbelt focusing on New York and Cleveland. In the next chapter, I turn to the sunbelt, focusing on Santa Clara County and Las Vegas. The comparison of New York and Cleveland is meant to illustrate the divergence of skilled and unskilled cities. The comparison between Santa Clara County and Las Vegas is meant to illustrate the difference between areas that constricted their development and areas that didn’t. I begin with New York.

New York

Between 1965 and 1975, New York City seemed to move from being the forward- looking economic capital of America to a dismal, national embarrassment with no more 223

of a future than Philadelphia or Cleveland. The 1960s were a heady time in the city. The telegenic John Lindsay seemed to move the city government past its Tammany Hall past into a new world of Kennedyesque liberal decency. New York remained a powerhouse in light manufacturing, but its business services were also thriving. Advertising, a child of the city’s publishing might, and finance, the descendent of its water-borne commerce, were economically invigorating New York. Even the city’s racial problems seemed quite modest relative to those in most of urban America. While Chicago, Detroit, Los Angeles, Newark, Washington, D.C., had painful race riots in the 1960s, New York avoided mass violence.

By the mid-1970s, the prosperity of 1960’s New York looked like something of a fiction. Lindsay’s city seemed more like a Potemkin Village than a economic hub. First, by the middle of Abe Beame’s administration it became obvious that the city government’s spending had vastly exceeded its means, and that Lindsey had been complicit in substantially misrepresenting the city’s true financial shape to the public. Second, the city’s remaining manufacturing employment, which had seemed still solid in the 1960s, plummeted remarkably quickly between 1968 and 1975. Third, though the city still had managed to avoid a race riot, crime exploded. In a remarkably short time—in what should serve as a warning to those today reveling in New York’s success—New York had moved from looking like a growing city of the future to looking like just another rustbelt town on its way downward.

The contrast between 1960s and 1970s is particularly evoked by comparing two great blackouts in 1965 and 1977. In the great blackout of 1965, New York and much of the northeast lost power. New York’s response was a model of civility and order. The New York Times headline ran “Brightside to the Blackout; Hidden Virtues Show Up As New Yorkers Help During Crisis.” (New York Times Archive.) Twelve years later, a 25 hour black out led to a spree of looting and arson. More than 1,600 stores were looted and there were more than 1,000 fires. There were 3,776 arrests as the relative order of the 1960s was replaced by the chaos of the mid-1970s. 224

This change just mirrored the explosion in crime and homicide rates that had occurred after this same time period. The upsurge in New York City’s homicides is shown in Figure 7-2. Between 1960 and 1977 homicide rates reached unprecedented historical levels in the city.

The governmental stability of the 1960s was also devolved into disorder and near default in the 1970s. New York’s budgetary woes came from the combination of a strong New York tradition of redistribution with a 1960s-era degree of hubris about how much we could fix. Without fixed resources, it is hard for a locality to overtax either firms or the rich. The mobility of people and firms means that the ability of communities to exploit there wealthy is limited. Of course, if a city has an asset, like New York’s port that ties businesses and the wealthy to the city, then the city can exploit those ties and tax the wealthy.

Since the era of Lorenzo Wood, New York politicians exploited the hold that they had on businesses and the rich to tax and redistribute to the poor. After all, the poor had votes, the rich had money, and the money from the rich could be used to attract the votes of the poor. New York’s great harbor was a money machine that enabled generations of politicians to tax, either formally or informally, businesses and prosperous New Yorkers and to give the proceeds to themselves and their poorer supporters. Throughout the twentieth century, New York had run a local welfare state that went far beyond any other American city. Other cities certainly had leaders that would have liked to be as generous, but only New York had the fixed resources that enabled its government to run a full-scale local welfare system.

Tammany Hall’s welfare system started out small and informal. Tammany got resources from the city coffers and from firms that would pay for the ability to do business in and with the city. Some of this money directly entered into the coffers of the Hall’s Grand Sachems, but some of it was used to buy support from Tammany’s voters. Tammany leaders would directly provide food, emergency relief and jobs to their supporters. This 225

informal, corruption-funded system allowed Tammany to reap maximum benefits from their largesse.

Government jobs were a particularly valuable plum and these went to people who really worked for the election of the Tammany slate. An ambitious ward leader could earn himself a job in the administration by bringing in enough votes for the machine. Tammany’s enemies, the champions of good government, fought for civil service reform because by making employment a function of merit, rather than political activism, they hoped to reduce Tammany’s ability to attract supporters.

In the 20th century, city government modernized and increasingly government payments were allotted through official channels and were more difficult to siphon. There was still some “discretion” though. Tammany leaders could push the system to reward their supporters, but as the extent of welfare increased, the ability of the Sachems—those crooked bosses presiding over the coffers—to control those payments was limited. During the Great Depression, New York was run by Fiorella LaGuardia, an immensely popular anti-Tammany politician. With the help of the New Deal, the welfare system became even larger.

After the war, Tammany’s power was compromised. Declining numbers of immigrants cut off Tammany’s base support. Regularization of welfare, and reduction of patronage, reduced Tammany’s ability to reward supporters. Electronic media meant that voters were increasingly influenced by effective campaigns rather than traditional ward-level organizers. Carmine DeSapio was New York’s last boss, and Tammany’s last Mayor, Robert Wagner, broke with the machine during his second run. Wagner was replaced by the energetic John Lindsay.

Lindsay was cut along Kennedy lines, and he thought there was no challenge that should be beyond the abilities of the world’s greatest city. Unfortunately, Lindsay’s worthy ambitions were stymied by New York’s growing fiscal and social distresses. The port of New York had ensured that Tammany had a vast resource that firms weren’t going to 226 abandon. During the Lindsay years, New York’s transportation edge was waning and firms were disappearing in droves. Moreover, the breakdown in law and order, and the suburbanization of the middle classes, made New York’s social problems increasingly difficult to battle.

On Lindsay’s first day in office, Mike Quill, the leader of the transport union, started a 12 day strike that crippled the city, and ensured that labor costs would continue to rise. Public sector strikes that ended badly for Lindsay were a hallmark of his administration. Lindsay had to raise taxes to meet expenditures, and these higher taxes further fueled the middle class exodus. A commuter tax was helpful in eliminating the incentive for people to live in the suburbs and commute into Manhattan, but it ensured that firms themselves would want to leave the city to avoid the tax burden. Lindsay did avoid a race riot during a time when other metropolises were being crushed under racial tensions, but he left a city with an increasing mismatch between revenues and expenditures.

Lindsay was replaced by Abe Beame in 1973. Beame was a traditional democrat who had been beaten by Lindsay in the 1965 three-way race. Beame’s experience as former city controller seemed to offer financial order after Lindsay’s more chaotic management style, but the city’s problems would prove were too much for Beame. In June 1975, as the bond market refused to buy any more of the city’s debt, the city was about to default on almost 800 million dollars.

To save the city’s finances, the State legislature chartered the Municipal Assistance Corporation, known as “Big Mac”, that was independent of Beame and the city’s traditional elected representatives. Lazard Frère’s banker, Felix Rohatyn, led the Corporation which had the ability to borrow three billion dollars with ear-marked revenues as collateral. In exchange for the corporation’s assistance, the city gave up on its ability to independently borrow.

Over the next year, Big Mac’s difficulties in borrowing and forceful leadership by Rohatyn and Governor Carey pushed Beame into cutting expenses. President Ford 227 famously turned down requests for massive federal aid—the Daily News headline screamed “Ford to City: Drop Dead”—but eventually authorized a federal credit line. Ultimately, increased fiscal restraint and extreme measures like using pension funds as collateral enabled the city to weather its fiscal storm.

The fiscal crisis combined with rising crime, the flight of manufacturing, suburbanization, and a particularly messy black out to make 1977 New York look like a poster-child for urban decline. By the late 1980s, the city’s trajectory was more positive and when terrorists destroyed the World Trade Center in 2001, it seemed that the capital of the global economy had been hit. How did this change occur?

Traditional political accounts of the city emphasize the fiscal sobriety of Rohatyn and a series of sensible Mayors, who replaced Lindsay’s dreaming with a more down-to-earth style of leadership. Edward Koch, Rudolph Giuliani and Michael Bloomberg were not elected to solve New York City’s social inequities. In each chase, they even triumphed over more progressive candidates—Bella Abzug, David Dinkins and Andrew Green-- who offered a more sweeping view of city government.

Koch, who was a strong advocate of capital punishment in his first race, and Giuliani, the aggressive former prosecutor, promised that New York would become safer as they cracked down on crime. It remains an open debate as to whether their policies, or other larger social trends caused the decline in New York City’s crime rates, but there is no doubt that New York became a safer place during their terms. These mayors emphasized basic public services, such as schools and transit, and lower taxes. Giuliani and Bloomberg were both elected as Republicans, despite the city’s overwhelming loyalty to the Democratic party. Under their leadership, New York City’s government began to look able rather than incompetent. These mayors emphasized basic public services, such as schools and transit, and lower taxes. The remarkable bravery and competence of both the police and fire departments during the 9/11 attacks showed the nation a New York that looked transformed from the disorder of the 1977 black out.

228

The Koch-Giuliani-Bloomberg trio represents a greater trend seen in many large cities: the rise of the city manager-mayor. In town after town, more progressive, often ethnic politicians were defeated by majors running on their ability to deliver basic public services. Richard M. Daley in Chicago may be the prototype for these leaders. Thomas Menino is another example. After Boston’s disastrous infatuation with Curleyism, it turned to a city manager as early as 1949 when it elected John Hynes over Curley. Boston’s small size made the cost of running a local welfare state particularly obvious.

The city manager-mayors are defined by a less exciting vision for city government than their predecessors, but their vision is better matched to the actual resources of a city in the modern economy. With declining transport costs, cities just don’t have the resources to run local welfare states as firms and the wealthy leave if the city doesn’t keep taxes modest and services high. When New York rejected Bella Abzug for Ed Koch they were implicitly recognizing that the era of unlimited local social activism had been ended by the emigration of the tax base.

The second major part of New York’s revitalization came in its rebirth as a consumer city. New York’s vast scale and density had made it an entertainment venue for centuries. Its scale supports a vast restaurant industry unmatched in America. Its size and wealth has built a large number of major entertainment institutions, including museums, theaters and orchestras. Its built environment is filled with spectacular buildings, like Burnham’s Flatiron Building, Van Alen’s Chrysler Building and the post- war towers of Lever House and the Seagram Building. Not for nothing do forty million tourists come to New York each year.146

But New York’s consumption advantages were hard to enjoy during the worst days of the 1970s. Great architecture and thriving restaurants become far less appealing if you need to scurry quickly off the streets at night to get behind locked doors. The turnaround in crime, which as Figure 7-2 shows, started in the late 1970s, is one of the reasons why

146“NYC Statistics.” NYC and Company 2006. 229

New York was able to appeal again as a center for consumption. No one quite knows why New York City’s crime rates fell so much, just as no one really knows why crime exploded. There are a bevy of competing hypotheses—demographic shifts, improvements in policies and abortion—and there is some evidence to support all these views.147 Still, we have yet to be able to fully assign credit to the decline of the different forces.

The rise of New York as a consumer city can best be seen in real wages. As I argued previously, high levels of wages relative to the costs of living are thought to connote low quality of living. Low wages relative to the cost of living, by contrast, must be offset by something else, otherwise, everyone would flee. Figure 7-3 shows the relationship between city size and real wages in 1970.148 New York City has extremely high real wages, as did almost all large cities; presumably these wages are needed to compensate workers for living in unpleasant places.

Figure 7-4 shows that this relationship has flipped by the year 2000.149 Big cities, and especially New York, have unusually low real wages. This is not about declining productivity. Nominal wages are extremely high in the city, reflecting its current high level of productivity, but living costs are even higher. When living costs outpace wages, economists infer that people must like that place for some other reason, like quality of life. The real wage data therefore supports the view that New York City became a far more attractive place to live between 1970 and 2000.

147 The usual methodology for estimating the impact of demographics is to look at the differences in criminal activity associated with different age groups at a point in time and to use those estimates to ask what impact does change in the distribution of age groups would be expected to have on the level of crime. Levitt (Levitt, Steven. “The Limited Role of Changing Age Structure in Explaining Aggregate Crime Rates.” Criminology, 37.3 (1999): 581-598.) shows that about one-fifth of the increase in crime in the 1960s can be associated with demographic factors, like the baby boom. Steven Levitt and John Donoghue III's article “The Impact of Legalized Abortion on Crime” (Quarterly Journal of Economics, 116.2 (2001): 379-420. ) is, of course, the famous paper on abortion and crime. My view is that their evidence has held up remarkably well under scrutiny, but I still remain skeptical that this effect can be responsible for more than a modest fraction of the decline in crime. 148Glaeser, Edward, Joshua Gottlieb. Urban Resurgence and the Consumer City. Cambridge: Harvard University, 2006. Pg. 36, Figure 3. 149Ibid, Figure 4. 230

Other factors contributed to this change other than declining crime levels. Increasing wealth and income inequality within the U.S. created a class of people who were willing to pay vast fortunes to live in America’s foremost city. The agglomeration of super-rich makes it all the more important for other members of that group to have some presence in Manhattan. The high prices commanded by elite co-ops are an extreme version of the willingness of the hyper-rich to pay to be around their own kind in Manhattan. The extremely wealthy are also less likely to be bothered by the problems in New York City public schools; the high quality of the city’s private schools is more important to this market.

A second important factor is that rising income levels for the richest Manhattan workers led to an increased value of time and an increased desire to live close to their work. Some of the neighborhoods that have turned around most strikingly since 1980 are those that are close to Wall Street but were low income for historical reasons. Tribeca, for example, had been distressed for decades. After 1980, highly -paid financial workers, whose time was extremely precious, started finding Tribeca lofts more attractive than Scarsdale homes.

Improvements in government and quality of life are two reasons that New York rebounded, but the real engine of its rebirth was economic. Since 1980, New York City’s financial sector has grown spectacularly. Today 28 percent of New York City payrolls is in the industry “security, commodity contracts and like activity.” Another 14 percent of payroll in professional, scientific and technical services.150 While the New York of 1970 was a diversified economy, the New York of 2007 is almost a one industry town.

The post-1980 boom in New York City finance shows the continuing ability of a dense environment to encourage new innovations. Leveraged buyouts, junk bonds, mortgage- backed securities and hedge funds all have grown enormously since 1980. New York City financiers played a major role in all of these developments, which then helped to

150Glaeser, Edward. Urban Colossus: Why is New York America’s Largest City? Cambridge; Harvard University, 2005. Pg. 42.

231

keep the city’s financial sector growing despite the exodus of back office operations to neighboring suburbs. The people who created these economic processes interacted with each other and worked to use each other’s innovations. The dense financial network in the city facilitated the speedy contact and evolution.

Leveraged buyouts are at their core just the purchase of a publicly trade company financed by public debt. The transaction replaces equity-financing with debt financing and generally leaves a small group of people with both control and very strong incentives to make the company profitable. In the 1970s, many large American companies seemed more interested in stability than maximizing profits. Salaries were modest, by present standards, and executives stood to gain only modestly by improving profitability. Wrenching changes such as firing large numbers of employees, selling off assets, or cutting corporate expenses were unappealing because the financial benefits to management were modest and often exceeded by the personal costs that would come with the disruption.

Leveraged buyouts and, more generally, takeovers were a market response to this phenomenon. Corporate raiders would, sometimes with management and sometimes against it, use debt to buy companies, make tough decisions and profit enormously. The earliest leveraged buyouts came before 1970 and were sporadic. Rollins, Inc.’s purchase of Orkin Exterminating in 1964 was an early example, as was Victor Posner’s takeover of Sharon Steel. The idea of such takeovers was not new.

But it took far more than the basic concept to create a large industry, however. Starting in 1976, Bear Sterns employees Jerome Kohlberg, Henry Kravis and George Roberts partnered to found a firm—Kohlberg, Kravis and Roberts, KKR—that specialized in leveraged buyouts. KKR focused on high-yield debt, often secured by a firm’s tangible assets and often worked with management. KKR was followed by a string of other firms like Forstmann Little (founded in 1978) that made leveraged buyouts more routine and much larger. One interpretation of the leveraged buyout phenomenon is that these financial rearrangements greatly increased the ability of the financial sector to increase 232

profits by changing managerial incentives. By increasing the profitability of a certain type of financial transaction, leveraged buyouts increased the importance of finance and the economic vitality of the nation’s financial capital.

One necessary ingredient in the rise of leveraged buyouts was the ability to borrow vast sums of money for a relatively risky business proposition. The success of the leveraged buyout phenomenon cannot therefore be separated from the rise of the high yield debt industry. Michael Milken, of Drexel Burnham Lambert, is the pioneer in this field. Milken’s great gift was to convince large numbers of investors that it made sense to bet not only on blue chip firms, but also on firms with a less secure profile. With Milken’s help, investors came to see that the returns from these investments compensated them for their risks. High yield bonds, issued by Drexel Burnham, would provide KKR’s financing for deals like their spectacular takeover of RJR Nabisco.

Popular accounts of Milken tend to depict him as something of a master salesman. While there is little doubt that he was spectacular at the sales side of the operation his contributions went far beyond mere showmanship. The problem with high risk securities is that they are somewhat harder to assess than AAA rated bonds. Bonds issued by enormously healthy companies are almost identical to treasury securities, after all, except for some almost infinitesimal chance of default. High- risk bonds are different because the default probability is higher so. The characteristics of firms matter more because the default risk is higher. Appropriate portfolio design becomes more complicated. Milken’s great gift was in making the risk characteristics of high- yield bonds more intelligible to everyone and providing the information and intellectual framework that would make investors more comfortable with these more dangerous securities.

Milken is particularly interesting from an urban viewpoint because in 1978 he moved his operation from New York to Beverly Hills. Like Kravis and Kohlberg, there is no doubt that Milken was a product of New York’s financial world. His skills were developed on the street and his primary innovations were already in place by the time he moved. However, for consumption reasons, like J. Paul Getty before him, Milken preferred Los 233

Angeles. He had, after all, grown up in the San Fernando Valley. Although he took his own operation west, however, his innovations ended up helping Wall Street far more than they helped the California securities industry. Long after Milken left the business, high yield bonds would continue to be an important profit sector for New York finance and a complement to other financial services, like takeovers.

Milken’s departure, in a sense, just reminds us of how fixed finance was in New York during most of this period. Some of New York’s continuing strength was historical accident. Kravis had started in New York and he stayed there. But New York’s strength in finance also reflects the high information content of the industry and the value of personal contact. Milken could and did connect by phone constantly, but he could only do this because he was so well known and because his customers were actually willing to trek out to Los Angeles. For the rest of the financial industry, presence in New York was needed to facilitate the personal connections that made it possible to convey nuanced information and to build trust. Finance is one of the industries that is most likely to remain located in city centers, presumably because of the benefits to connection created by a central location in a dense urban environment.151

In the late 1980s, mortgage-backed securities increasingly became a mainstay of financial markets and Wall Street played a central role in creating this vast market. The idea behind mortgage-backed securities is just that mortgages are bundled together, often by Freddie Mac or Fannie Mae, and these bundled mortgages are sold off to individual investors. Traditionally, mortgages had been held by the banks that issued them. And while this created strong incentives for banks to lend wisely, it was also led to large amounts of risk being held in these institutions.

Default is not the primary source of risk with mortgages. Instead, interest rate risk, where rate movements move up or down are what cause problems with a mortgage portfolio. If interest rates rise, then a bank may have to borrow at higher interest rates while its

151Glaeser, Edward, Matthew Kahn. Decentralized Employment and the Transformation of the American City. Cambridge; Harvard University, 2001. Pg. 35. 234

revenues are tied to the lower rates on the mortgages that it lent. For this reason, the rise in the interest rate in the late 1970s and early 1980s caused widespread problems in the banking sector. If interest rates fell, then investors would refinance and borrow at a lower rate, creating. There was clearly a big advantage to banks being able to sell their mortgages and get this risk spread across a wider base of investors.

Just as in the case of high-yield bonds, the big problem with mortgage-backed securities was their complexity. Prepayment and interest rate risk makes these securities inherently complex. In addition, each pool of mortgages has its own attributes further complicating the situation. The key to making this multi-trillion dollar industry happen was to make this risk manageable for a wide range of investors.

Salomon Brothers played the lead in the expansion of the mortgage-backed security industry. They invented the collateralized mortgage obligation, or CMO, in 1983. This created different branches of securities, some of which were quite secure and others of which were not. This enabled more risk-averse investors to focus on an easier asset class and left the real risk to be traded by the most knowledgeable investors. Increasingly sophisticated tools were used for predicting prepayment streams and assessing the risks of different investments. Michael Lewis, in Liar’s Poker, describes the wild and woolly world of the Salomon Brothers traders, like Lewis Ranieri who pioneered and spread this industry. Again, innovators in the industry who learned from each other, helped move finance forward.

The first hedge fund was started by Alfred Winslow Jones in New York in 1949. Jones’ idea was to both long and short the market so that the fund was hedged against broad market swings. Instead, the fund's performance would ride on the ability to pick particularly good companies to buy and particularly bad companies to short. Today, hedge funds do a large number of things, and their only real defining characteristic is that they are in principle looking for arbitrage opportunities—places where securities seem priced incorrectly—and that they are lightly regulated. The hedge fund industry has been 235 the big financial story of the last 15 years and it remains centered in New York and southern Connecticut.

The best way to understand the hedge fund revolution is that these entities are nimble, extremely well compensated, and provide an ideal mechanism for very intelligent investors to make money from mistakes in the market. They have succeeded in part because of the increasing sophistication of a small class of investors and technological improvements in computing that make it easier for the smart to quickly find pricing errors. Again, information is critical and the industry’s connection to New York comes in part from the city’s edge in facilitating the flow of information.

The rise of the southern Connecticut hedge fund industry does, however, also point to the importance of labor force location in driving this industry. New York City attracted the largest labor supply of would-be financiers for work in other areas of the financial markets. Proximity to that labor supply is a big advantage for hedge funds. The move to Connecticut is motivated by the fact that many wealthy New York financiers live there. Indeed, this suburbanization of the cutting edge of financial service firms may be the single most worrying trend facing New York City.

New York is not the only rustbelt city to be turned around on the basis of better government, improvement quality of life and economic revitalization around high human capital industries. Boston managed its own reinvention in the 1980s and 1990s based on the technology sector. Boston’s steady supply of high human capital engineers was the basis for this rebirth. Chicago moved from being an industrial powerhouse to being a center for finance, corporate headquarters and business services more generally. It provides a dense center for the economic leaders of the Midwest to interact.

Across cities, the human capital of the population has determined its success since 1970. Figure 7-1 shows the link between population growth and skills in cold regions. Figures 236

7-5 and 7-6 show the link between college graduates and income in 1970 and today.152 Thirty years ago, many of the best paid areas were industrial capitals with low skill levels. Today, the link between skills and earnings is far more perfect. These figures just show the total linkage, but if you look at the relationship between area skills and wages holding constant individual skills, that link has grown as well.

Cleveland

Cleveland’s early story mirrors that of Chicago and Detroit. Cleveland’s geographic advantage was that it was the spot where the Ohio and Erie Canal met Lake Erie. The Canal connected the Great Lakes and the Ohio River system, which made Cleveland a key point on the waterways connecting the Midwest and the East. The city boomed throughout the nineteenth and early twentieth centuries as a center for both commerce and industry. The Ohio River system brought coal north and the Great Lakes brought iron ore from Minnesota south, which made Cleveland an ideal place to make steel in the nineteenth and early twentieth centuries. The high costs of shipping these commodities allowed the city’s waterways to keep their value long into the twentieth century.

Cleveland was also the first city of the American oil industry in the nineteenth century. America’s first oil well was drilled in Titusville, Pennsylvania in 1859, which started an oil rush in northwestern Pennsylvania. Cleveland is close to that area, and its access to water and rail made it a good location to refine oil. John D. Rockefeller founded the Standard Oil Company in the city in 1870 and helped to make the city an industrial powerhouse. By 1920, Cleveland had almost 800,000 people and was the fifth largest city in the country, after New York, Chicago, Philadelphia and Detroit.

Its diversified manufacturing base enabled it to continue growing for another 30 years, but like Detroit it started its decline in the 1950s. Between 1950 and 1960, it lost almost

152Berry, Christopher and Edward Glaeser. The Divergence of Human Capital Levels Across Cities. Cambridge; Harvard University, 2005. Pg. 44. Figures 6 and 5, respectively. 237

40,000 people and in the 1960s Cleveland’s population declined by 115,000.153 The forces pushing this decline were the same as those that impacted Detroit: suburbanization, the de-urbanization of American manufacturing and the trend to move to warmer areas. By 1970, the city had taken on its modern counters: an insecure economic base and an increasingly depopulated city which had become a center of poverty.

Like every cold city, the 1970s were tough for Cleveland. In 1969, the polluted Cuyahoga River started to burn, which helped create the impetus for the 1972 Clean Water Act.154 Business further encouraged whites to suburbanize. In 1978, the city actually did default on its debt under progressive Mayor Denis Kucinich. Kucinich also famously fought and eventually fired his hard line Sheriff Hongisto. Rising crime and administrative chaos were the backdrops to Cleveland’s decline in the 1970s. The total population lost more than l77, 000 people, almost a quarter of its population. Its industrial past made it unappealing as a consumer city, and just like Detroit and New York, concentrated poverty had led to enormous social distress.

In Kucinich’s 1979 re-election campaign, his opponent George Voinovich, famously declared “I like fat cats. I want as many in Cleveland as I can get.” Despite the fact that this sentiment should be a mantra for any big city mayor, Kucinich exploited it to the hilt in their election, claiming that Voinovich was the candidate of the fat cats. The voters quite understandably went for the manager who said he wanted to attract business into the area and elected Voinovich. Voinovich replaced Kucinich’s progressivism with a more low-key and professional approach to government. He courted businesses and worked to solve Cleveland’s fiscal crisis. His successor Michael White was similarly cut from the city-manager mold.

Cleveland under Voinovich and White is sometimes credited as being a comeback city, and there can be little doubt that the quality of municipal government improved under their leadership. Voinovich focused on attracting business, providing basic services and

153 See Table: Population of Cleveland. www.census.gov 154 NOW with Bill Moyers. http://www.pbs.org/now/science/cleanwater.html 238

rebuilding the downtown. There is no proof that New York’s Ed Koch or Chicago’s Richard Daley were obviously better mayors than Voinovich. He was competent and focused on rebuilding the city and attracting employers. Furthermore, there is no question that the city did rebound at least a little under Voinovich and White. The Cuyahoga was no longer afire and the city’s finances became orderly again.

Voinovich followed the structure-related strategies of Richard Lee and Edward Logue. He liked building and used federal funds to significantly increase the amount office space in downtown Cleveland. He supported the housing project “Lexington Village,” the Key Bank’s construction of the largest skyscraper between New York and Chicago and the Galleria at Erieview, a large mall. From an aesthetic point of view, the city certainly looked better as a result of the building spree.

But just as housing projects didn’t turn around New Haven, new construction also doesn’t seem to have really turned around Cleveland. Indeed, the idea that the right response to lagging housing demand is to build more housing is a little bit puzzling. Today, the Voinovich supported Galleria at Erieview is quite short of tenants. Supply of space does not create its own demand.

Despite all of the rhetoric about Cleveland as a comeback city, the hard data doesn’t suggest more than a slowing of decline. Population has continued to decline steadily since 1980. In the 1980s, the city lost more than a tenth of its population declining from 574,000 to 506,000. In the 1990s, the city’s population dropped to 478,000. If the 2005, American community survey is to be believed the population has dropped even further to 414,000. A city that loses well over a quarter of its population in a 25 year period is not really in the process of coming back.155

Other data also reflect Cleveland’s continuing problems. In 2000, median family income was 30,000 dollars, or 60 percent of the median in the U.S. as a whole. Again, the 2005

155 Population of the 100 Largest Cities. http://www.census.gov/population/www/documentation/twps0027.html. See Table: Population of Cleveland. 239

American Community Survey suggests further decline both in absolute terms and relative to the U.S. as a whole. The share of individuals living in poverty is more than double that of the U.S. as whole. In 2000, the median housing value in the city was $71,000, suggesting that people aren’t willing to pay all that much for the privilege of living in Cleveland.156

Things are somewhat better in the surrounding areas. Median income in Cuyahoga county, which surrounds and includes Cleveland, is almost at the national average, but given that median family income in Cuyahoga county was substantially above the national average in 1979, even this is a relative decline. While New York, Boston and Chicago have seen increases in population, income and housing values, Cleveland has seen continuing declines in these three basic measures of urban success.

None of this is meant to denigrate Voinovich or the many people who have worked hard to rebuild the city since 1980. I believe that things would have been far worse under less responsible management. However, the history of Cleveland since 1980 has just served to show that the economic forces that drive urban change cannot be undone through competent leadership. Good mayors have the ability to slightly slow decline, and bad mayors can make things a great deal worse. However, cities located in a cold region and built at high densities, faced enormous challenges as people fled for warmer, car-based living. Fighting those trends is beyond any administration.

It is not, however, beyond a large set of well-educated entrepreneurs, and that is where Cleveland differs substantially from New York and Boston. In 2005, 40 percent of adult Bostonians had college degrees as opposed to 12 percent of Cleveland’s adult residents.157 The comparable number for Detroit is 11 percent. The relatively low levels of human capital in Cleveland hurts the local economy both because new start-ups are

156 2000 Median Family Income: Cleveland: $30,286; USA: $50,046. 2005 Median Family Income: Cleveland: $28,990; USA: $55,832. 2000 Median Value for all Owner-Occupied Housing Units in Cleveland: $71,100. 2000 Poverty Rate: Cleveland: 26.3%; USA: 12.4%. All data from U.S. Census Bureau, American Fact Finder. 157 U.S. Census Bureau, American Fact Finder. http://factfinder.census.gov. College degree defined as having a bachelor’s degree or higher. Boston: 305,387/763,699= 40%. Cleveland: 68239/559412= 12%. Detroit: 123272/1074070= 11% 240 less attracted to the area and because the area lacks its own class of educated entrepreneurs. It was possible for cold cities to come back from the 1970s, but comebacks relied on a skilled workforce.

Inequality across the colder cities

The comparison of New York and Cleveland highlights the range of outcomes experienced by colder cities since 1970. This diversity is seen in different population growth rates, and also in expending differences in incomes across cities. Figure 7-7 shows the distribution of per capita income levels across northeastern and Midwestern cities in 1970, 1980, 1990 and 2000. The figures clearly show increasing heterogeneity. Some places, like New York, are in the upper tail of the distribution and have experienced extraordinary productivity and wealth since 1970. Other places, in the bottom of the distribution, have experienced by poverty and stagnation since 1970.

These differences in income can overwhelmingly be attributed to differences in skill levels in the cities. As I illustrated in Figure 7-6, the correlation between share of the population and skills is quite tight in 2000. The rise in income inequality across places reflects both an increasingly tight connection between skills and income, both at the individual and at the city level, and an increasing tendency for skilled people to relocate around other skilled people. The starting point for rising inequality is the rise in returns to skill at the individual level. Starting in the late 1970s, the association of compensation and skills started to boom (Katz and Murphy, 1992). This increase has been attributed primarily to an increasing demand for skilled workers.

There are many factors that seem to have come together to create the rise in demand for skilled workers. The most important factor appears to be new technologies, such as the rise in the computer (Autor, Katz and Krueger, 1998) which is particularly useful to people with education. A secondary factor seems to be globalization. Declining transport costs meant that less skilled work could be increasingly done in developing countries at a fraction of the cost. The rise in globalization is associated with the parallel 241

decline in the strength of private sector unions which had an independent effect raising earnings inequality by reducing the wages paid to the less skilled.

These changes are economic, but they are not particularly urban. From the perspective of cities, the more interesting transformation has been the increasing association between average skills at the city level and wages, holding individual skills constant. Jim Rauch (1993) pioneered statistical techniques that hold individual level attributes constant (age, education, gender and even industry) and then look at the impact of the average level of skills in the city on earnings. Rauch finds that each year the average years of schooling in a metropolitan area increases, earnings increase by approximately 3.5 percent. This is a statistical way of assessing the role that skills in a metropolitan area play in making the workers of New York and Boston more productive than otherwise identical workers in Cleveland and Detroit.

In work with Albert Saiz, I have looked at changes in the impact of city-level human capital on wages over the last 30 years. While Rauch used average years of schooling, we used the share of the population with college degrees. We found that between 1970 and 2000, the impact of a 10 percent increase in the share of college education in a metropolitan area, holding again individual attributes fixed, increased earnings by about eight percent.158 Being around skilled people was valuable in 1970, but it seems to have become much more valuable since then. This increased connection between skills in certain locations and earnings explains much of the tendency of more skilled cities to succeed over the past 30 years.

Why are people more productive in skilled cities? This question gets at the heart of what 21st century cities do and even at the very nature of human beings. Our skills rarely operate in splendid isolation. We are a profoundly social species that is productive because we learn from each other constantly. Every person relies on an edifice of

158 Glaeser, Edward.L., Saiz, Albert. “The Rise of the Skilled City.” Harvard Institute of Economic Research Discussion Paper Number 2025. December 2003. Harvard University, Cambridge, Massachusetts.

242

knowledge built by humans over millennia. In changing situations, we constantly need new ideas and we produce them with the help of those around us. We take snippets of ideas that we have heard or seen in action and use them in our own innovations and responses to change.

Cities are organizations of people that at their best facilitate the flow of ideas and innovation. The financial services industry in Wall Street is a dense agglomeration of the skilled people all working to make money in the securities business. New ideas, like mortgage-backed securities, the Black-Scholes option pricing formula and portfolio insurance, spread rapidly in this dense environment. Successful ideas spread which makes it worth paying high rents to be at the center of the innovative storm.

Generally, the role of cities in spreading ideas is both profitable for the participants and good for society. The urban producers wouldn’t be borrowing ideas if it didn’t, at least on average, make money. Most innovations that make money also serve some useful purpose. New products make money because the eventual consumers value them. New financial strategies make money because they are allocating capital more efficiently. Of course, while I have no doubt that the general spread of ideas in cities is socially beneficial, particular ideas may spread that are not.

Many people have their most important interactions with fellow employees of a single firm. As an employee of a university, I constantly learn from my fellow academics and my students. Firms like IBM organize intellectual teams so that engineers can work together and learn from each other as they innovate. But there are limits to firm-based learning, as the case of IBM shows. A firm will only work on a narrow range of projects, and this necessarily limits the range of new ideas that can be learned. The great advantage of being in Wall Street or the Silicon Valley is the ability to observe the successes and failures of a constant stream of entrepreneurs. The amount of new information is much greater because the range of experimentation is vaster.

243

One characteristic of an idea-oriented city is the steady accumulation of human capital among its workers. A Wharton M.B.A. who has spent 20 years at the center of the New York City financial services industry will generally have a much greater knowledge-base to draw on than a classmate who spent 20 years managing a full-service brokerage firm in Montana. The range of experiences, which includes both success and failure, offer the New Yorker a post-graduate education that is far more valuable than her formal education. She will take those skills with her if she ever decides to leave the city.

Empirical evidence backs up these intuitive claims. In the 1990s, workers in big cities earned almost 30 percent more on average than workers outside of metropolitan areas.159 This effect withstands controls for education, age, industry, and even a version of an IQ test. However, when workers first come to cities, they do not typically experience an immediate wage gain; and when they leave cities, they rarely face an immediate wage loss. Instead, workers who come to cities experience faster gains over time. The tendency of wages to grow with years of experience is much stronger in big urban areas. One natural interpretation of this phenomenon is that cities act as forges of human capital, helping workers to become more productive as they are exposed to the flow of new experiences and ideas.

The urban edge in education may well turn out to be a big part of America’s productive advantage in the twentieth century. While the skills taught in textbooks can be easily learned in Shanghai or Bangalore, the knowledge that is acquired in Wall Street or Silicon Valley is, by definition, tied to America. The impact of globalization on America’s fortunes feels very different if you are in Detroit or New York. America has not maintained any sort of a monopoly on the ability to build good cars, and other places seem to be as efficient at producing them. Yet the edge of being at the center of ideas in Wall Street remains as important as ever. Another reflection of the continuing edge of idea-oriented cities is that young automobile entrepreneurs in China or India rarely dream

159 Glaeser, Edward L & Mare, David C, 2001. "Cities and Skills," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 316-42, April. 244

of moving to Detroit. By contrast, many young financiers in the same countries hope to one day work in Manhattan.

The impact of city-level skills on city-level wages is rising over time, and this presumably reflects the increasing importance of knowledge and innovation in the economy. In the case of Wall Street, the rising value of knowledge is a direct consequence of the increasing size of global capital markets. An innovator in the 1920s might have made a few million dollars by designing a new investment strategy that improved returns. A comparable innovator today could easily make 100 times that because the market is so much bigger. In the product markets as well, increasing globalization and wealth means that a new innovation can be sold to many more people and yield much larger returns.

The rise in returns to skill has been a central fact of labor markets since 1975. Customarily, this phenomenon is observed in the returns to years of schooling. Yet most of our skills are learned after graduation from others. Not surprisingly, those skills have also appreciated over time, which explains why it has become more important to live and work in a skilled city where there is much to learn from one’s neighbors. If technology has increased the value of a college degree, it has also made the experience of learning in the workforce more gainful.

The rise in the returns to skill coupled with the increasing value of being around highly skilled workers would have been enough to cause income inequality across cities to grow. But these changes have been accompanied by a third transformation since 1970 that has also increased inequality among colder cities. Since 1970, the most skilled places have become even more skilled relative to places with an initially less well-educated population.160 Figure 7-8 shows the link between the share of the adult population with college degrees in 1970 and the growth in the share of the adult population with college degrees since then. The share of a city’s adult population with college degrees rose by

160 Berry, Christopher R., and Edward L. Glaeser. "The Divergence of Human Capital Levels Across cities." Papers in Regional Science 84.3 (2005): 407-444. 245

five percent in 1970, and the growth of the share of its adult population with college degrees has increased by zz percent since then.

The fact that places with more initial college graduates have become relatively more educated over time has led to an increasing stratification of cities by education. The most educated city with more than 100,000 people in 1970 was Ann Arbor, Michigan; 46.8 percent of its adult population had college degrees. The least educated city was Camden, New Jersey; 3.2 percent of its adult population had college degrees. In 2000, the range from top to bottom exploded. The least well educated city was El Monte, California; 7.11 percent of its adult population had college degrees. The most well educated city was Ann Arbor, Michigan; 69.2 percent of its adult population had college degrees.

Why have skilled people moved to skilled places? One explanation is that skilled entrepreneurs increasingly innovate in ways that employ other skilled people. In 1903, Henry Ford’s innovation led to the employment of hundreds of thousands of unskilled Americans. By contrast, Bill Gates’ innovations may have benefited everyone, but his core employees have largely been skilled. In the data, we see an increasing tendency of skilled managers to work with skilled workers. Berry and Glaeser report that on average a one percent increase in the share of managers with college degrees was associated with a 0.15 percent increase in the share of workers with college degrees in 1970 and a 0.38 percent increase in the share of workers with college degrees in 2000.161 Historically, skilled managers have worked with unskilled workers. Today, skilled managers are more likely to manage the skilled.

Cities that thrive because of a dense agglomeration of skilled innovators are attractive to the skilled because education increases the ability to take advantage of circulating ideas. The knowledge produced in Wall Street can only be borrowed by someone who understands financial markets. Silicon Valley may be a fabulous place to be if you wish to be at the cutting edge of the computer industry, but for someone without any technical

161 Berry, Christopher R., and Edward L. Glaeser. "The Divergence of Human Capital Levels Across cities." Papers in Regional Science 84.3 (2005): 407-444. 246

training, this ambient information would not be useful. These are just two examples of complementarity between individual skills and area-level skills, which helps make sense of the tendency of skilled people to migrate to cities that have had an initial skills advantage.

Inequality within Cities

One consequence of the rebirth of colder cities is a widening divergence in income levels across metropolitan areas. New York is far richer than Cleveland, and this gap has only widened over time. But New York’s renaissance has also been accompanied by a rise in the amount of inequality within the city. Indeed, all of the older cities that have been reinvented as idea-producers now house considerable wealth and poverty. This is not obviously bad. As a society, we may be better off when rich and poor live tooth-by-jowl in older cities than when they live far apart in enclaves of wealth and ghettos of poverty. Still, inequality is as salient a feature of the older cities today as it was in 1900.

The presence of the rich in big cities is the result of the rising productivity of these areas. When New York reinvented itself as a center for the production of new ideas in finance, the leaders of this reinvention–Michael Milken, Henry Kravis, and Lewis Ranieri—made fortunes. It is difficult to conceive of an innovative urban economy where entrepreneurs take risks without the prospect of vast returns to the luckiest and smartest of them. To insure the supply of those entrepreneurs and their ideas, returns need to be high.

The increasing productivity of skilled cities may explain why there are wealthy people working in Wall Street, but it does not help us to understand why the rich continue to live in Manhattan. Since 1975, there has been an economic reinvention in many colder cities as well as an increasing concentration of high net worth individuals in the city center. In some cases, the rich have even decided to live in the city and commute out. From the perspective of 1970, when the wealthy seemed to want nothing more than to flee urban density, the rise of so-called reverse commuting is particularly puzzling.

247

Three observations will help us to understand why the wealthy continue to live downtown in at least some of the older cities. First, the rise in economic productivity means that the value of time has increased. Every minute spent commuting is one that cannot be spent trading derivatives. Since commutes from the suburbs to older cities can take at least an hour, we should not be surprised that the very wealthy choose to live in the city. As the rich have become extremely rich, the inconveniences of city life, like paying for private schools and expensive housing, seem minor relative to the great value of saving time.

Second, big cities have become more pleasant with the decline in crime. In the 1970s, many of the older cities had crime rates that made them feel unlivable. Even a 30 minute walk home from the Metropolitan Museum to Park Avenue after dark felt risky. In the 1980s and especially in the 1990s, major cities became significantly safer. This change may be the result of improvements in policing, demographic shifts, and possibly even abortion. But whatever the cause, as cities grew safer, they became more attractive to the prosperous.

Third, cities have always had special amenities that make them attractive as places of consumption, especially for the rich. Large urban scale makes it possible to have entertainment venues like art museums and opera houses that require massive amounts of fixed infrastructure. Older cities also have beautiful architecture built by previous generations of wealthy residents. In addition, large urban scale can support a vibrant range of restaurants and stores, which make cities exciting places to spend money. All of these amenities appeal to the very rich and help keep older cities thriving as centers of consumption. Thus, the rise of the consumer city is another aspect to the rebirth of older cities and an explanation for their attractiveness in the eyes of the wealthy.

But to understand urban inequality, we must understand not just the attraction for the rich but also the attraction for the poor. The productivity of Wall Street and great restaurants may help us know why Manhattan continues to attract the well-to-do, but why are their so many poor people still living in New York? Indeed, the growth of the New York City 248

population in the 1990s was associated with an increase in the population of the underprivileged, particularly immigrants, who lived in the outer boroughs. Why do the poor continue to live in New York when growing sunbelt cities seem to offer so many advantages?

The simplest and possibly most important factor drawing the poor to older cities is public transportation. Cars are a remarkable technology that reduces commute times for millions, but they are also expensive. Life in the sunbelt’s urban frontier makes owning a car a necessity. The maintenance, insurance, and oil costs associated with car use places a heavy burden on the poor. Yet, a poor immigrant can live well in Queens without an automobile. For citizens with a lower opportunity cost of time, cities are not appealing because they offer shorter commutes than other places, but rather because they offer longer, less expensive commutes via public transportation.

Matthew Kahn and I have examined the connection between poverty and public transportation. We find a strong tendency of the poor to cluster around subway stops and bus routes, even in Los Angeles. We divide cities up into areas that are dominated by different transportation technologies, namely walking, public transportation, and automobiles. Within these areas, the rich generally live closer to their workplaces, as one might expect given their high opportunity cost of time, while the poor tend to live in areas where public transportation is still an option.162

Other factors complement the role of public transportation in drawing the poor to older cities. Older housing is generally cheaper, which appeals to those with less cash. Also, ethnic enclaves can be welcoming places for new immigrants who lack connections in America. In addition, cities are often run by politicians who owe their place to support from the poor and who, consequently, ensure that public services cater to those constituents. Tony suburbs are less friendly to the poor.

162 Edward L. Glaeser & Matthew E. Kahn & Jordan Rappaport, 2000. "Why Do The Poor Live In Cities?," Harvard Institute of Economic Research Working Papers 1891, Harvard - Institute of Economic Research. 249

The combination of idea-based productivity drawing in the rich and public transportation drawing in the poor makes the older cities seem almost Dickensian in their inequality. But while this inequality may be troubling, it is not obviously bad. If the alternative is for the wealth to live in leafy communities, isolated from the rest of the world, integration of the wealthy and poor in the city seems quite positive. Certainly, fighting poverty is a moral obligation, but inequality is not an inherently terrible condition if poverty remains constant. As I will discuss in Chapter 9, the most worrying prospect for these older cities is a resurgence of economic populism as a response to income inequality, a phenomenon that would drive away the rich and destroy the economic engine of urban success.

Housing in the Older Cities

One of the most remarkable features of New York’s turnaround has been the modest change in housing stock. As the city has become more productive, housing prices have soared. As Figure 7-9 shows, this rise in price has been accompanied by a decline in the production of new units. Glaeser, Gyourko and Saks show that in the 1950s and 1960s, rising prices were accompanied by increases in the number of units permitted and built. In the 1980s and 1990s, the number of new permits declined and began to follow its own process unrelated to the state of prices and demand.163

The reduction in the number of permits means that the city’s housing stock has been stagnant and its population has grown only modestly. As I will discuss at length in the next chapter, the number of people in a city is essentially proportional to the number of homes. This does not imply one-way causality between the statistics, but when a city stops building, its population will almost always decline.

The combination of rising prices and declining supply shown in Figure 7-9 point to a change in the market supply of housing. Higher housing prices suggest that demand for living in New York has increased. Thus, if supply conditions had been constant, this rise

163 Glaeser, Edward L., Joseph Gyourko, and Raven E. Saks. "Why Have Housing Prices Gone Up?" Harvard Institute of Economic Research Discussion Paper No. 2061 (also NBER Working Paper No. W11129), February 2005. 250

in demand should have been met with a significant increase in the supply of new units. Instead, new supply fell.

The lack of supply in New York City does not reflect a lack of land. New York City has lacked land throughout the 20th century, but in the early 1920s, when the city might have seemed “built out” by modern standard, 100,000 new units were being built every year. The natural supply response in New York City is not to use more land but to build up. The great building booms of the 1920s and 1950s were accomplished by replacing lower density dwellings with taller and taller apartment buildings. In the 1970s, this trend reversed. As Glaeser, Gyourko and Saks show, the share of apartments being built in structures with more than 20 stories fell from four-fifths in the 1970s to two-fifths in the 1990s.164 Just as the city was demanding taller and taller buildings, its buildings got shorter.

This decline in building heights cannot be a free-market phenomenon. Today, the gap between construction costs and prices is huge. Most builders would love to build taller buildings if they could. Instead, a combination of land use regulations, air rights and landmarks debates are artificially constraining heights. There may be advantages to these restrictions insofar as they increase quality of life for the city’s wealthy residents. But the downside is that prices are extremely high and new growth is stymied. As I will discuss in the next chapter, there seems to have been a sea change where neighborhood groups have become increasingly adept at blocking new construction.

One example of the fights over new construction is the “Battle of Carnegie Hill.” This fight over building on Manhattan’s Upper East Side involved a stunning array of famous names including Woody Allen, Kevin Kline and Paul Newman, as well as financial titans like Citigroup CEO Sanford Weill, and former Deputy Treasury Secretary Roger Altman.

Citigroup had sold a corner site at 91st and Madison Avenue to a local developer. The developer, Tamarkin Architecture and Development, proposed a 17-story apartment

164 Glaeser, Edward L., Joseph Gyourko, and Raven E. Saks. "Why Have Housing Prices Gone Up?" Harvard Institute of Economic Research Discussion Paper No. 2061 (also NBER Working Paper No. W11129), February 2005. 251 building. It had the air rights for the structure and there were several other buildings that were taller in the neighborhood. Nonetheless, the neighbors decided that this new structure would be an inconvenience and decided that the city should enforce their tastes.

In 2000, the Landmarks Preservation Commission denied the developer’s request to build after listening to numerous witnesses attesting that the structure would unfairly alter their neighborhood. Woody Allen produced a short video about the Carnegie Hill Neighborhood. New York Magazine reported that Mr. Kline quoted Richard II to the Landmarks Preservation Commission: “How sour sweet music is, when time is broke, and no proportion kept!” Mr. Weill faced social pressure to stop the development. Three years later, construction finally began on a scaled down nine-story building that was approved by the Landmarks Commission.

The demand was certainly high enough to sustain a larger structure, but pressure from neighbors and regulators forced the structure down. In other cities, like Boston, new construction has been halted by community groups using the powers of the state to restrict new development. There are both positive and negative aspects to this trend, but it has meant that successful colder cities are smaller than they otherwise would be and fewer people are able to live and work in them.

252

Chapter 8: Sunbelt (San Francisco and Las Vegas)

While skills determined which cities grew in the frost-belt, skills have been irrelevant to city population growth in the warmer areas of the country. Figure 8-1 shows the relationship between population growth and skills in U.S. West and South. However, this flat line doesn’t mean that skilled cities didn’t thrive in the sunbelt as well. Figure 8-2 shows the relationship between housing price growth and skills in these warmer regions. The positive connection between skills and price growth is exactly the same as it is in the frostbelt. Figure 8-3 shows the positive relationship between income growth and skills in the warmer regions. Again, there is a robust positive relationship.

Skills are predicting price and income growth in the warm regions, so it seems that just as in cold places, skills are associated with increasing economic productivity and increasing demand. Oddly, despite this heightened demand, population isn’t rising. The natural economic interpretation of these facts is that supply has been much more constrained in the more skilled cities. Places with both warmth and skills were certainly set to grow as of 1980, but in these places housing supply was more constrained, at least relative to the less skilled southern cities. The limits on supply help us to understand why income and prices increased in skilled, warm places, but population did not.

Increasing limits on supply are the most important change in the sunbelt over the last quarter century. Through the 1970s, California was a typical growth region, generally accommodating developers and allowing new construction to meet demand. Starting in that decade, an alliance of homeowners and environmentalists made it increasingly difficult to build in the Golden State. While Los Angeles built 137,908 thousand new units in the 1960s, that city built only 37,743 thousand new units in the 1990s. As supply became constricted, prices rose and people who wanted to move to warm areas increasingly chose metropolitan areas that were friendlier to growth.

California’s move to restricting housing was a great boon to developers in Las Vegas, Phoenix and other sunbelt cities which boomed, providing a more affordable alternative 253

to southern California. Table 8-1 shows the twenty fastest growing metropolitan areas in the U.S. in the 1990s according to the Census. Every one of these areas is in the south or the west. All but three of them (Boise, Idaho, Provo, Utah and Fort Collins, Colorado) are quite warm. Twelve of them are in Arizona, Florida, Nevada and Texas. These places combine warmth with a much more lenient approach to new construction than Florida. They have been the big story in American urban growth since 1980.

The Bay Area: Santa Clara County

The proper name for Silicon Valley is Santa Clara Valley, and the bulk of this famed region is in Santa Clara County, named after a Spanish mission. The county contains Palo Alto, Mountain View, Sunnyvale and San Jose and is today one of the almost unmatched in its success. It combines an extraordinary climate—warm in the winter and mild in the summer—with great economic significance. Santa Clara County is the capital of America’s computer industry, and its residents are well-educated and wealthy. About 45 percent of adults in the county have college degrees. The median family income is $90,000, more than 75 percent above the national average. Its residents surely seem among the most blessed of all Americans, enjoying a combination of wealth and climate that are almost unparalleled in human history.

While the county has historical roots going back to the eighteenth century, as late as 1940, the county had less than 175,000 residents. Since the county encompasses 1,300 square miles or about 52 million acres, his means that there were about 300 acres per person, reflecting the area’s rural character. San Jose, the county’s largest city then and now, had 68,000 inhabitants. The city had grown slowly until that point and had centered on the region’s rich agricultural hinterland. The city’s great industry was canning, and Del Monte was the town’s largest private employer.

Santa Clara County, like much of California, is an ideal spot of intensive agriculture. Its mild climate made it ideal for growing fruits and vegetables, especially grapes, apricots and broccoli, which was first farmed commercially in the U.S. in San Jose in 1922. 254

Nearby Gilroy is a great city of garlic production, still annually hosting a great garlic festival. The region was prosperous in 1940, not because of manufacturing or commerce, but just because the land was rich. The abundant land and marvelous climate made Santa Clara County an ideal place for Leland Stanford, a California rail magnate and former governor, to found his university in 1885.

Starting around World War II, the region began its transformation from agriculture to manufacturing. For example, San Jose’s Food Manufacturing Company which had been specializing in agricultural equipment, like Bean Spray Pumps, converted to producing war materiel like LVTs, amphibious vehicles that were used extensively in the Pacific in World War II. Today, Santa Clara County still has 2,600 workers in food manufacturing, but this is tiny relative to its computer industry. By contrast, the county has more than 70,000 workers in computers and electronic product manufacturing (more than one-half of its total employment in manufacturing and almost one-tenth of the county’s total employment).

The town of San Jose started as a center of information technology when IBM opened their west coast headquarters there in 1943. IBM’s choice of San Jose apparently reflected the town’s attractions as a consumer city. The Company website recounts: “The decision was unanimously in favor of San Jose because of its being a home community with good schools and its advantageous location and facilities.” Reynold Johnson would come to San Jose in 1952 to head the San Jose IBM Lab. Johnson would lead the team that invented RAMAC, the first disk drive. His fertile mind would also give us the first videocassette tape, and (in retirement) the Fisher-Price “Talk-to-me” books.

But while IBM and other large companies would dominate the computer industry on the east coast, Silicon Valley’s development would be much more entrepreneurial. A network of initially small producers, drawn by Stanford and the climate, would interact and create a remarkably innovative environment that supported the continuing production of new ideas and new firms. While Santa Clara’s core export industry is computers, it 255

has a whole set of supporting services, like venture capitalists and patent lawyers, who support entrepreneurship.

Forty years ago, Benjamin Chinitz argued that New York was much more productive than Pittsburgh, because New York had a host of small firms that were not vertically integrated. As a result, new firms could firm using freestanding suppliers who would make it possible for them to operate without build a vast vertically integrated system. By contrast, Pittsburgh was dominated by a smaller number of vertically integrated firms. The absence of freestanding suppliers made new firm formation more difficult. In the last chapter, I described how Detroit evolved from a city of many small firms that supported the early entrepreneurs to a city dominated by the Big Three automakers.

In the computer industry, Annalee Saxenian argued that the east coast was like Ben Chinitz’s characterization of Pittsburgh or Detroit in later years. A few large firms dominated and, since they were vertically integrated, there were few services to support start-ups. By contrast, in California, small firms proliferated from the first. These small firms were both remarkably cooperative and also supported a network of suppliers which then stood ready to supply new firms. While Silicon Valley did have a significant IBM operation, this operation would be exceptional, and the heart of Silicon Valley would be smaller start-ups.

The prototype of these start-ups was the collaboration of William Hewlitt, David Packard and Frederick Terman. Terman’s father, Lewis Terman, was an eminent Stanford psychologist and a developer of the Stanford Binet intelligence test. Frederick Terman went east to get his Ph.D. at M.I.T., but then returned to Stanford in 1924 as a faculty member. Terman had a bout of tuberculosis that made the west coast’s dry atmosphere particularly attractive.

Terman was a truly remarkable academic entrepreneur. He almost single-handedly built a radio engineering program at Stanford. He funded his program with extremely popular textbooks and with a steady stream of patents. Terman’s decision to focus on the 256

relatively new field of radio technology was an indicator of his ability to spot growth opportunities. His methods of building Stanford’s engineering program showed a constant willingness to engage in and use the world outside of the academy. He would later become the university’s engineering dean and provost. His leadership in building Stanford’s strength in technology may eventually be seen as being as important to Stanford’s rise as Charles W. Eliot role in making Harvard a research university played in late 19th century.

Terman’s engagement in the outside world had three very tangible manifestations, all of which would play a major role in creating Silicon Valley. First in 1937, he encouraged the Hewlitt – Packard partnership and lent them 538 dollars to begin producing an audio- oscillator. World War II changed radio technology from minor part of the entertainment industry, to an important element in national defense. Hewlett-Packard thrived on military contracts for “electronic measuring devices and receivers that were used to detect and analyze enemy radar signals” (Saxenian, 1994, p. 20). Terman’s early move into radio technology had led to the dissemination of ideas that would be the first big break for Stanford-area technology firms.

Hewlett-Packard would become one of the leading innovators in Palo Alto. In the 1960s, HP began producing semiconductors. In 1968, HP produced the first personal computer. In 1972, HP produced the first handheld scientific electronic calculator. The firm became an important innovator on its own and an attraction for other firms seeking proximity to innovation.

Second, Terman as Stanford’s Dean of Engineering founded the Stanford Industrial Park that would provide an idea-oriented locale for technology firms. By 1961, the Park “had grown to 652 acres and was home to 25 companies that together employed 11,000 people” (Saxenian, 1994, p. 24). Initially, land was cheap and the site offered proximity to Stanford’s growing number of engineering faculty and students. The Stanford Research Institute was founded to connect these firms with the university. After an initial agglomeration occurred, new firms came to be close to the older firms as well as to the 257

university. The success of technological innovators depends on producing new ideas, and proximity to other ideas producers and the university was obviously valuable.

Terman’s step was interesting because while previous centers of idea production generally grew up haphazardly, this one was planned from the start. Wall Street is an idea center, but there was no single entrepreneur who designed the area to be a hotbed for the diffusion of new ideas. By contrast, Terman knew what has was doing from the start and succeeded brilliantly in place-making. The only downside of Terman’s success is that many other spatial entrepreneurs then decided that they could easily start their own parks without recognizing that Terman had two remarkable advantages—a great university and a great climate—that made his park particularly attractive.

Terman’s third major contribution was his modest role in helping to convince William Shockley to set up Shockley Transistor Laboratories in the Stanford Industrial Park. William Shockley’s mother was a westerner who had gone to Stanford because it was co- educational and free (Shurkin, 2006). After a British adventure, the Shockleys came back to Palo Alto where both the young William Shockley and his mother were given IQ tests by Frederick Terman’s psychologist father. After graduating from Caltech, Shockley received his Ph.D. at M.I.T. in 1936. After World War II, Shockley joined Bell Labs as the chief of a Solid State Physics Group, where he assembled an extraordinary group of scientists and led them to invent the transistor. Shockley shared the Nobel Prize for this work in 1956.

Shockley had a remarkable talent for both spotting and attracting talent combined with an equally remarkable talent for alienating the talent he had recruited. At Bell Labs, this meant that Shockley was involved in internecine squabbles over, among other things, credit for inventing the transistor. Shockley’s limits as a manager led him to be passed over for promotion. He left for a faculty position at Caltech in 1953, presumably drawn in part by the consumption advantages of California.

258

In 1955, Arnold Beckman, a Caltech professor and friend, thinking presumably more of Shockley’s success as a scientist than of his failures as a manager, financed the Shockley Transistor Laboratory. Shockley located in Silicon Valley in part because of proximity to his mother, but the location also made good economic sense. The magnificent climate together with proximity to Stanford and to other technology entrepreneurs would help to attract top scientists to his firm. While Shockley’s track record at Bell Labs hindered his attempts to raid their staff, his eminence still enabled him to put together a remarkable crew, including Gordon Moore and Robert Noyce (who would found Intel) and Robert Kleiner (who founded the venture capital firm Kleiner Perkins).

Shockley’s ability to first attract and then repel genius worked out badly for his backer Beckman, but splendidly for the region as a whole. Shockley’s managerial style was downright bizarre. After his secretary cut her finger on a broken thumbtack, Shockley demanded that his employees take lie detector tests to determine the culprit. His scientific judgment was also proving to be erratic; in 1957 he refused to continue research on Silicon-based semiconductors. The combination of bad scientific and personal management led to a revolt in 1957 where eight of his top engineers went to Beckman to get relief from Shockley. Their revolt ensured that Shockley’s firm would not become a self-contained scientific powerhouse but rather the progenitor of a large number of Silicon Valley based technology firms.

When Beckman did not replace Shockley, the “Traitorous Eight,” as they became known, left the firm and got backing from Sherman Fairchild. Fairchild’s father had been a co- founder of IBM, and Fairchild himself had been an aviation pioneer, co-founding Pan- American Airlines. When he was approached by the eight, he was running Fairchild Camera and Instrument, a pioneer in flash photography. With Fairchild’s backing, the eight founded Fairchild Semiconductor, which initially focused on the pioneer production of Silicon transistors. The birth of Fairchild started a process that would be repeated throughout Silicon Valley’s history. Smart entrepreneurs spun off from a parent company when that company was unwilling to produce a new product.

259

Fairchild became enormously profitable very quickly primarily through government contracts, but its succeed failed to hold onto its talent. All eight eventually moved on to found a number of spinoffs, many of which then came to have their own spin-off operations. Intel, founded by Moore and Noyce with financing from Perkins, was only the most famous of the Fairchild progeny. Along with this process of births and spinoffs, an economic structure emerged that both helped spread ideas and that provided inputs into new firms. Stanford became a steady supplier of engineers to the industry, just as Terman hoped that it would. Perkins and other specialized in providing venture capital for the young firms.

The region had no natural industrial advantage. There was no analog to the presence of Iowa corn fields which fed the hogs which then got butchered in nearby Chicago. The region prospered because it attracted really smart people and developed, in an ad hoc decentralized manner, a network of suppliers catering to the brilliant. But just as there was no obvious productive advantage to the region, its growth was certainly not random.

The combination of climate and Stanford made Silicon Valley a superb place for wealthy people, who valued both quality of life and smart colleagues to locate. Shockley’s biographer Joel Shurkin writes “Also important to him, probably, the region was, and is, an exquisite place to live.” The agricultural nature of the area meant that during the early days, there was less competition for land than there would have been in Los Angeles. Once the region’s development got going, smart people attracted smart people and a self- sustaining cluster emerged, but the region did have fundamental attributes that helped make it a success. The key is to recognize that those fundamentals look quite different than the fundamental geographic attributes that lay behind Chicago or Detroit. The fundamental strengths of Santa Clara County lay in the area’s attractiveness to smart workers, not in anything intrinsic to the production process.

Over the next 40 years, economic productivity and consumer amenities led Santa Clara County and the bay area to boom. In 2000, the San Francisco and San Jose metropolitan areas were two of the three wealthiest metropolitan areas in the country, measured by per 260

capita income. Driven by the production of new ideas, admittedly with ups and downs, and secured by a remarkable climate and a strong educational infrastructure, Santa Clara County seems like it should be as dominant in the 21st century as New York was in the 19th century. But while incomes and housing prices in the area rose more or less steadily between 1960 and 2000, the population growth of Santa Clara County started leveling off in the 1970s. Since 1980, the county’s population increased from 1.3 million to 1.7 million, or by less than 30 percent, which is only slightly higher than the population growth of the entire country over the same time period.

The combination of booming incomes and housing prices with population increases that only managed to keep pace with the U.S. as a whole was unprecedented prior to 1970. Throughout almost all of American history, urban success meant urban growth. When Boston or New York or Chicago boomed, the natural consequence was that thousands and then millions came to those cities. But the growth of Silicon Valley has left the region relatively unpopulated. Currently, there is less than one home per acre in Santa Clara County for a density level of about two people per acre. While this is certainly denser than the region was during its Monsanto years, it is far from Chicago in the 1890s.

The slowdown of population growth in Santa Clara County is not unique in California since 1980. In many of the state’s most desirable areas, population growth started to slow down in the 1970s. Santa Barbara county’s population grew by 50 percent in the 1960s, but has experienced almost no growth between 1990 and 2005. Marin county grew by a third in the 1970s, but has grew by less than 15 percent between 1980 and 2005. The population of San Mateo County had risen from 112,000 in 1940 to 556,000 in 1970. Between 1970 and 2005, its population grew only 23 percent. In 1970, California’s climactic advantages and growing productivity seemed poised to remake America as a Pacific coast nation, but suddenly population growth, especially in the state’s most attractive areas slowed dramatically.

261

Restricting Housing Supply

To understand why growth in Silicon Valley since 1970 has taken the form of rising prices more than rising populations or housing supply, we must turn to the basic tools of supply and demand. In Figure 8-4, I show the impact of an increase in demand for an area and two different housing supply lines. The increase in demand for an area is mean to reflect either increasing productivity which raises wages and pulls people towards the area or an increased demand for the amenities of the area. Santa Clara County and much of California experienced rising demand because of both of these forces.

The impact of the shift in demand depends on the shape of the supply curve. The flatter line is meant to capture housing supply throughout most of American history. People built freely and prices did rise as population increased, but these rises were modest. The steeper line is meant to reflect conditions in California in the last 30 years. When supply is steeper, or in the jargon of economics, less elastic, then rising demand leads mostly to rising prices, not to significant increases in the quantity of housing. The changing patterns of development in Santa Clara County, and elsewhere are best understood as reflecting in shift in the ability to supply new housing.

What would cause a supply curve to become much less elastic? One possibility is that a region is running out of land, but there is little evidence to suggest that this is the case in Santa Clara County, or much of the rest of California for that matter. Two people per acre is hardly crowded. Moreover, the history of New York City shows a remarkable ability of unfettered construction to accommodate new demand even when land is quite limited. In that early 1920s, the city was building 100,000 units per year, despite the city’s already high density levels. They were just building up. But in Santa Clara County since 1970, there was little building up and or building at all, at least relative to pre-1970 experience and relative to demand.

The second big factor driving the elasticity of housing supply is the degree to which new construction is limited by land use controls. Throughout the U.S., local and state 262

governments have increasingly restricted the uses of land. When these restrictions become sufficiently tight, with high minimum lot sizes and vast areas of land set aside for environmental reasons, it becomes much more difficult to build. The results of these restrictions are limited housing growth and rising prices.

Why did the regulatory environment become so much more difficult for developers of all sorts? Two parallel and related processes were at work. On the ground level, neighborhood groups became increasingly interested and effective at challenging new development. At a higher level, the judiciary became quickly and sharply more sympathetic towards environmental and preservationist aims (DiMento et al. 1980). These two changes certainly occurred and they certainly made it increasingly difficult for both private developers and governments to build. It is less certain why they occurred, although there are a number of plausible hypotheses.

In the 1940s and 1950s, both governments and developers had generally enjoyed a free hand in their large scale projects. Today in Santa Clara County or Manhattan, projects that displace no one and that are done entirely on private property with private funds, can generate huge opposition if they appear to change the character of an area in any way. In the immediate post-war years, governments used the powers of eminent domain to move thousands to build vast public projects all paid for with public moneys and the opposition was minimal. According to Robert Caro “during the seven years since the end of World War II, there had been evicted from their homes in New York City for public works— mainly Robert Moses’ public works—some 170,000 persons” (Caro, 1974, p. 967). Robert Moses built bridges, highways and public housing and to do that he move tens of thousands of New Yorkers around. For decades, he did this facing almost no effective opposition.

I do not mean to suggest that all of Moses’ project were bad or good. He was neither the arch-villain painted by Caro nor a civic savior. I have already expressed my doubts about the ability of housing and infrastructure to revive declining cities, but for some projects benefits do really exceed costs. At their time, these projects, including slum clearance, 263

where thought by urban experts to be the best thing that could be done for a city. To me the most remarkable thing about the immediate post-war period is not that Moses got everything wrong or everything right, but that he was able to do so much with so little opposition. He, and others like him in cities throughout the U.S., had the support of the government and the bulk of the chattering classes and they proceeded to overwhelm the opposition. It certainly helped that the majority of families being evicted were poor and lacked the legal and political resources to fight.

Rumbles began in the 1950s. There was opposition to segregation in public housing projects like New York’s Stuyvesant Town. In 1956, the master-builder Robert Moses, who happened to also serve as New York City’s park commissioner, decided to build a turn a playground in Central Park into a parking lot for the tony park restaurant Tavern on the Green. This seemingly modest intervention set off “the Battle of Central Park.”

In this battle, Moses faced not the less fortunate of Harlem, but the well healed mothers of the upper west side. Those mothers had lawyers who dragged out the most embarrassing aspects of Moses’ concession with the restaurant. They had the sympathetic journalists. The New York Times itself, historically a robust Moses supported, turned against him, perhaps because the doyenne of the Sulzbergers was a great park enthusiast (Caro, 1974, p. 992). Faced with such organized opposition that was so effectively sullying his once great name, Moses caved. His power was no match for the opposition of a community group that was skilled enough in using the courts and the press.

This small battle may have been the turn of the tide but it was only a warm-up for the great fight over the lower Manhattan expressway. The idea for a downtown cross- Manhattan expressway was already in the 1929 Regional Plan Association report. In the 1940s, the sense of such an expressway seemed obvious. Drivers entering Manhattan through the Holland would have been able to shoot across the island and take either the Williamsburg Bridge or the Manhattan Bridge to Brooklyn. The highway would have made it easier to get through the city and connected Brooklyn more tightly to the nation’s 264

highway system. As soon as World War II ended, master highway builder Moses began championing the highway.

Of course, such an expressway required not only money but the relocation of hundreds of businesses and thousands of people. While Moses had accomplished just such a feat when he built the Cross Bronx Expressway n the 1950s, the downtown Manhattanites had more in common with the West Side mothers groups than with the less advantaged citizens of the Bronx. Jane Jacobs, the great urbanist, was one of the residents of Greenwich Village who would have been relocated if the expressway had gone through. It is hard to imagine Moses finding a more articulate and effective opponent. Jacobs’ led the “Joint Committee to Stop the Lower Manhattan Expressway” and pioneered effective “preservationist” opposition to new construction.

Jane Jacobs’ Death and Life of Great American Cities is one of the great masterpieces of urban writing. Its analysis of what makes neighborhoods work is unparalleled. It combination of keen journalistic observation with tight theoretical analysis makes it almost unique among the masterworks of city writers. But admiration for Jacobs’ work should not blind us to the fact that the book was also a political polemic clearly meant to build support for her fight against Robert Moses. She excoriates “expressways that eviscerate great cities,” that she likens to the Huns: “they are the sacking of cities.” Moses’ stilted counterclaims that “The route of the proposed expressway passes through a deteriorating area with low property values due in considerable part to heavy traffic that now clogs the surface streets,” seemed both callous and disingenuous.

Jacobs’ writing and organizing brought public opinion to her side. Newspapers found her good copy. She was adept at framing the issues so that Moses looked villainous. Politicians followed public opinion. Mayor Lindsay proposed replacing the vast elevated highway with a cut-and-cover tunnel, but Jacobs and her allies were having none of it. Taking a page out of the civil rights movement, Jacobs was arrested for protesting the project in 1968. Eventually, the highway’s supporters just gave up. The forces of preservation had vanquished the builders with public relations. 265

Jacobs’ victory over the lower Manhattan expressway ushered in a new era of public projects. As Alan Altshuler and David Luberoff write in their great chronicle of mega- projects, the era of unfettered construction was followed by a period where community opposition increasingly brought these projects to a halt. Governments that wanted to build eventually figured out how to design projects that would be built without relocating a single house. Boston’s Big Dig is the classic example of just such a community friendly project. While there is little doubt that the old system often ran roughshod over communities, the new system is far from perfect. The downside of accommodating everyone is that many useful projects remain unbuilt and those that are built can be exorbitantly expensive.

The process of fighting the government in Manhattan naturally extended to fighting private developers in New York, California and elsewhere. If community opposition can stop a highway, it can also stop a tower. In 1963, at the same time as the battle of the expressway, the Pennsylvania Railroad demolished the old Pennsylvania Station to build a new station, Madison Square Garden and two office buildings. The conversion was not some public taking of private property, but an essentially private company converting its space to a more economically viable alternative. But the public outcry against change could be as readily used against a private developer changing private property as it could against Robert Moses leveling a neighborhood. Fondness for the architectural beauty of the old station helped fuel an outcry which led to the New York Landmarks Preservation Commission in 1965. A public entity that is highly responsive to neighborhood pressure, today holds sway over 23,000 buildings and 85 historic districts.

Manhattan may have been the epicenter for battles over preservation in the 1960s, but the impact of the anti-growth movement was much more significant in California in the next decade. In the 1950s and 1960s, California was a builder’s paradise that would have made Robert Moses feel right at home. A vast highway system was built throughout the system. In the 1960s, the Irvine Company was building thousands of homes turning a one-time ranch into a large city. But by the end of the decade, anti-growth groups were forming that would end up putting a major check on housing growth in California. 266

New York’s preservationists fought to preserve existing buildings. Jacobs argued for the advantages of low-rise neighborhoods. Architectural preservationists sought to protect the beauty of older buildings. In some California cities, a similar ethos guided the fight against new construction. In northern San Francisco, community groups managed to establish a 105 foot height limitation on new buildings. Earthquake risk joined neighborhood preservation as a justification for this limit. While this restriction restricted San Francisco’s growing upwards, most of the state growth was in single family housing on the urban fringe. The state was by and large still relatively virgin territory. Environmentalism, not neighborhood preservation, would become the official ideology of California’s opponents of growth.

The first state agency dedicated to environmental protection was the San Francisco Bay Conservation and Development Commission (SFBCDC) which was established by the McAteer-Petris Act in 1965. The commission grew out of the activities of a private group, the Save the San Francisco Bay Association which had been founded in 1961. Over the previous century, much of the bay had been filled in by towns seeking to reclaim land from the see. The process of claiming low lying wetlands from the water was a long-established human activity that had been seen as a great achievement of modern civilization. Much of the Netherlands was taken from the Atlantic over centuries through the construction of a famous dyke system. America’s oldest city—Boston— has many neighborhoods, such as the Back Bay, that are build on landfill.

But in 1961, Californians decided to start opposing this process. Three female residents of the East Bay started an association to oppose the City of Berkeley’s attempt to increase its size by filling in the bay. These social entrepreneurs were not without resources. One of the founders was Kay Kerr, the wife of Clark Kerr, the President of the University of California at Berkeley. They organized well and brought tens of thousands into the association. Legislators, like Berkeley Assemblyman Nicholas Petris, unsurprisingly responded establishing a temporary commission with the power to regulate development 267

on the bay and a mandate to protect nature. Neighbors driven by their desire to stop development had achieved a spectacular success.

In 1969, the conservationists won a more lasting victory by making the Commission a permanent government entity. Local governments and developers both opposed this move which promised to block development and reduce local control over the bay. Dolezel and Warren (1971) detail the techniques that led to their defeat at the hands of an increasingly well-organized conservation movement. The Save Our Bay Action Committee (SOBAC) was formed in 1969 and it distributed 38,000 colorful bumper stickers reading “Save Our Bay.” SOBAC advertised and got thousands of signatures of petitions. The conservationists vilified developers and their political allies as destroyers of nature. Politicians, like San Mateo’s Richard Dolwig, wilted in the face of such public pressure. Dolwig had been a big opponent of the bay commission and completely changed his stripes in response to the changing political winds. Grass roots environmental action established a permanent agency with the ability to block development.

One particularly visible triumph for the Bay commission was the case of San Francisco Bay Conservation and Development Corporation v. Emeryville which was decided by the California Supreme Court. Emeryville is a small town that abuts Berkeley that sought to fill 145 acres of wetlands to house 16,000 people (DiMento et al., 1980). Emeryville thought that it had a free pass because its plans predated to SFBCDC and seemed to be grandfathered in. The Supreme Court ruled otherwise and stopped the filling until the town received a permit from SFBCDC. Needless to say, no permit was forthcoming.

The Save the San Francisco Bay Association continued its efforts. In 1974, the association helped enact California’s first wetlands protection law: “The Suisun Marsh Preservation Act.” Suisun Marsh is a vast wetlands east of Napa close to the mouth of the Sacramento River. In 1977, 85,000 acres came under the jurisdiction of the SFBCDC, ensuring that it would not be reclaimed for either private of public development. 268

Over the next decades, the Save the Bay Association and its allies, like the Sierra Club, successfully litigated and legislated to stop development and landfill around the bay area. One particular victim of the association’s success was the Santa Fe Railroad which owned miles of coastland it hoped to develop. Whether it tried to build shopping centers or hotels or any sort of development, Santa Fe lost time after time. Land that would have been developable in the 1950s was now sure to be open.

Of course, there is little doubt that this was a taking of private property accomplished through government regulation. Land that had been tremendously valuable to the Santa Fe’s shareholders for commercial or residential suddenly became worthless as it became a protected natural resource. Perhaps there is a certain rough justice in a railroad which had done so well from government land grants in its early years got hurt so badly through government regulation in later decades. Still it is hard not to be a little bit anxious when the government so readily redistributes control over valuable assets from one group, the Santa Fe shareholders, to another group, the Friends of the Bay.

Not all of the environmental action in California in the late 1960s centered on San Francisco Bay. In 1970, the state passed the California Environmental Quality Act which was a local successor to the National Environmental Protection Act (NEPA). The national act required all federal projects that could have any sizable environmental impacts to write an Environmental Impact Statement or Environmental Assessment. NEPA had no obvious enforcement mechanism other than litigation, but it did represent a step towards more environmental accountability of the federal government.

The California Act applied NEPA to California governmental projects, but it was stronger than the national act. NEPA really only required an impact statement. CEQA actually requires agencies to “mitigate or avoid” the negative environmental impacts of the project. If these impacts can’t be avoided because of “economic, social or other reasons,” the project can still go ahead, but the burden of proof is on the project to show that mitigation is impossible. Clearly, this was a potent weapon against government projects that might impact the environment. 269

So far, this proposal wouldn’t seem to have much to do with private housing development. The initial intent of the legislation does not seem to be the creation environmental hurdles for private developers seeking to build. However, in 1972, the Supreme Court of California heard the case of Friends of Mammoth v. Board of Supervisors of Mono County. Mono County had permitted the construction of 184 condominiums plus a restaurant and shopping center on a 5.5 acre parcel near the Mammoth Lakes. The development was entirely private except for the fact that like all developments it needed a building permit.

The “Friends of Mammoth” were environmentalists opposing the project using the “’far our’ theory that the Act, which applied to ‘any project they [governments] intend to carry out,’ also covered publicly permitted private projects, such as those requiring conditional use permits” (DiMento et al., 1980, pp. 974-5). Somewhat remarkably, the court found for the defendants and “the court decided that the Act applied to a discretionary conditional use permit for a private high rise building.” From there on in, almost any private project of any significant scale would need an environmental impact statement and could be stopped on environmental grounds. Frieden (1983) writes that “By 1976, California communities required 4000 environmental impact reports a year—four times as many as all federal agencies combined.” The barriers to growth were rising.

Friends of Mammoth was just one of the path breaking conservationist cases passed by the California Supreme Court between 1967 and 1977. Before this time period, DiMento et al. (1980) convincing show that the courts generally deferred to the decisions of local governments. After 1967, the California became far more aggressive and struck down large numbers of cases that favored development. The DiMento et al (1980) view is that “the California Supreme Court from 1967 through late 1977 was extremely preservationist—as distinguished from development –oriented.” This switch accompanies the rise of environmental activists in being one of the two big forces that came together to slow development in California.

270

While there is no question that the court changed its stance, no one fully understands why the switch was so complete. After all, preservationism isn’t the only reasonable stance that the court could have taken. Deference to local governments had seemed like a reasonable policy when it was the norm prior to 1967. The court could have also adopted a strong attachment to the rights of private property owners to dispose of their property in the way that they saw fit. Such an approach could certainly have found support in Common Law and would have ended up favoring developers (at least those not using eminent domain) against both preservationists and local governments. But the court took the third route of supporting conservation and preservation and curtailing the powers of both local governments and private property owners.

The best explanation is probably just that the court thought that preserving the environment was right. The majority opinion in Friends of Mammoth cited approvingly the words of Oliver Wendell Holmes who described a river as "more than an amenity, it is a treasure. It offers a necessity of life that must be rationed among those who have power over it.’" These were liberal justices who favored the extension of state authority in many realms. They thought preserving the environment was a good thing and were happy to use their powers to achieve that aim even if this required an expansive view of the powers of the courts.

Of course, many of the most important actions against growth were not environmental restrictions or Supreme Court Cases. On a more mundane and direct level, jurisdictions throughout California changed their land use rules to make development more difficult. The most common means of restricting development is minimum lot size. Communities seeking to stop development can have few more direct tools than requiring homes to be built on larger and larger lots. Some areas went to extremes in this dimension. Frieden (1983) writes that “California communities have now gone from large-lot zoning to super-zoning, by creating zoning districts that require minimum lot sizes of 20, 40, and even 60 acres per single-family home,” and that “Much of western Marin County is zoned for 60-acre lots, known locally as ranchettes.” It is hard to imagine a more powerful means of stopping development. 271

Growth controls were another tool used by local governments to block development. In 1972, Petaluma declared that it would only permit 500 new homes per year. Given the fondness of the courts for preservation, it is unsurprising that this control withstood court challenges. Petaluma became a model and as Fischel (1995) notes “several researchers have remarked that after Petaluma’s growth controls were validated by the courts, they quickly spread to other communities.”

Again, it is far from clear why communities that once welcomed growth came to oppose it so strongly. One view is that in the 1950s, an alliance of business owners, bankers and developers held the reins of city government and smothered any opposition to construction. The more open politics of the 1970s broke down that pro-growth coalition. Another view is that growth controls naturally came about as Californian towns moved from being dominated by farmers eager to sell and develop to being dominated by homeowners eager to limit congestion and keep prices high.

When this book was being written, Santa Clara County was considering a land conservation initiative supported by a wide alliance of local leaders and conservationists. The initiative, which lost by less than two percent, proposed 160 acre zoning for Silicon Valley’s hilltops and would have locked in 40 acre zoning in much of the county’s agricultural land. It is not hard to understand why Santa Clara County stopped growing despite enormous economic productivity and fantastic natural amenities. Its residents just didn’t want any more building.

None of this comes without a cost. Restricting construction may be good for the environment, but it is bad for anyone who wants to buy a house. Californian insiders did preserve their state but they did so by stopping others from enjoying their environment. The state looked after itself but it imposed costs on everyone else. I now turn to another area, which is usually depicted as sin incarnate. While California was shutting its doors to outsiders, Las Vegas was welcoming them in.

272

Las Vegas

The flipside of the reduced growth in California since 1970 has been the explosion of a sunbelt cities that encouraged new housing construction. In the 1990s, there were ten American cities that gained more than 120,000 people. New York and Los Angeles were two of those cities. The other eight were all in the sunbelt and none of them were in California. The three cities with the most growth in the 1990s except for New York were Phoenix, Houston and Las Vegas.

In the 1990s, those three cities together built 210,424 new housing units. As Figure 8-4 shows, the correlation between change in population and change in the number of housing units across cities is almost perfect. These places grew not because they were the most attractive places in America. New York and Boston were and are more productive. Output per person is xx percent higher in New York than in Houston. California has a considerably more appealing climate. The great sunbelt cities grew because they reacted to demand by increasing housing supply, not by restricting new growth like Santa Clara County.

While the growth of the city of Las Vegas has been truly spectacular, the growth of the surrounding area is at least as impressive. Las Vegas sits in Clark County which now contains 1.375 million inhabitants. Clark County’s population grew by 634,000 or 86 percent in the 1990s. No county with more than 250,000 grew at a faster rate. No other county with more than 500,000 people grew by more than 50 percent in the 1990s. Maricopa County (home of Phoenix) is next fastest growing big county and it grew by 45 percent in the 1990s.

Las Vegas was founded in 1905 and incorporated as a city in 1911; it is the only large American city founded in the 20th century. It was a small railroad town through the 1920s and had only 5,165 residents in 1930. The city was surrounded by mines and its primary business was shipping the products of those mines. In 1931, the city legalized gambling, taking a step that would mold the city’s character through the 20th century. In 273

1936, the nearby Hoover Dam opened and gave a boost to the city’s attraction as a tourist site.

But the big growth in the city started during and after World War II. The first hotel casino in the city was the El Rancho Vegas which opened in 1941 with 63 rooms. Thomas Hull saw the Rancho Las Vegas as a motel built on U.S. Highway 91 that would cater to the highway traffic running from Los Vegas to Salt Lake City. He was building a chain of El Rancho motels and the traffic running through Las Vegas made the location natural. Las Vegas therefore, like Chicago and New York, owed its location in part to the existence of transportation infrastructure.

However, unlike Chicago and New York, Las Vegas’ highways were man-made and therefore its location was somewhat random. The highway could run through a different spot and it seems likely that a city would have grown there as well. The growth of the sunbelt may have been due to unavoidable natural advantages, but the location of cities within the built is much more mercurial. The vagaries of highway construction played a crucial role. Of course, while it is true that Las Vegas could have been somewhere else in the Nevada desert, it is also true that a slightly different location would have made almost no difference to the quality of life or productivity of its residents. The increasing randomness of location, at least within the region, has been accompanied by the increasing irrelevance of location, against at least within a broad area.

The exact location of the El Rancho Vegas seems also to have based on the existence of a large parcel owned by a single owner that was easy for Hull to buy. Even in the beginning, the growth of Las Vegas owned something to the ease of land assembly and construction. Needless to say, there was nothing but enthusiasm for the new construction among local officials. The hotel construction seemed likely to increase everyone’s incomes. Hull did build a casino to complement his pool and ranch, and gambling turned out to be as profitable as it was legal. The Las Vegas strip was on its way.

274

Hull’s El Rancho Vegas was followed by the he Frontier opened the next year, and four years later, the Flamingo opened with 105 rooms. The Flamingo is particularly famous because of its association with Benjamin “Bugsy” Siegel and the world of organized crime. When there is no doubt that the Flamingo was pioneering in both its opulence and in its financial practices, Siegel does not deserve his reputation for establishing Las Vegas as a casino destination. His hotel was the third major gambling resort in the city, not the first.

The casino and resort business pushed the city’s growth during the 1950s when population increased from 25,000 to 64,000 residents. In the middle of that decade, casino construction boomed as the Sahara, Sands, Royal Nevada, Showboat, Riviera, Apache and Tropicana were all built. The Casinos both competed and borrowed each others innovations. Famous performers were brought in to perform. Elaborate buildings and pools made casinos into fantasies. Casino operators specialized in marketing gimmicks that would keep tourists coming and betting.

We are used to thinking about competition and interaction in the more respectable industries of Silicon Valley or at least Wall Street, but the growth in Las Vegas casinos is no less of a marvel of urban density. The agglomeration of casinos made the place a destination for travelers, not only from nearby Southern California but from across the world. But just as importantly, the agglomeration led to competition, innovation and the transfer of ideas. Figuring out how to keep a high roller from Dusseldorf excited about coming back may not seem like intellectual progress to many, but it is certainly valuable knowledge. As casino employees interacted with each other and moved from hotel to hotel, this knowledge spread.

Perhaps the most impressive appropriation of human capital in this industry occurred when Kirk Kerkorian bought the Flamingo hotel in 1968. He hired more than 30 executives from the Sahara including Alex Shoofey to run the Flamingo. The skills of these workers were then used to train a cadre of casino employees when then went to work in Kerkorian’s International Hotel which opened in 1969. The International, now 275

the Las Vegas Hilton, had 1,512 rooms and was the largest hotel in the world. Kerkorian was, however, just getting started and built the even larger MGM Grand in 1973. Kerkorian brought in capital and built physical infrastructure, but he used the skill base that had already been developed in Las Vegas.

To this day, the gaming industry remains the economic heart of Las Vegas. Casino hotels are by far the largest industry in the Las Vegas metropolitan area, which is just Clark County. In 2004, 160,000 of the county’s 740,000 workers, or more than one in five, were employees of the casinos. Another 60,000 people were in eating and drinking establishments. All told, about thirty percent of the areas employees are in accommodation and food services and this is certainly the region’s dominant export industry.

The next two largest industries are retail trade and construction. More than 90,000 workers are in retail trade catering to the Casino’s guests and workers and to the other residents of the city. A staggering 80,000 workers are in construction. I guess it is unsurprising to see so many builders given that Las Vegas is the fastest growing city in the nation, but it is also hard to think that this concentration represents a stable phenomenon.

More than one-half of the regions workers are in those industries, but Las Vegas has substantial representation in a number of more surprising industries. There are 40,000 workers in professional, scientific and technical services and 27,000 workers in finance and insurance. 55,000 people work in health care and social services. 20,000 people are in manufacturing. The region is centralized on one big industry, but it also has a number of smaller industries that seem to be succeeding.

But Las Vegas incomes are generally quite modest. Per capita income in Clark County in 2004 was 21,785 only slightly above the U.S. average of 21,587. Incomes in Santa Clara County were almost fifty percent higher than those in Clark County. Given that incomes were so much lower in Las Vegas than in Silicon Valley and given that the climate is 276

surely better in more temperate northern California, it seems odd that Las Vegas, not Silicon Valley was the growth machine of the 1990s.

The answer of course lies in the housing market. Just as Santa Clara County was trying to preserve its natural beauty, Las Vegas built more and more. Until the most recent years, housing—generally new and reasonably high quality—in Las Vegas was extremely cheap. Despite, or perhaps because of, the massive growth of the 1990s, median housing prices in 2000 were still only $137,000 only modestly higher than the U.S. average. Prices were held down by the abundance of new construction. After all, if land is more or less the same and if there are no limits on construction, then prices should be held closely to construction costs. As a result, Las Vegas was affordable while Silicon Valley became exorbitantly expensive. Sin City was doing a great job of providing affordable housing for middle income Americans. Northern California was not.

Why did Las Vegas remain so friendly to new construction? There are at least three good answers to this question, all of which are related. At the state level, courts and government were guided by a free market ideology that limited any restrictions on private property. After all, if a property owner was allowed to have a casino or a brothel, why shouldn’t they also be allowed to build? There was no interventionist supreme court protecting the desert against encroachment by developers.

Second, much of Clark County is unincorporated land. Even the Las Vegas strip sits not in the city of Las Vegas but in the unincorporated town of Paradise which now has more than 180,000 residents. These unincorporated places are technically under the jurisdiction of Clark County and its seven member commission government. In practice, they are often essentially self-governing. A county-level commission government is far less susceptible to pressure by local land-owners who might want to restrict growth, especially when the county understands that so much of its economic well-being is associated with development and the casinos. The casinos understand that rising prices would require them to pay higher wages and cut into profit margins. They are certainly friends of development. 277

Third, the county and the state understand that they have no comparative advantage like that of California on which to coast. For the region to prosper it must be a low cost place of doing business. Lower costs require low taxes and little regulation. Competition across jurisdictions provides strong pressure not to start restricting new construction.

From the perspective of California, Las Vegas looks like a throwback to an earlier time when business leaders collaborated with developers in running the government. Local homeowners have little ability to fight neighboring developments, although just as in early 20th century California, many owners live in planned communities were new development is restricted by private contracts. The result of the Las Vegas regime may be sprawl, but it is a sprawl that provides large houses inexpensively to large numbers of Americans.

As a final point, it is worth noting on the physical form taking by much of the development in LasVegas. From the perspective of a resident of Marin County, or even suburban Massachusetts, much of the recent development in Las Vegas looks quite dense. Houses are build on modest lots because of the infrastructure costs associated with providing water over long distances and because the market just doesn’t seem to demand large lots. It is odd that the free market of Las Vegas seems to use up less land per house than the environmentally friendlier regimes on the coast.

Las Vegas is hardly the only sunbelt city that is growing through unrestricted construction. Phoenix, Houston, Dallas, Atlanta and Miami are all expanding remarkably. They all offer climates that seem more pleasant to sun-lovers than New England and the Midwest, but that are less temperate than California. All of them have successful economies, but ones that are paying far lower wages than either northern California or New York. Houston is particularly famous for its lack of zoning laws, but the other four cities have all embraced relatively pro-growth regimes. Housing supply is the great determinant of their expansions.

278

I end the historical section of this book returning to the observation that throughout most of American history, economic vitality drove urban and regional growth. Boston, New York and Chicago were major cities because of their economic advantages. In the 20th century, rising income made people increasingly willing to trade off wealth for amenities. Los Angeles boomed as prosperous Midwesterners sought sunnier climes.

But in the 21st century, neither income nor amenities seem to be driving urban growth. Instead, the determinant of population increases appears to be local policies towards land use. In an earlier era, all regions were all relatively pro-growth. Together, many places have made it increasingly difficult to build. The result has been a shift of population growth from the areas that are most pleasant and productive to the places where the city fathers think that development is just fine. In the next section, I will discuss whether this shift is benign or whether it merits some form of national policy intervention.

279

Chapter 9: Governments and Cities

What does 400 years of American urban history teach us about governments and cities? There are actually three different questions inherent in any discussion of the connection between cities and the state. First, there is the non-prescriptive question of why governments have done the things that they do. There is no one answer to this question. Governments are motivated by a remarkable self-interest and petty personal motives. I have tried throughout this book to discuss at least some of the different actions that governments have taken from cleaning streets to leveling neighborhoods. I will not try to give any single explanation for these actions here.

Second, there is the question of what urban and regional policy should be followed by the national government. Should the federal government try to save declining cities and region or to try to boost particular areas? European nations and the European Union have favored an aggressive response to regional decline. America has been much more laissez-faire, except for a brief period of national urban policy centered in the 1960s. Even policies that are not intended to drive urban growth end up having major consequences for cities, like the federal highway program. In the first section of this chapter, I will discuss the lessons of economics and history for national urban policy.

Third, there is the question of what policies should be followed by local leaders trying to serve the interests of their cities and their residents. The policies that are available to local leaders are quite different from the national policies available to the federal government and the appropriate goals of local leaders may be quite different. It is hard to fault a Mayor of Detroit who is trying desperately to revitalize his city. It is much easier to find fault with a national administration that thinks that it is appropriate to tax Oklahoma to give to improve Detroit. In the second section of this chapter, I turn to the lessons for local government.

If there is an overall message of this chapter it is that we should think about government and cities the same way we think about governments and firms. Public welfare is well 280

served by each individual firm fighting for its own profits. The actions of managers increase output and reduce costs. But public welfare is also well served by having the government stand neutral in the battles between firms. There is no case for the government supporting Ford against General Motors (or Toyota for that matter).

This same logic applies to cities. Individual urban leaders do well to fight for the health of their cities. Their work to attract residents and firms ensures better public services and less waste. At their best, the competition between city governments can ensure both efficiency and innovation. But the best national urban policy is neutrality towards competition among cities just as the best national economic policy is neutrality towards competition among firms. Place-based policies at the national level are usually at least wasteful and quite possibly counter-productive.

National Urban Policy

Americans may be used thinking of urban policy as something distinctly foreign, practiced primarily by the meddling technocrats of Brussels, but the very origins of the U.S. government lies in the needs for regional growth and connection. Among the many flaws of the Articles of Confederation was that individual states were free to enact local trade barriers that stopped the free flow of goods within the country. A second failure was the inability of such weakly linked states to build infrastructure that might link together the erstwhile colonies. The principle of free trade within the states is a central tenet of the U.S. constitution and it is hard to think of a more important regional policy than that.

In the first fifty years of the United States, national politicians ardently pursued a regional policy of connecting the states and pushing the country westward. As we have seen, many of the most important investments in transportation infrastructure were done by state, not the nation, but leaders like Henry Clay and Daniel Webster were advocates for infrastructure and expansion that would ensure that settlement of the west. The federal government authorized land grants to the builders of canals and then railroads who would 281

help tie to the country together. Sectionalists, both in New England and the South, were more hostile to the use of national wealth to push America westward.

The national policy debates were regional rather than urban. Indeed, the only significant urban policy debate in the early Republic was the discussion of where to locate the national capital. It was well understood that locating the capital in any existing city would be a great political and economic boon to that city. The growth of European political capitals such as London and Paris made it clear that government spending tends to be concentrated near the corridors of power. Northern politicians, like Alexander Hamilton, traded away the prospect of a capital in New York or Philadelphia for federal assumption of state debts. One can only imagine if the nation’s capital had been located in the same spot as its greatest port. America’s relatively balanced urban system may well have become dominated by a single political-industrial metropolis.

Certainly, regional conflict was a major feature of 19th century national politics. The fight over tariffs during the Jackson administration was an early fight where the South faced off against North in a preface to the Civil War. The great fight over abolition was primarily about slavery, but it was also a conflict between regions and specifically what type of regional culture would be allowed to dominate the new states in the west. The Civil War destroyed much lives and property throughout the nation, but its destruction did fall disproportionately on the South. It is reasonable to think that the war continued to hold the south back until the 1970s, first through its impact on southern infrastructure.

Because of the civil war and the fact that the country was continuously expanding, the nineteenth century can be seen as the heyday of regional policy in America. Conquering, settling and connecting the American west is certainly regional policy of a form, and it is hard to think of anything the national government took more seriously. The Louisiana Purchase, war with Mexico, the trans-continental railroad and the Panama Canal are all part of the effort to spread American west. One of the first cabinet positions, the Postmaster General, was explicitly focused on connecting the different regions.

282

Investments of this sort, including wars, tended to be justified not with cost benefit analysis but with quasi-mystical explanations like manifest destiny or the need to turn disparate states into one nation. Certainly, the benefits of many of these investments, like the Louisiana Purchase and the Panama Canal, would have justified the costs. Other investments, like war with Mexico or sizing a lot of native land, may have yielded positive returns from an American perspective, but not if we include the non-American losers from our regional policy.

Twentieth century urban and regional policy had three main branches. First, just as in the 19th century, the country continued to invest in technology that would connect the states. The interstate highway program is the most prominent example of such policies. Second, the country, the country increasingly began having policies that would strengthen particularly poor or declining regions and cities. Urban redevelopment policies are one example of such policies. The Appalachian Regional Commission is a second example. Third, the government engaged in a number of aggressive housing policies aimed at improving the quality of the housing stock. The home mortgage interest deduction is one pro-housing policy.

Both transportation and housing policies had major regional effects. Baum-Snow (2005) has shown the impact that the interstate highway system had on the rise of suburbs and the rise of some metropolitan areas. Any policy which favored the production of new housing tended to encourage suburbanization and newer cities where new housing was being built. These policies were not, however, justified as regional policy. The interstate highway system was, of course, justified on the basis of national defense. Housing policy did help increase the quality of U.S. housing enormously, although it is not clear whether many of these policies actually made sense.

The pro-car policies of the federal government may well be the most important urban policy of the 20th century. Spending on highways and relatively low gas taxes helped ensure that Americans would become mass users of the car. The Europeans have been far less car friendly and the result has been less driving. They have subsidized rails 283 extensively and taxed gasoline. As a result, far more people use public transportation. Glaeser and Kahn (2004) show the impact that higher gas taxes have on car usage across countries and that less car usage is associated with more high density development.

While there is no doubt that the American government has been more car- friendly, it is less clear that this was a mistake. The friends of public transportation see U.S. pro-car policies as a giant conspiracy that destroyed public transport. I am less sure and think that an equal case can be made for the view that the U.S. had a relatively level playing field between car and rail while the Europeans tilted heavily against cars. Going forward, the important question is whether we should tax cars more extensively in the future and subsidize public transportation more aggressively.

I can certainly see an environmental case for a stronger tax on carbon emissions. We probably don’t make drivers pay the full environmental costs of their driving and that should change. We should also be more creative about cheap public transportation mechanisms like jitneys that can provide service for poorer people who can’t afford a multi-car lifestyle. However, I am quite skeptical that any reasonable intervention will cause Americans to move back to public transportation. In the 1990s, people continued to flee public transport oriented cities and move to car based living (Glaeser and Shapiro, 2002). The time advantages of commuting by car—the 24 minute difference between the average car commute and the average commute by public transportation—is just too large in a world where time is becoming increasingly precious.

In general, there is a better economic case for information and transportation policy than for housing policy. The core argument behind transportation policy is that people don’t internalize all of the benefits that they gain from connecting with others. If we travel somewhere, we only reap some of the benefits that we create. If interactions create external effects, then subsidizing transportation is justified as a means of creating more interactions. I am far from being completely convinced by this argument, and there are plenty of transportation infrastructures that does not justify its costs. Still, at least there is 284

a reasonable excuse for federal intervention to support connections between people in different states.

The case for housing policy is weaker. The Progressives became interested in housing because they saw inadequate housing, especially improper ventilation and sewage, as a breeding ground or disease. Certainly, the government has a stake in preventing contagious disease. But modern housing policy rarely has any obvious health justifications. Almost all Americans live in housing that is basically healthy, and it is hard to think that the home mortgage interest deduction is well targeted as a policy against unsafe housing.

A second justification for housing policy is social justice. If, as a society, we decide that we want all of our members to have at least some minimum form of housing, then it may be reasonable to have policies, like Section VIII housing vouchers, that give the poor transfers that they must spend on housing. Of course, as any Chicago economist would tell you, it is hard to think that you are making the poor better by giving them money that must be spent on housing, than by giving them money that they can spend on anything. Unless we have an incredibly low opinion of the decision-making powers of the poor relative to the government, restricting the choices of the poor hurts them.

Of course, it doesn’t necessarily hurt the rich who are paying for the vouchers with taxes and that may be the point. While it is hard to imagine that the poor are helped by being forced to spend on housing, it is easy to imagine that upper income Americans care more that the poor are well housed (or well fed) than that they are happy. This view suggests that putting redistribution in the form of housing vouchers, foods stamps and medical aid, makes sense because the rich care about the poor’s housing, hunger and health, not about giving the poor the widest latitude to make their own decisions. For this reasons, it is perfectly reasonable to have a modest housing policy that is part of a national redistribution policy.

285

Of course, it is hard to see much of federal housing policy as being sensible redistribution policy. Many housing interventions are certainly not targeted to the poor. It is hard to imagine an intervention less likely to change the housing of the poor than the home mortgage interest deduction. The Government-sponsored agencies, known as Freddie Mac and Fannie Mae, which have received vast subsidies through their ability to borrow at rates that can only be understood as reflecting an implicit government guarantee of their debt, do some work for the poor, but their mortgage have mainly benefited middle income Americans. Finally, there are the public interventions in housing construction, which have had the unfortunate effect of helping the concentration of poverty and create pockets of crime, poverty and despair (Husock, 2002).

One housing issue that was raised in the last chapter was the ability of local land use decisions to completely change patterns of regional development. California decision to block new construction and Las Vegas’ decision to be development friendly led to tens of thousands of people living in Nevada who might otherwise have preferred to live in California. Traditionally, the federal government has thought little about local land use decisions and in most cases this is appropriate. Legislators in Washington, D.C., certainly lack the local knowledge needed to make sensible decisions about development thousands of miles away.

Yet if these land use decisions do change the pattern of America’s regional growth, perhaps it would make more sense for them to receive a little more national attention. If we could conclude that there is too much construction in Las Vegas and too little in California, then it might be reasonable to think about using federal tax policy to lean gently on the states to get land use decisions that took national needs into account, not just the wishes of local land owners and environmentalists. After all, the national environment is not well served in preservationists protect a narrow corner of the country by pushing development into other wide swaths of land. It would be possible to imagine a federal policy that pushed states to push localities to take a broader view in their land use decisions.

286

Regional Development Policy

But the main question I want to ask in this section is whether it makes sense to have explicit government policies aimed at developing particular regions or helping areas that have been hit by adverse economic shocks. In the U.S., the Appalachian Regional Development Act is the archetype of a policy that aimed at increasing the economic vitality of a relatively poor area of the country. European countries and the European Union engage in a much broader array of policies aimed at boosting the wealth of underdeveloped areas. For decades, the Italian government has poured vast resources into developing southern Italy and Sicily (the “Mezzogiorno”) to create more regional equality.

Americans have been particularly attracted to helping regions that were not permanently poor, like Appalachia, but that are in decline. Urban redevelopment policies in cities like Detroit and Cleveland seem to offer some chance of reversing the economic trends that have made those places much poorer than they once were. In the wake of Katrina, millions of Americans remembered New Orleans, a once-great city that has been declining in relative terms since 1840 and losing population since 1960. The President seemed to commit the country to ensuring that a great city would rise on the wreckage of the Crescent City.

Are such policies justified? Are they effective? Should we follow the Europeans and have a comprehensive regional policy that tries to ensure regional equality? Should we try to stem the decline once-great cities?

To even start to answer such questions, we must clarify our objectives. What is the ultimate goal of regional policy? The starting point for any economist appraising policy to is judge that policy on the extent to which it increases the wealth and freedom of individual citizens. Do people have more choices because of a government intervention or do they have less? If a government policy makes people’s lives better, which to 287 conventional economists means increasing their wealth and freedom, then a policy makes sense.

This definition of objectives is itself quite different from other objectives that might be given by other disciplines. For example, the instincts of architects engaged in urban planning may be to create beautiful buildings and landscapes. The instincts of regional planners may be to ensure that all regions and places have some basic degree of economic health. Environmentalists may care primarily about the well-being of the non- human environment. But economic policy-making starts with the objective of putting people first. The goal is to help poor people, not poor places, and policies are judged on the extent to which they make individual’s lives better.

In many cases, the goals of helping people and helping places are not at odds. After all, a running theme of this book is the importance of our cities for American society and its economy. Robust local economies are an important ingredient in economic well-being. Well-functioning places make their residents happier. However, there are cases in which helping people and helping places can be at odds. It is in those areas that the worldview of the economist and the worldview of the planner are most likely to crash. Regional policy is one particular setting where economists and planners do not see eye-to-eye.

Consider a stylized example of a federal policy meant to revitalize a poorer neighborhood, city or region. This policy offers tax breaks to businesses that locate in the place and funds these tax breaks by raising taxes elsewhere—after all the government has to pay for its budget somehow. This type of tax policy is exactly that followed by the Italian government in its attempts to vitalize the Mezzogiorno and as a result more firms and factories have located in the south of Italy. Within the U.S., we have enterprise and empowerment zones which have offered tax breaks to firms locating in poorer areas of the inner city. One proposed response to the problems in post-Katrina New Orleans was to offer tax breaks for firms locating in the Gulf Region.

288

There are two primary reasons to be skeptical of such regional policies. First, these policies are not targeted to help the people in the areas and may paradoxically end up hurting those people. Second, if the policies do provide something for the area’s current residents, the policy will have the perverse effect of keeping the poor in poorer areas. When regional policy involves building infrastructure rather than reducing taxes, the potential for waste increases exponentially. The infrastructure may itself be more of a government boondoggle than a sensible attempt to provide public goods.

The first problem of regional policy is that since the policy started out place-based it is not well targeted towards the people of the region. A tax break to businesses that locate in an area may end up employing the residents of the area, but new businesses are just as likely to employ outsiders, especially if the area is small. Firms that have taken advantage of enterprise zone tax breaks have often employed people from outside the disadvantaged area. After all, firms always had the opportunity to employ those workers, and they chose not to. It should surprise us that new firms often seek other types of labor. Large scale regional policy, like the Appalachian Regional Commission, are less likely to employ outsiders, but one can still wonder whether these tax breaks end up helping the workers all that much. If labor supply is sufficiently elastic, then the firms, not the workers, will reap any benefits from these tax breaks.

A related issue is the impact that place-based policies have on housing prices. One of the more obvious insights of urban economics is that housing prices rise when an area becomes more attractive. If the place-based policy really does make the place more attractive than housing costs and rents will surely rise. The poorer residents of the area who are renters, not owners, will pay this cost. Thousands of poorer people actually come to depressed regions each year, drawn in part by the low housing costs. If regional policy improves the economy of the region by creating new start-ups that don’t hire these poorer migrants, then the renters will be strictly worse off. Their rents will rise and they will have little to show for it.

289

This point is particularly obvious when we consider forms of neighborhood investment that appeal to richer residents. Consider for example building with government dollars a museum of contemporary art in a depressed area. Assume that this museum does everything one might hope for the neighborhood and spurs a remarkable gentrification that attracts rich art lovers to live next to this resource. If the older residents aren’t art lovers then they are strictly hurt by this intervention. They get little value out of the museum (by assumption) and their rents will go up. Owners benefit, but renters do not.

The second problem of regional policy is that even if the policy is successful it has the unfortunate side effect of keeping poor people in poor areas. The Harvard urban economist John Kain referred to this effect as “gilding the ghetto.” The natural economic response to a depressed area or a troubled neighborhood is out-migration and there are huge amounts of this every year. Upwardly mobile poor people flee areas that don’t offer good job prospects. As we pour federal tax dollars into depressed areas, we are trying to stop the healthy process of emigration from declining areas.

The process of out-migration can be seen at the neighborhood, city and region level. Over the past four decades, hundreds of thousands of African-Americans have left the segregated inner cities of urban America to move into the far less segregated suburbs. Some of the growth has been in primarily African-American suburbs since as Maryland’s Prince George County. Elsewhere, growth has been in suburbs that are far more mixed than the inner cities. There has been a significant decline in the segregation of African- Americans since 1970 and this decline has occurred in the growing areas of the sunbelt and the suburbs. Neighborhood level policies that try to gild the ghetto are essentially trying to bribe African-Americans to live in these highly segregated areas.

City and regional policies have the same problem. Poorer people have fled the rustbelt cities of Detroit and Cleveland and found more economic opportunity elsewhere. Appalachia has been exporting people for many decades. If we use government policy to artificially strengthen these regions, we are trying to stop the economically health process of people leaving economically less productive regions. 290

The history of America’s cities and regions is one of constant dynamism. Places are continuously becoming more or less economically productive or attractive. . Farming in New England’s rocky soil made sense in the 17th century when it was extremely difficult to access the American hinterland. Canals and railroads made it possible to access the rich, black soil of Iowa. The south was unhealthy and hot in the 19th century. Clean water and air conditioners make the south far more pleasant today. Urban and regional policy that tries to fight these trends is trying to stop the advantages that come from moving to the areas that are the most economically vital. This makes little economic sense and is probably also impossible.

Certainly, the public policy attempts to fight the mighty economic forces that push urban change have not been great successes. The Appalachian Regional Commission has not been able to make rural West Virginia into an economic powerhouse. As discussed earlier, all of the redevelopment spending on New Haven could not resurrect that city (Rae, 2001). The move to car-based living in the suburbs is a powerful force, as is the rise of the sunbelt. Modest tools like infrastructure spending and tax reductions are unlikely to be able to overwhelm these tidal waves, because the gains that individuals see from moving are just too large.

Perhaps the most disturbing aspect of regional policy is that place-based justifications can be used to justify all sorts of inefficient government spending. In the wake of Katrina, pundits discussed spending hundreds of billions of dollars to resurrect that city because of some hazy nostalgic commitment to the place. The Bring New Orleans Back Commissions seriously proposed spending five billion dollars on light rail. Light rail is hard to justify in the best of circumstances—dedicated bus lanes are almost always more efficient (Gomez-Ibanzez, 1993). In a city with an uncertain future, laying down fixed tracks seems like a particularly egregious form of foolish infrastructure.

The European Union has been particularly aggressive in spending billions of dollars on infrastructure justified by regional objectives. High speed rail is being laid down throughout Spain at vast expense. Public infrastructure projects are being put in dozens 291

of declining areas with little real cost-benefit analysis. None of this is meant to say that all rail or infrastructure is a mistake, but just that many of these projects do not have benefits that come close to covering costs. They are justified only by some appeal to regional justice.

I am troubled by these large-scale projects primarily because we have such better tools for actually addressing the needs of the American poor. Educational spending, especially if it improves accountability and competition within schools, is a person-based policy that can make a real difference. The earned income tax credit ensures that tax breaks go to poorer Americans, not just to the prosperous shareholders of firms that are able to locate an office in an enterprise zone. We could have responded to Katrina by providing cash aid to everyone affected by the storm, regardless of where they chose to live, instead of focusing our expenditures on the city of New Orleans. Person-based policies exist and a far more direct and efficient way of helping poor people. We don’t need to spend those billions on regional projects.

If person-based policies seem so much more efficient than place-based policies, then why are place-based policies so popular? There are two plausible answers to this question. First, place-based reasoning can just large amounts of government spending that can be directed by politicians. It is hard to micro-manage the earned income tax credit. It’s beneficiaries are determined by code. By contrast, a large scale rail project can be directed towards politically favored contractors and run through politically powerful neighborhoods. Place based infrastructure gives politicians a great deal of discretion and power and this is surely once source of its appeal.

The other reason why place-based policies are so popular is that we have place-based politicians. No congressman ever got points for policies that encouraged people to leave his or her district. Senators, congressmen and mayors think in terms of their districts and that district is a place. There is a big payoff for them in getting an infrastructure project for their district and far less for national person-based policies. The political roots of place-based policies are easy to understand. 292

As a final note, I will comment on a growing enthusiasm for recognizing the marginal effects of density and subsidizing high density places to reap those benefits. I yield to no one in my enthusiasm for the city and its miraculous products. The new ideas that have been created in dense areas continue to change our world. Moreover, since individuals don’t always receive the full social surplus created by their innovations, there is a good reason to think that the private market doesn’t get urban development exactly right. Markets are imperfect things.

However, it is one thing to think that the market is screwing up and another thing to think that government intervention will make things better. I am therefore skeptical about federal or state interventions to create high density loci of productivity. First, even in the best world, we are unsure about what makes a particular urban cluster a place of new idea creation. In the last two chapters, we have seen the high densities of Wall Street and the Las Vegas Strip create great flows of new ideas. We have also seen an even more startling production of creativity in the car-based densities of Silicon Valley. Is it obvious that Silicon Valley would be more productive if more people worked at higher densities and walked more instead of taking cars? I don’t know and I am loath to advance government policy in the face of such ignorance.

Second, even if we did know what level of density created the most productivity, we could hardly be sure that government policy would use such knowledge well. Any proposed policy will go through a maze of political filters. The policy will be vetted and fine tuned by many layers of policy makers all of whom will have their own objectives. A policy proposal to encourage a high density technology cluster in Portland could well turn out to create a high density refrigerator cluster in Cleveland. In policy areas that we understand well, such as the optimal congestion charge on crowded highways, I am comfortable favoring some sort of government intervention. In an area like supporting idea clusters, where there is so much uncertainty, it is hard not to think that laissez-faire makes more sense.

293

What is a Mayor to Do?

While it is possible to have a laissez-faire attitude towards regional policy, it is impossible to take such an attitude towards the running of a city. An extreme libertarian approach to big city government that advocated shutting down government would shut down the police and fire departments and end the government’s commitment to clean water and roads. Any sensible policy analyst must recognize that big city governments have a job to do and the right advice is not to do nothing.

The libertarians’ fears about big government are somewhat assuaged at the local level by the ability of people to “vote with their feet.” If I don’t like a national policy then I must leave the country to avoid it, and that imposes large costs on me. If I don’t like my town’s policies then I can just move to the next town. Charles Tiebout is the economist who made emphasized the benefits of competition among cities and towns and the ability of people to select the government that fits their own needs. Paul Peterson followed Tiebout and wrote about how pressure from out-migration of people and firms limited the ability of city governments to misbehave.

A particularly concrete example of the dichotomy between national and local government power is that I see no contradiction in favoring some drug legalization at the national level and opposing the sale of liquor within my own dry town. I can easily believe that it is the right of states and localities to make their own drug laws and that it is not a terrible thing that some states have effectively legalized marijuana usage. I can simultaneously believe that my town is somewhat more livable because it doesn’t sell liquor. I don’t see the town’s restrictions as particularly hurting freedom. After all, any resident can readily cross the town’s borders to buy wine, or if they really don’t like the policy they can move altogether.

City governments have public goods that they must supply and competition among them assures choices and better incentives for local governments. I see the situation with city government and federal policy as being akin to the situation with firms and governments. 294

Firms should compete and try to maximize shareholder wealth. The government should be neutral in their battles. City governments should try to compete and provide the most attractive locale that they can. The federal government should remain neutral in this battle between cities. It is perfectly logical to urge the federal government to refrain from a regional policy and to urge city mayors to fight like anything for their city.

What then does urban economics and history teach city governments about best practices? One of the central problems of giving advice in this area is that the objectives that mayors have and the objectives that economists think that they should have are not always the same. The economist’s people-based orientation may be at odds with the mayor’s commitment to place. As such, rather than start at first principles and try to present a holistic view of what local government should do, I distill six of what I think are the most important lessons of urban economics for city governments.

These lessons are certainly not the most important things that a city mayor should know or can do. A better handle on running city schools or keeping streets safer may be the most important thing for a mayor to know. But I don’t have any comparative advantage in those topics. The lessons that I emphasize are those that come from economics. Some of them are obvious and well understood, but still bear repeating. Others are more controversial.

Lesson # 1: People and firms are mobile

The most central fact about local government, that separates it from national government, is the mobility of people and firms. Leaving the U.S. is hard, but leaving Palo Alto is easy. Both people and firms can pick up stakes and move and this is easier the smaller the jurisdiction. Mayors of geographically small cities, like Boston, have more reason to focus on mobility than mayors of geographically big jurisdictions, like Phoenix. The vast amount of unincorporated areas in Clark County makes Las Vegas particularly prone to out-migration.

295

Over time, the mobility of people and firms has become increasingly important. When New York City relied on its unparalleled port, then this infrastructure bound workers and firms to the cities. The centralization of rail infrastructure ensured that Chicago’s stockyards would stay within city limits. The rise of cars and trucks has liberated firms and residents from needing to live close to the ports and rail yards of central cities. This reduction in transport costs lead to the decentralization of people and industry within urban areas and the rise of new cities that lacked the older infrastructure. This reduction in transport costs today means that people and firms are always able to get out.

The mobility of people and firms is both a curse and a blessing for city leaders. On the one hand, the mobility of firms and the rich limits the ability to tax them. The hands of city leaders are tied because of the threat of exit. However, increased mobility also means that it is increasingly easy for areas to attract new residents. A city mayor with unattractive policies will quickly see the tax base dwindle, but increased mobility also means that good policies can create new migration speedily.

In either case, all civic leaders must think about what their policies will do to their city’s current residents but also how their policies will impact the future composition of the city. The fluid nature of the modern city means that mayors need to plan for how their policies will impact the changing composition of the city. There is nothing new to this perspective. After all, the booster leaders of 1840s Chicago were completely focused on who might come to the city. However, the more static cities of the eastern U.S. in the middle of the 20th century seemed to operate with a more fixed population. The increased mobility of population makes that impossible.

One natural implication of the mobility of population is that neighbors matter. A declining industrial town in the middle of the countryside has a different set of options than a declining industrial town on the edge of a booming central city. For example, James Fiorintini, Mayor of Haverhill, Massachusetts—an erstwhile mill town on the edge of Boston-- sees that his city can benefit attracting Bostonians who are tired of paying 296

high housing prices. The mayor of Allentown, Pennsylvania, will face more challenges in attracting high skilled migrants.

Lesson # 2: It is hard and sometimes counterproductive to try and right social wrongs at the city level

In the middle of the 20th century, big cities produced a surfeit of Mayors who thought that they could use big city government to solve the injustices of the American economy. James Michael Curley tried to use Boston city government to help the poorer Irish at the expense of the richer Protestants. Coleman Young sough to use the powers of Detroit to fight America’s racial inequalities. John Lindsay stirred hearts throughout America with his vision of New York City fighting poverty and intolerance.

This breed of civic crusaders has been replaced be a far more pragmatic bunch of city- manager mayors. Richard M. Daley of Chicago, Michael Bloomberg of New York and Thomas Menino of Boston are all examples of leaders known more for their competence than for an overarching agenda of fixing all that ails society. The transition from Lindsay to Bloomberg may seem like a letdown where bright dreams were replaced by a stonier realism, but Bloomberg is assuredly doing more the citizens of New York than Lindsay ever did and Menino is far better for Boston than Curley.

The key insight is that it is impossible to right social injustices at the local level because of the mobility discussed above. Lindsay’s administration had many troubles, but chief among them was that New York’s tax base was fleeing New York’s taxes. The more that Lindsay tried to get firms and the rich to pay for his ambitious social agenda, the more he guaranteed that those people and firms would leave the city. Since it is hard to flee a big country, national governments can tax the rich and give to the poor. City mayors have limited captive resources and if they try to tax them too hard they will disappear.

The ultimate consequence of attempts at redistribution can be a city left with only its poorer residents. Coleman Young came into a Detroit that was almost evenly split 297

between African-American and white residents. He aggressively followed a social agenda that was in many ways quite admirable and tried to right the tremendous injustices of American race relations. Young’s cause may have been just, but the consequences of his actions were terrible. He left a city that was overwhelmingly African-American and poor, in part because his policies helped induce richer white to leave Detroit. I don’t mean to minimize the role played by other economic factors in inducing the suburbanization of the wealthy, but it is certain that Young’s policies didn’t correct the problem.

I have the view that the ability of the best mayors to stem urban decline is limited. Some cities just suffer from too many disadvantages for those to be offset by good government. The tenure of George Voinovich in Cleveland shows a competent city mayor battling unsuccessfully against forces far beyond his control. But I also think that the ability of a bad city mayor to hurt his city is enormous. When a mayor undertakes policies and rhetoric that attack his place’s wealthier taxpayers, he can cause great harm to his city.

In American city, ethnic strife rather than class warfare has been the great engine of bad urban politics. Curley was partially motivated by income-based redistribution, but his rhetoric clearly showed the primary role that the Anglo-Irish battle had in his mind. Young and Marion Berry were driven by racial conflict. There was justice behind the claims of both the Irish and African-Americans, but ethnic strife did nothing but harm to Boston, Detroit and Washington, D.C. As such, I give great credit to those leaders like Anthony Williams of Washington, D.C., or John Hynes of Boston, who move beyond ethnicity towards making their city more attractive for everyone.

Lesson # 3: The Economy Depends on the Skilled

The third lesson, which is a somewhat cruel one, for the less fortunate in a city is that the city’s economy increasingly depends on its skilled residents. As I discussed in Chapter 6, this is particularly true for America’s colder cities that needed to reinvent themselves after the decline of urban manufacturing. Urban growth is predicted by sunshine and 298

car-ready densities, but it is also predicted by human capital, especially the share of the population with college degrees. The mayor of a cold city cannot change its temperature and may only be able to make the place car friendly with a vast expenditure on infrastructure like the big dig. Increasing the human capital of a city may be the best available lever for improving urban prospects.

The evidence that human capital predicts urban success is strong. Initial skill levels predict urban growth during every decade going back to the 1880s.165 Variables like the presence of a college or university prior to 1940 predict growth in recent decades. The success associated with human capital shows itself in higher wages as well as faster population growth (Glaeser and Saiz, 2005). As Figure 9-1 shows, housing prices are also higher in those areas with more human capital. Even more importantly, as chapter 6 discussed, skill levels predict increases in skill levels.

The importance of the skilled comes in part from the fact that they are entrepreneurs as well as workers. The skilled workers of Silicon Valley are valuable to that region because they attract prospective employers. They are even more valuable because they are prospective employers. The connection between the skilled and new start-ups means that vibrant economic growth hinges on the abundant of skilled people in an area who will lead new firms.

Even if we accept that skill levels drive urban success, the skill level of an area is not easy to change. Figure 9-2 shows the correlation of the share of the population with college degrees in 1970 and the share of the population with college degrees in 2000. The correlation between these two values is quite close; the 1970 variable explains .77 percent of the variation in the 2000 variable. This tight correlation reminds us that increasing the skill composition of a city is hard, because skills are more likely to be based on long-term historical factors than on anything a mayor can directly control.

165 Simon and Nardinelli (1993) use the skill composition of a city’s occupation mix in 1880 as a measure of skill during that decade. This measure predicts growth during almost every subsequent decade. 299

Boston’s skill base owes more to the Puritan’s desire to teach the bible than to anything done by city government in the 20th century.

Nonetheless, city governments can take actions that will increase their city’s skill base, and they can certainly do things that will lower the average skill level in their community. The efforts at redistribution of Curley, Lindsay and Young are sure ways to get the most skilled in the community to flee. The first element in a skill-oriented policy is to avoid their example and to do no harm. The cost of running a local welfare state is the exodus of the skilled and that creates long-term problems that any city will find it hard to overcome.

There are two basic ways to make a city more skilled. A city can make its own people more educated and a city can import educated people. Both strategies make sense. By increasing the quality of education, a city can help make the next generation of its workers more skilled. This strategy, however laudable, requires a long time horizon. Moreover, if the city is not attractive to skilled adults, then the children that it educates will leave and go elsewhere. Still, a strong education system seems like the best tool to ensure an educated population both because it is the most direct tool available and because good education will attract educated parents just as it trains educated children.

While I have no doubt that improving educational quality is one of the most natural ways to improve the skill level of a city, I am less sure about how to improve education quality. Simply spending more money on schooling is thought to have at best modest effects (Hanushek, 1991). Some scholars see vouchers or other improvements in the degree of competition within a district as a tool of achieving better school outcomes (Hoxby, 2000). Despite the debate over the evidence (Rothstein, 2005), I join those who think that more competition is better. Still realism requires us to think beyond vouchers.

Given the murkiness of the evidence, I have only two observations on city schools. First, progress is more likely to be made by engaged, risk-taking mayors and school chancellors than by the doctrinaire adoption of any educational formula. The city-manager mayors 300 have at their best tried to increase choice and accountability within the school system. Menino and Bloomberg remain wedded to the public model, but they have tried to introduce more choice and accountability. New York’s school chancellor, Joel Klein, has gotten principals to take on more accountability in exchange for more power. We have yet to see the impact of these attempts, but they represent an attempt to change that must be admired.

Second, if the key outcome is the skill level of the city, then cities should be friendlier to people who want to use non-public schools. For decades, parents have fled big cities for suburban school districts. This is an unfortunate consequence of the fact that where we live determines the quality of our public schools. Big cities should try to attract those departing parents even if it means helping them put their children in private schools. Tax policies that make it possible for people to live in cities and send their children to private schools without paying for tuition twice, once with their checkbooks and once with their tax payments, would be a great boon for many urban areas.

A great advantage of big cities is that they can support highly competitive industries. The strength of Wall Street and Silicon Valley comes from the fact that hundreds of firms compete for customers and workers. Yet public schooling enforces monopoly on big cities where monopoly is so unnatural. It would be nice to see if big cities can do a better job of harnessing their natural advantage at competition in the area of education.

The key to attracting skilled people is to offer public services that they care about. Good schools are one such service. In some cases, there is a conflict between services desired by the skilled and services that would take care of the less well-off. City mayors always face this challenge and they should not ignore the poor. This does, however, create a challenge of balancing the need to take care of the less skilled with the need to attract the more skilled. Better schools are attractive in part because they offer at least the promise of doing both.

301

Lesson # 4: Basics not Gimmicks

The heart of attracting skilled residents is to offer city services that they value. Yet it is not always easy to decide what city services will attract skilled residents. There is a healthy debate in urban policy over how to design urban policy to increase the human capital of a city. On one side of the debate are those, like myself, who think that basic public services, like good schools, safe streets and open roads are the best way to attract the skilled. On the other side, there are those who think that the skilled will be most attracted by an aggressive urban policy of creating cool cities designed around hip downtowns.

Richard Florida is the apostle of urban coolness who argues for the importance of hip urban amenities. He starts, as I do, with the view that creative people are the lynchpin of urban economies. Indeed, he cites my own research on skills and urban success as a justification for policies that would attract the creative class. Florida has then gone on to argue for the importance of the arts, a thriving restaurant scene and a generally engaging downtown as a means of attracting the skilled.

Florida and I agree on much, and creative tinkering along the lines that he recommends makes sense. If it is cheap and easy to get rid of regulations that stymie the entry of new hip coffee houses, then cities should get rid of those regulations. If public art that appeals to the cognoscenti can be introduced at low cost, then cities should become more art friendly. However, I think it would be a mistake for any mayor to think that such policies will let him ignore the hard work that needs to be done to improve schools, fight crime and lower taxes. In the long run, I believe that these fundamentals are far more important to the health of a city than more sensitivity to the arts.

At the heart of our disagreement is a different vision of what a skilled person looks like. Florida seems to imagine the average skilled person as a 27-year old hipster, wearing a black turtleneck and reading Proust while drinking a macchiato. I imagine the average skilled person as a 40 year with a husband and two children who is debating whether to 302

live in greater Boston or North Carolina’s research triangle. Florida’s vision pushes towards hipness. My vision pushes towards an easy car drive to good schools.

There is also an empirical debate that underpins our disagreement. Florida has argued that variables like the creativity of occupations or the presence of same sex couples predict urban success. I think that the data shows that none of these variables predict urban success once you control for the share of the population with college degrees. My review of Florida’s book (Glaeser, 2004) and Florida’s response give the essential elements in this debate.

I am comfortable urging a focus on urban basics because I am sure that even if these policies didn’t attract the skilled, they would be worth doing. Moreover, these policies yield benefits for both rich and poor alike. Unfortunately, there are few easy answers to improving schools, fighting crime and reducing commute times. I have already discussed the problems associated with schools quality and fighting crime is equally hard. Cities have made great steps in crime prevention, but these improvements are never easy.

Traffic congestion is a problem that is somewhat easier for the tools of economics to address. One key economic insight is that roads will always be overused as long as they are under priced. When we drive we impose costs on everyone else who drives. Unless, we are charged for this cost, we will drive too much and congestion is the result. The natural economic implication of this logic is to become more aggressive with congestion charges. By charging people fees for crowding streets and highways, we make sure that only those who really value driving will do so and reduce the costs for them.

Singapore and London have been pioneers of congestion charges. In 2003, Mayor Ken Livingstone of London introduced a fee that everyone who drives in the city during work days must pay. The result was a significant decrease in traffic and an increase in travel speeds. If the fee was just pocketed by the government, this would be just another tax, but Livingstone used the money to improve public transportation. If the money was used 303

to reduce taxes, then this would be a win-win for the city’s residents. Travel times would fall and they wouldn’t spend more on taxes.

In denser American cities, especially New York, a congestion charge could be modeled directly on London. It would be easy and advantageous to charge a significant fee to anyone driving in Manhattan south of 59th street during weekdays. On less dense cities, the principles of congestion charging could be used on major highways. If we charged more during peak hours and less off-peak then people would gain an incentive to use roads more efficiently and travel times would fall. Reducing travel times would help the city compete in attracting skilled commuters.

Public transportation is less well targeted at attracting the skilled. If Boston is trying to attract a 40 year old from North Carolina, that person is used to a 20 minute commute in her car. Selling her on a 45 minute commute by train or bus will be quite difficult. Even those who find public transportation ideologically attractive need to recognize the need to compete in America’s competitive urban marketplace. It is not enough to think that trains are good for the environment; the question is whether they will generate enough demand to justify their costs.

Lesson # 5: Micro-managing industries is hard

One approach to a city’s economy is to attract smart people, count of them to innovate and get out of their way. An alternative approach if for city governments to engage in an active industrial policy that promotes particular industries and firms and that works hard to attract large employers to a city. As the urban battles to attract industrial giants like Boeing illustrate, cities are certainly attracted to the latter more activist policy. As in most cases, the right answer isn’t an extreme. Low cost actions that can attract firms make sense. In general, however, there are good reasons to think that cities shouldn’t try to run their own industrial policy.

304

A good starting point for the case against local industrial policy is the difficulty in picking winners. Even in the best of circumstances, governments have difficulty figuring out what firms will succeed. Japan’s vaunted Ministry of Industrial Trade and Industry (MITI) recruited the best graduates of that country’s superb educational system. The industry engaged in aggressive actions to support firms that seemed poise to lead the country’s economy and in its heyday, MITI was praised as an engine of Japan’s economic success. However, a more detailed analysis of MITI shows that the best and brightest of Japan picked losers more often than winners (Weinstein, 1993). If the resources of Japan couldn’t pick winners, how can we possibly expect the far more limited resources of a city government to succeed in this complicated task?

Indeed, the track record of local economic policies is far from encouraging. My predecessors at Harvard thought that Boston could not survive without support for the shoe and candy industries. Needless to see, Boston’s economic reinvention relied on neither industry. Mayors are regularly attracted to older, well-understood industries, like shipyards that seem particularly unlikely to push the city into the future. Dozens of cities tried to generate technology corridors along the lines of Silicon Valley. Almost all of them failed. Today, the lures of biotechnology attract big city mayors regardless of whether the city has any plausible comparative advantage in that particular sector.

The difficulty of picking winners has only gotten more difficult over time. The essence of an innovation economy is unpredictability. If it was easy to predict what would catch on, then there wouldn’t be such large returns from innovation. Even if an industry, like biotechnology, achieves technological miracles, it may not yield large returns for shareholders. Even if the industry does yield large returns, it may not employ a large number of workers. Prediction is hard and not an area where city governments have an inherent advantage.

The previous discussion assumed that city governments would do the right thing if they only knew how, but that isn’t always going to be true. If city governments are free to run their own industrial policy, then invariably firms will lobby, cajole and even bribe to get 305

handouts. The history of urban governance is not free from corruption and even though mayor’s offices seem to be much more honest than they were in the past, there is still plenty of room for influence. If we allow city governments to dole out tax cuts and other favors to particular firms, then it seems more likely that those firms will be chosen for their political clout than that those firms will be chosen on the basis of their economic impact to the city. A healthy skepticism about the limits of government as usual pushes towards the view that government’s scope of activities should be limited.

While I don’t think it makes sense to have an active industrial policy, that doesn’t mean that mayors should try to respond to the needs of businesses as long as those needs are cheap. It is important to attract firms and keeping the lines of communication open between government and business helps make sure that the government is providing the basic services that it should to attract firms. If a business owner is being hampered by an archaic regulation or if a street lamp is broken, then the mayor’s office should listen. In fact, the mayor’s office should be willing to intervene even more aggressively if the price tag is sufficiently low. The right answer is not ignoring industry, but rather limiting the money spent on funding particular firms.

In other cases, it may make sense to focus on cheap forms of infrastructure that are particularly valuable for new start-ups. Comprehensive wireless access to the internet, for example, may be a cheap form of infrastructure that helps make a city more start-up friendly. Again, the right answer is not to do nothing, but rather to be creative and open and to engage in smaller projects that yield higher returns.

Lesson # 6: It is sometimes okay to shrink to greatness

The job of a rustbelt mayor with a less skilled population is particularly hard. In these cases, it is hard to imagine a strategy which would somehow turn the city around. If the city, like Haverhill, abuts a more skilled metropolis, then it can imagine siphoning off some price-sensitive proto-entrepreneurs. In other cases, it just isn’t possible to imagine a way that the city can suddenly start to grow. In cities, like Detroit, where the price of 306

housing is significantly below construction costs, there is a great deal of distance that needs to be covered before it will make sense for private developers to again build which is necessary for the city to grow.

The temptation in such cases is to take a bold policy in the hopes that it will turn the city around. Usually such policies take the form of new infrastructure, which is particularly silly, since older cities generally start with more infrastructure than economic activity. The stories of New Haven, Cleveland and Detroit are rife with examples of infrastructure projects that were meant to turn the city around, but only ended up costing vast sums and achieving little. Some cities just have too many problems for their declines to be reversed.

A better strategy is to be realistic about decline and to focus on the city’s current residents. The Mayor of Flint, Michigan, or Youngstown, Ohio, may not be able to reverse the city’s course, but he may be able to make decline less painful. Even more promisingly, the mayor may be able to improve the lives of his citizens even if they decide to move elsewhere. The first step is realizing the city’s problems and to take realistic steps to improve the lives of the city’s residents.

How does a city shrink to greatness? Mayors should focus on their people and their futures rather than on the infrastructure of their city. If the people are likely to live their lives elsewhere then money spent building up infrastructure in the city will do them little good. Money spent on improving their human capital so that they can have a better life elsewhere is a better investment. This naturally leads back towards investment in education. Better schooling is the best way to make sure that current residents will benefit from government spending.

A second course of action is to make investments that are impermanent and able to adjust to continuing decline. Buses are the preferred mode of public transportation because they are cheap and can be eliminated more easily as the city loses population. Large 307

investment in rail takes money away from other public services, like schools, and commits the city to its current footprint which will probably not remain fixed.

Third, the city should have a realistic idea for its future and figure out how to make that future better. If the city is going to have a 50 percent smaller population in 50 years, what will that smaller population need. How will that smaller population be well balanced and not just drawn from the poorest segments of society? Declining cities tend to attract the poor because their cheap housing gives them a comparative advantage with that population. Those cities need to both keep that advantage but also work to make sure that some wealthier people continue to find the city attractive. This may mean keeping taxes low and maintaining services in the area’s wealthier neighborhoods.

Finally, the permanence of housing makes housing policy particularly important in these declining cities. Every declining city is filled with cheap housing, because the city’s homes were built during an era when they place’s economic future looked brighter. In many cases, housing costs less than the price of new construction (Glaeser and Gyourko, 2005). These homes are often being progressively abandoned. The abundance of cheap housing makes it silly to build more housing, but it also requires management. Abandoned housing is better off being destroyed than left vacant. Cities need to manage this process of abandonment.

Lesson # 7: Housing Matters

The abundance of abandoned housing in declining cities is just one case of an instance where housing policy really matters. More generally, the size of a city is directly tied to the number of homes in that city. Figure 9-3 shows the relationship between the change in the number of homes and the change in the number of people across cities in the U.S. between 1980 and 2000. The fit is almost perfect. As we saw in the last chapter, restrictions on housing supply meant that California’s growth started leveling off in the 1970s. Openness to development helped create the growth of Las Vegas.

308

Yet cities continue to think of housing policy as a niche policy. Public housing is oriented towards the poor. Control over new development is either used by mayors to get things out of developers or handed over to preservationists who want to shut down all new growth. Neither option helps the long run growth of the city which depends on new construction.

High wages repel firms and wages are kept high if housing costs are high. When a mayor or preservationists shut down new construction, they can create a mismatch between supply and demand that allows housing costs to grow. As housing costs increase, firms must pay more and more to attract workers to live in the city. Places like Silicon Valley, New York and greater Boston all have unusually high labor costs because housing supply has not been allowed to keep up with demand.

The answer is not for mayors to give up their control over development or for all forms of preservation to be thrown to the wind. The answer is a policy that balances benefits from greater housing against its costs. Landmark commissions think in terms of aesthetics. They have neither the knowledge nor the inclination to include the economic costs of restricting construction into their calculations. Mayors must address that and balance the economic benefits from new development against aesthetic concerns.

In older cities, the economic advantages from new building are coupled with environmental advantages. Every new apartment built in Manhattan reduces the pressure to build in Las Vegas. From an environmental perspective, it is certainly better to have people in higher towers in old cities, than spread out on the edges of the sunbelt metropolises. Perhaps federal policy might be more encouraging of this type of new development as well.

The point is not that all new development is good, but rather that development matters for the city’s economic future and cannot be left solely to housing experts. A city that does not build will not grow. If a mayor wants to see his city’s economy expand, he must make sure that building permits are easy to get. 309

Concluding Thoughts

The job of being a big city mayor is never easy, even if the city’s economy is robust. I do not have the hubris to think that I could tell any one of great city’s leaders how to do their jobs. Moreover, I remain convinced that city leadership is better than it has ever been. The basic path has been towards more competence and accountability and Bloomberg, Giuliani and Koch are in a different league from Lindsay, O’Dwyer and Jimmy Walker. Even the beloved LaGuardia is not obviously a better mayor than his modern successors.

I do however believe that there are clear lessons that economics has for city government that start from the recognition that cities must compete for people and firms. This central insight guides my view that it is particularly important to attract skilled residents and to build enough new housing. Improvements in city government are today improving the health of our great cities. As I turn to the future of cities in the next chapter, I remain hopeful that this trend will continue.

310

Chapter 10: The Future of the City

At this point I turn my focus from the past to the future. Predicting what will come to pass is a dicey business, and we are making choices as a society that will determine the future of our cities. Still the ultimate test of social science is its ability to make predictions. If urban economics is worth anything, it should be able to give a rough sense of where we are headed.

There are two related methodologies for thinking about what will come to pass. The first method is grounded in theory and it asks what we should expect to happen to cities if certain broad trends continue. If America continues to get richer based on economy of ideas and if transport and information technology continues to improve, then what does economic theory predict will happen to cities. The second method is grounded in statistics and asks what a decent statistical model of urban growth predicts for the future.

The two approaches are complementary and should yield similar answers. I would not trust a theoretical approach that was not grounded in data. I would not believe in a mindless statistical exercise that produced results that did not seem theoretically sensible. I will take both paths in this chapter. The first section of this chapter will focus on the predictions of economic theory about the future paths of cities. The second chapter will discuss a statistical model of urban growth.

In both sections, I will focus on predicting future population changes— which cities will grow. As I have discussed in the last chapters, population growth is essentially the same thing as growth in the number of homes, but it is not the same thing as growth in income or growth in housing prices. Las Vegas has had growth in population and housing with little growth in income or prices. Silicon Valley has had massive growth in income and prices with little growth in population.

311

Why then should we be particularly focused on population growth relative to income growth or housing price growth? Historically cities have tended to judge themselves based on their size and the growth of a city does reflect a measure of success. If a city is growing, then there it is attracting new residents and that is a sign of health. When we compare countries, we are primarily interested in income growth, not growth in population. The difference of course is that population growth rates across countries are driven primarily by differences in fertility while differences across cities are driven by migration. Different fertility rates are not generally seen as any sort of reasonable index of national success. Poorer nations have higher fertility levels. However, the ability of a city to attract migrants is a primary measure of its appeal. If people are coming to the place, something about it must be good.

We might also care about changes in housing prices and income levels. Housing prices are another proxy for urban success. After all, a place isn’t expensive if there isn’t something good about it. High housing prices are highly correlated with high wages and good climates. Figure 10-1 shows the correlation between housing prices and incomes across the 100 largest metropolitan areas in 2000. The places that are unusually expensive relative to their incomes all have good climates or other amenities. There are three reasons not to focus on high housing prices. First, as I discussed in the last chapter, high housing prices are increasingly driven by limits on supply so that price growth and population growth increasingly move in opposite directions.

Second, the forward looking nature of housing prices means that current prices will reflect expectations about how well a city will do in the future. Changes in prices should, at least in theory, reflect primarily the unexpected component of urban success. Third, housing price growth is far less predictable than population growth. That being said, no city grows if its prices are below construction costs, so when I am predicting population growth, I am simultaneously predicting that the level of prices will be remain at least moderately high. .

312

Income growth is another feasible proxy for urban success but income has some of the same problems as housing prices. First, when population is mobile, as it is across American cities, then income differences will be smoothed out by migration. Just as in the case of housing prices, high income differences across space appear to be increasingly maintained by limits on new construction. Second, in some instances high income provides compensation for workers living in an unpleasant area. For example, income in Anchorage is quite high. Third, on purely pragmatic grounds, income changes are much harder to predict. For example, I am confident that Santa Clara County will continue to be prosperous for the foreseeable future, but I wouldn’t have much idea about whether it is more likely to get more or less rich relative to the nation. Growing cities tend to be prosperous, so when predicting population growth, I am predicting continued prosperity, but I am not going to predict changes in income.

None of this is meant to suggest that every city should be trying to maximize its growth rate. Cities obviously can and should have other objectives as well. My interest is in where Americans will live over the next decades and of course, thinking about population patterns is the right way to answer that question. The theoretical approach to the future of cities returns to the ideas in the introduction about what drives the demand for urban proximity. In the future, as in the past, I am sure that the demand for proximity will be driven by the demand to reduce transportation costs for goods, people and ideas.

Manufacturing and Transportation

The history of the 20th century is one in which transport costs have declined steadily. Figure 10-2 shows the real costs of moving a ton of goods over a mile in the U.S. since the late 19th century (Glaeser and Kohlhase, 2004). Improvements in rail technology and increasing competition, especially with other models of transit, have reduced transport costs by 90 percent. Similar technological improvements occurred in shipping. Levinson (2005) details the remarkable changes in the shipping industry that came about with containerization. In the past, great ports needed thousands of longshoremen and other 313

dockworkers. Today, big boxes move off and on big ships mechanically with little need for labor and much less expense.

These changes within the more traditional transportation industries of rail and shipping are surpassed by the even more remarkable new technologies that reduced transport costs for goods. Trucks reduced costs for short hauls and freed industry from needing to locate near rail yards. Airplanes made it possible for even perishable goods to be shipped quickly at an ever cheaper cost. While America in 1900 looked like a country where locations where driven by the costs of moving goods, America in the 21st century increasingly looks like a place where those costs are more or less irrelevant.

Will the trend towards lower and lower transport costs continue? I think so. It is, of course, possible that a petroleum shortage will suddenly make it much more expensive to ship anything, but I suspect any such shock will be a short run phenomenon. I have enormous confidence in the ability of mankind to continue innovating. Even if gas prices rise, my guess is that this will be offset by other price reducing innovations. I also suspect that human innovation will free us from our dependence on petroleum if the price of gas rises too much. Moreover, transport costs now are so low relative to the 19th century that even if gas prices were to increase transport costs by an exorbitant 50 percent, it will still be pretty cheap to move goods.

If I am right and the cost of moving goods remains low, then this means that cities built around transporting goods will continue to be troubled. There will be no rebirth for dense, older cities based on manufacturing. Redevelopment strategies based on heavy industry are betting on the urban edge of the 19th century not the urban edge of the future. The production of goods will continue moving far away from America’s cities. In all probability, the bulk of manufacturing will be increasingly done in lower wage countries outside the U.S.

There is nothing inherently bad about this shift, although it has certainly caused problems for some of our older cities. Like most economists, I believe in comparative advantage. 314

If China is better at making clothes than New York and if Korea dominates Detroit in automobiles, their excellence is something to be embraced rather than fought. After all, it is American consumers who are benefiting from cheap clothes and cheap cars. We cannot save our older cities by trying to keep manufacturing in them and we should not try.

This logic extends beyond the rustbelt to some of the growing cities of the sunbelt which are also hubs for manufactured goods. Several sunbelt cities—Los Angeles, New Orleans, Charleston—have excelled as ports. I have no doubt that they will continue to do a thriving business moving goods into and out of the U.S., but I doubt that this activity will maintain a great city. These ports will employ fewer and fewer people over time as mechanization continues. I suspect in the long run, ports will look like giant machines moving goods with relatively little input from people on the ground.

I take the same view towards those sunbelt cities that focus on shipping goods within the U.S. In the past 20 years, it was good for a city like Atlanta or Dallas, to be a hub for plane and truck shipments of goods within the U.S. I am sure that they will continue shipping a lot of stuff, but historical trends suggest that fewer and fewer people will be involved in the business of moving goods. The cities of the future will not be built around transporting manufactured goods.

Cities and Moving People

But while the costs of moving goods have fallen dramatically, the cost of moving people remains high. The fundamental difference is that people can’t outsource their own travel— you need to spend time to get somewhere. The value of time is roughly proportional to people’s labor income and that has risen steadily over the 20th century. I suspect it will continue to rise in the next century and people will still be extremely concerned about reducing the amount of time that they spend in travel. The urban edge will continue to lie in making it easier for people to connect with one another.

315

The great service industries that have driven the American economy for the past decades are often defined by their need for face-to-face interaction. At the lower end, fast food stores and retail shops employ hundreds of thousands of workers to interact with customers. At the higher end, business services, like accounting, advertising and the law, deal in complex ideas that can be exchanged more accurately in person. Urban density makes these service industries more effective because it reduces the travel times needed for interaction.

The pressing question for urban service industries is whether technological changes will lead to a decline in the need for face-to-face interaction and in the need for labor in general. It isn’t inconceivable that McDonald’s will eventually be far more automated than it is today. E-commerce is certainly reducing the demand for some forms of face-to- face retail trade. Improvements in communications technology have made it increasingly possible for some of the higher end services to be outsourced. I am sure that this trend will continue and many service industries that today employ large numbers of people in urban areas will in the future employ fewer people and more of them will be in places with cheap labor.

Yet while older industries will continue to leave cities, newer industries will take their place. The history of successful older cities is one of constant industrial churning. Urban industries follow a life cycle. New ideas are formed in cities and the industry begins their. For a while the industry remains in the urban area of its birth but eventually as growth peters out, industry leaders figure out that they can reduce costs by moving something that has become routine someplace cheaper. They have an incentive to move because the city has new industries that are keeping labor and real estate costs high. The history of New York is filled with this process and even the short 50 year time of high technology in Silicon Valley has seen a constant process of new products.

According to this view, urban entrepreneurs will produce new service industries that will replace the ones that are being outsourced. Just as health clubs replaced Turkish baths, something else will replace health clubs. There is no guarantee of the process of 316

regeneration in any one city, but as a whole America’s urban economy has proven to be remarkably resilient and capable of continuing innovation. I would be shocked if over the next decades cities don’t continue to produce new industries and I would also expect those industries to specialize in face-to-face interaction, which is, after all, the comparative advantage of cities.

This optimistic view should not hide the very real distinctions between cities. As I discussed in Chapter 7, I am far more confident in the ability of high human capital places to reinvent themselves. I also think that different cities have transportation advantages which will partially determine their continuing ability to succeed in facilitating interactions in the next century. Some of these advantages relate to transportation within the city. Some advantages relate to the ability to connect across cities.

Over the past century, newer cities that could be built around the automobile have done better than older cities that were less car-friendly. Industries that use obsolete technologies tend to fade. Cities built around 19th century public transportation technologies also had significant problems. The relative success of some older, denser downtowns, like New York, Boston or San Francisco, however, suggests that the car isn’t everything.

We should however at least start with the view that the 20th century dedication to the car is unlikely to change any time soon. The faster speeds created by the automobile have proven to be enormously attractive to most Americans and I can’t imagine that this will change anytime soon. This means that car-oriented cities will continue to have an edge. There is no reason to doubt that most of the future population growth will occur in lower density areas built around the office park and the shopping mall. I have no seen no evidence that this trend is slowing, despite the new urbanist dreams that we will return to denser living.

317

There are, however, several caveats to the general claims that car-based living will continue. First, I am not suggesting that are current policies towards automobiles are in any sense optimal. Driving creates social costs, both to the environment and to other drivers that we desperate need to address. Global warming appears to be a real phenomenon and carbon emissions associated with the car add to that problem. The natural economic response to this problem is tax carbon emissions through a more aggressive gas tax.

Driving also creates traffic delays and we currently have a general bias towards letting anyone drive on almost any road essentially for free. The result of this policy is that too many people use the roads especially during peak hours. If we are going to have a society built around the automobile, we are going to have to do a better job of using our road infrastructure efficiently. This means that we must turn to congestion charging. London has followed this route and now charges people for driving on that city’s busy streets during peak hours. New York should do the same thing. Commuting arteries should also follow the principles of congestion charging and race tolls during peak hours. Roads are in scarce supply and we need to use the price mechanism to use them more efficiently.

A second caveat about car-based living is a possible major increase in gas prices. If the billion residents of China start driving, then gas prices could increase enormously. Higher gas prices might make public transportation look somewhat more attractive. Of course, this would have a bigger impact on the Chinese who not yet committed themselves to car-based living, then to Americans who have already spent trillions building their urban landscapes around the car. My faith in innovation also makes me think that higher prices will rapidly induce a shift to more fuel efficient, and especially electronic cars. More fuel efficient cars seems like a much more likely response to higher prices than giving up on the car altogether.

My third caveat about the dominance of car-based living returns to those remarkable older cities that have done well over the past 30 years. The success of New York and San 318

Francisco is partially a matter of economics. These places have done well as the densities that once served ports and industry now serve to speed the flow of ideas. People with a high value of time have decided to live downtown. Even more remarkably, these places have had a rise in reverse commuting which suggests that there is continuing demand for high density living, not just high density workplaces, at least in some cities.

I see this phenomenon as reflecting two different forces. First, there is a subset of the population that really does prefer to live car-free. The convenience of walking to stores and restaurants is not lost on millions of Americans, especially those without children. The fact that Americans have diverse tastes doesn’t mean that everyone will want to move back into cities, but it does mean that there will be a significant of continuing demand for living in denser cities without cars.

The second force is that these cities have aesthetic advantages that pull people towards them. There is no one recipe for beauty, but as a general rule, beautiful buildings require time and money. The downtowns of New York, Boston, Chicago and San Francisco have been built over centuries by people committed to using resources to create lasting architectural masterworks. Not everyone prefers to look at an urban skyscraper to a leafy suburb, but enough of us do so that some older cities will continue to draw people in for their beauty.

These two forces, however, imply that high density living will be more of a niche product than a mass market phenomenon. The dominant taste does seem to be for living at lower densities with bigger homes and more access to green space. Only those cities which had enough investment are beautiful enough to pull in the aesthetes. This means that I think that a few older cities will thrive, but that the majority will continue along their current path of decline.

I have so far discussed urban advantages associated with intra-urban transport, but some cities also have an edge coming from inter-urban transport. The most obvious such advantage accrues to places with airline hubs. The growth of the area around the Chicago 319

O’Hare airport has been extraordinary. The Dallas Fort Worth area has enjoyed remarkable success. Our interactive economy places a premium on the ability to get to other cities quickly and the hubs help that.

The move from point-to-point to hub-and-spoke air travel is a legacy of airline deregulation. When airlines had price regulation, they competed on experience rather than price and had a strong incentive to focus on direct flights. Hub-and-spoke travel is more efficient and provided a way for airlines to reduce costs so that they could compete with lower prices in a deregulated world. I suspect that this trend will continue, especially if energy costs are high. We cannot, however, rule out the possibility that changes in airline technology will make point-to-point travel more attractive which will reduce air- related advantages across cities.

Some cities also have an edge at ground-based inter-urban transport. For example, the entire northeast corridor is linked by both rail and route 95 (or 128 as the residents of Boston stubbornly call it). A continuing advantage of Philadelphia is its proximity to both New York and Washington, D.C. Shuttle service makes it easy even for those of us on one edge of the corridor to get to the other edge in less than three hours door-to-door. On the west coast, the San Francisco-San Jose area is one linked region and the Los Angeles-San Diego are is a second one. Cities that are close to each other have an edge coming from the ability of their residents to get to another big place quickly.

The rise of a modest number of mega-regions has been a major post-war phenomenon. In the 19th century, when transport costs were high and natural resources were really important, cities sprung up throughout the American hinterland. Chicago, Cleveland, Detroit and even Los Angeles, all had their roots in being regional capital providing transport infrastructure to agrarians and others whose wealth came from the land. Our wealth no long comes primarily from the land, and natural resources are now extremely cheap to fit. There is no longer any reason for cities to be so spread out. The coming together of people in coastal regions reflects the rising benefits of proximity among people and the declining benefits of being close to America’s far flung natural resources. 320

Ideas and Information Technology

The economic reinvention of New York and Boston relied on the advantages that density brought to the creation of new ideas. The creativity of Santa Clara County reflects the technological progress when smart people work close to one another and can readily interact. The optimistic vision of a rosy future for cities depends on the continuing value of density in speeding the flow of knowledge. The face-to-face interactions that have been so crucial to the production of new ideas are easier in dense places where it takes less time to meet.

One big question for the future of cities is whether changes in information technology will eliminate the need for face to face interactions and thereby reduce the demand for cities. A decade ago, the cyber-seers and techno-prophets were very big on the idea that information technology meant the death of distance. Since we can all communicate by faxes and email, there is little need to meet face to face. Teleconferencing can already provide some form of long distance face-to-face contact. Presumably, new technologies will only make it easier to connect well at long distances.

Nine years ago, I argued that not only was it premature to declare the death of density but that it wasn’t even obvious whether new information technologies would help or hurt urban areas (Gaspar and Glaeser, 1998). My argument was based on both theory and evidence. On a theoretical level, the question is whether electronic interactions are complements or substitutes for face-to-face interactions. Does the ability to communicate via email increase or decrease the demand to meet in person?

On a superficial level, the two forms of interaction would seem necessarily to substitutes. After all, if we email each other we don’t need to meet in person. This is the simple view that guides the predictions of the futurists predicting the death of density. But this view neglects the fact that changes in technology also change the nature of the economy and society. The ability to connect in so many ways causes us to become more interactive people. We have more relationships because we find it easier to communicate. We have 321 switched into industries that are heavy in intellectual interactions and out of industries that involved individual production. All of the idea-producing sectors in the economy are highly interactive. The rise of these sectors doesn’t just reflect an increase in the value of information but also an increase in the ability to produce knowledge. Improvements in information technology have made the shift into ideas possible.

As we become more interactive, we use more of both types of interactions. We use email and we meet face-to-face. The rise in management consulting, an industry that produces ideas and specializes in communication, owes much to the improvements in information technology. Management consultants do use email a lot, but they also have a great deal of face-to-face contact both with co-workers and with clients. In my own profession, information technology has increased the returns to collaborative research. Every new collaboration includes both electronic and personal interactions. Big cities that facilitate those face-to-face interactions might get more valuable as information technology moves us into more interactive enterprises.

The continuing use of both face-to-face and electronic interactions depends, of course, on the fact that there are some interactions which are best done in person. Interactions which involve trust, for example, make sense to do face-to-face because it is easier to read the other person. The communication of really complicated ideas is best done face to face because it is easier to ask questions in person and physical proximity increases the ability to transmit nuance. As our ideas have gotten more complex, the number of interactions that benefit the intensity of face-to-face contact has risen. Perhaps, eventually electronic communication will get so good that meeting face-to-face will be obsolete, but until that point, most significant relationships require both types of meetings.

The point of this argument is not that we should expect information technology to automatically strengthen cities but that the impact of information technology on cities is theoretically ambiguous. If the main impact of information technology is just to switch us from meeting to using email, then information technology will surely reduce the 322

demand for cities. If information technology continues to move us towards more interactive, knowledge-intensive activities, then information technology may well strengthen cities. As you can make either argument equally plausibly, we need to turn to evidence.

The first piece of evidence is on the use of information technology in cities. If face-to- face interactions and electronic interactions are complements then we should expect to see urbanites be the big users of information technology? If these types of interactions are substitutes, then adoption should be faster in low density areas? Chris Forman, Avi Goldfarb and Shane Greenstein have written a series of papers on commercial adoption of basic and advanced internet technology. Forman, Goldfarb and Greenstein (2005), for example, look at a 2000 survey of firms looking at their internet use. They find that 90.4 percent of the firms in cities with more than million inhabitants had adopted internet technology while only 75.5 percent of firms in cities with less than 250,000 people used internet technology.166 Enhanced versions of internet technology were also more common in big cities.

Sinai and Waldfogel (2004) also look at cities and the internet. They find that big cities have a much greater density of local internet sets, which supports the view that firms are more likely to use information technology if they have a greater chance of inducing face- to-face interactions. However, they find little connection between city size and being connected to the internet across households. This supports neither the complements nor the substitutes hypothesis.

The connections that do exist between city size and internet adoption among firms might not imply anything about electronic interactions, but might just reflect the greater tendency of any new technology to spread more quickly in dense areas. Gaspar and Glaeser (1998) look at the evidence on telephone usage—a considerably more mature form of electronic interaction. Using Japanese data provided by Takuo Imagawa, we find that denser places use the telephone more not less even when we control for income.

166 Interestingly, rural adoption is higher than in small cities although not as high as in big cities. 323

More urbanized countries are also bigger users of the telephones, again controlling for income. Cities and communication technology seem to be complements not substitutes.

Another fact from the telephone literature is that telephones are used primarily for local calls. Data from the 1970s shows that 40 percent of calls are made to places within two miles of the caller and 75 percent of all calls are made to places within six miles of the caller. Japanese data confirms that people call places that are closer and that this is not just the result of lower prices for local calls. The tendency to call people who are close suggests the complementarity of electronic and face-to-face interactions. We don’t both calling people who live too far away for us to see them regularly. We call closer people who we are likely to interact with physically.

Indeed, experts 100 years ago predicted that the telephone would stop the process of urbanization. After all, phones were an even more radical change in communications technology than the internet. If electronic interactions could substitute for meeting in person, then these prophets were right to predict that in the 20th century, everyone would go back to nature using their telephones to substitute for density. This is not what happened. Statistically, there is no connection between the rise of telephones and any slowdown in the pace of urbanization.

Since cities move slowly, it is hard to look at changes in urban population and see if information technology is making a difference. A more rapidly changing measure of the demand for face-to-face contact is the amount of business travel. Business trips represent a direct measure of the amount of longer-distance face-to-face contact. Many predicted that the fax machine, email and the internet would make business travel obsolete for the same reasons that they would make the city obsolete. Of course, since 1985 business travel has soared and this increase is not the result of declining prices (Gaspar and Glaeser, 1998). Information technology seems to have made the economy more interactive and one product of that greater interactivity is more time spent on planes.

324

A final piece of evidence on whether information technology is making cities obsolete is the case of Silicon Valley itself. It is remarkable that the most famous example of spatial agglomeration today—the cluster of firms in Santa Clara County—is a cluster of firms that have the best access to modern information technology. In that industry, all that technology has not eliminated a demand for proximity. Instead, thousands of brilliant people have rushed to the area to be close to one another and the ideas that are being created. It doesn’t seem as if proximity is becoming obsolete.

Neither the theory nor the evidence is completely overwhelming. It is certainly possible that some sort of magical innovation in the future will really eliminate the idea- transmitting advantages of close proximity. Cities might be dealt a terrible blow by such an innovation. For now, most innovations seem to be helping cities as least as much as they are hurting them. I think the view the internet has made cities an endangered species has little to back it up.

The Consumer City

Even if some future technology eliminated the productive advantages of density, cities would still have a function to play as centers for consumption. Human beings are social creatures and we can derive a great deal of pleasure from being around others. Over the past 50 years, the most successful cities have been places of consumption, at least as much as they have been places of production. Los Angeles was an early consumer city. Las Vegas and Phoenix are centers of consumption today. The revitalized downtowns of New York and San Francisco have succeeded in part because they appeal to people as places of consumption as well as production.

The decline in transport costs for goods has not eliminated the productive edge of density but it has eliminated the need for density to be anywhere in particular. The people of Silicon Valley would be just as productive if they were 300 miles to the south or 1,000 miles to the west. They might be colder if they lived in the Dakotas, but there is no reason to think that they would be any more or less productive. The great shift to the 325

sunbelt reflects the breakdown of the tethers that bound people to the rivers and land of the Midwest. It is hard to imagine that this trend will not continue. Cities will continue to firm in places where people want to live, not in places where nature has given some firms a productive edge.

If consumer preferences continue to be paramount, it is hard to imagine (absent large scale global warming) that the trend to warm, dry places won’t continue. I personally like New England winters, but it is pretty clear that I am in the minority. The incredible ability of climate to predict urban growth over the last century can really only be sensibly interpreted as a general preference for temperate climes. The American Midwest is one of the most agriculturally productive places in the planet, but it is also among the more inhospitable climates inhabited by Europeans. The winters can be brutally cold and the summers quite hot. We shouldn’t be surprised the people are leaving that region and we should expect the trend to continue.

One way of thinking about the advantage of temperate weather is that it reduces the cost of usable land. In New England, a yard is pleasant for about six months of the year, and usable space during the winter and summer extremes needs to be climate controlled. In Northern California, a yard is usable year round. In a sense, space is substantially cheaper in temperate climes because outdoor areas can be used without climate controls. This effect can be seen as providing a cost advantage in some parts of the sunbelt.

The rising importance of consumption in driving urban growth goes beyond climate. Beautiful architecture, good restaurants and museums are all consumer amenities in big cities. One of the themes of this book is that you can’t save a city by just building new infrastructure, but it is also true that attractive spaces don’t hurt. Many factors contributed to Boston’s turnaround, but Mayor Kevin White’s redevelopment of the Faneuil Hall/Quincy Market area surely helped make the downtown a destination. I am unsure if the benefits of these projects outweigh the costs, but I am sure that cities that start off with beautiful buildings will continue to have an edge.

326

People, not buildings, represent the great consumption advantage of cities. One of the questions for the future of urban areas is how much people in the future will value the ability to socialize with lots of other people. In 1900, most forms of recreation (apart from reading) involved socialization. Even the act of passively watching a show required proximity to actors and to other theater goers who would share the expense of paying for the production. Over much of the 20th century, entertainment technologies have emerged which have reduced the demand for social entertainment. The radio, television and the internet all made it easier to entertain yourself without help from anyone else. These technologies were all de-urbanizing forces that reduced the entertainment advantages of cities.

There are two groups of consumers who continue to use the social advantages of dense cities. Single people looking for a mate (permanent or otherwise) like the advantages of living around lots of other single people. Forty-five percent of Manhattan residents have never been married; twenty-seven percent of the U.S. population has never been married. The attraction of Manhattan for single people surely has many sources, but one of them is the presence of other single people. The appeal of dense cities as a marriage market is likely to continue as one source of their appeal, although I wouldn’t think that this effect would increase over time.

The second group of people attracted to dense urban areas for consumption reasons are people who particularly like the amenities that density makes possible. The best restaurants can only generally be supported in dense areas. A sophisticated arts scene tends to need density. Cities are good for live music and live theater. These are all relatively higher end forms of consumption, relative to watching reruns, presumably because they tend to involve more cultivated tastes. The social activities that big cities create generally involve a more complicated sensory experience and this has tended to turn them into relatively elite past times.

If cities continue to hold an edge in sophisticated entertainment, then rising incomes should turn this into a growth area. People are getting richer and more cultivated and the 327

ability of cities to deliver more complicated leisure activities might well be a growing area of comparative advantage. Over the past three decades, rising incomes in New York have fueled demand to enjoy the consumption advantages of that city. This trend may continue.

Of course, for cities to thrive as centers of consumption, they must continue to keep the negative effects of proximity under control. If crime again soars, then city streets become less attractive. If infectious diseases again become associated with density, then as in Poe’s “The Masque of the Red Death,” the rich will again flee.

Housing Supply

The final force trend which will play a big role in shaping urban growth is housing supply. In chapter 8, I discussed the trends in both New York City and northern California towards empowering environmentalist, preservationists and neighborhood groups opposed to new construction. In those areas, and other high demand coastal markets, construction has increasingly been stymied by well-organized opposition. The result has been declining numbers of new permits and increasing prices in those areas and a burst of growth in places, like Las Vegas, that were amenable to growth.

I suspect that the big story in housing supply over the next twenty years is that more areas will begin to follow California and slow new construction. There are many factors which should lead to contagion of this phenomenon. Activist groups learn from each other and the techniques that served the self-proclaimed saviors of the San Francisco Bay can be readily adopted from Montana to Maryland. Judges look at other states when making decisions and pro-conservation decisions will surely spread. The environmentalist movement is not losing steam and its ideology provides a respectable basis for opposing construction in your back yard. The widespread description of car-based living with the perjorative “sprawl” is an example of the success of the environmental alliance with anti- growth homeowners.

328

The fundamental force driving the opposition to new construction is that most homeowners really do lose from new construction. New construction means congestion in the roads and increased burdens on the schools. The process of construction itself can be an inconvenience to abutters. Open land can be more attractive to look at than development. The great blessing of new development—it keeps homes affordable—is a curse to homeowners who are hoping that their house will be worth as much as possible. It is hard to imagine that development will not become increasingly difficult in those communities throughout the country where local homeowners hold sway.

The areas where this trend may be stopped are places with countervailing pressure groups that can fight against neighboring homeowners. Employers, for example, have an incentive to fight for more housing because more housing keeps prices low which reduces the wages that employers need to pay workers. Historically, business groups have been supportive of local development. Renters groups also have an incentive to keep prices low and affordable housing advocates are often friends to new development. Advocates of local spending sometimes see in development an opportunity for an increased tax base.

This leads me to the view that big cities are likely to be continue being battleground areas where developers still manage to have some victories over local homeowners. Big cities have employers, renters and dozens of non-homeowner interest groups. Some big cities, like Chicago, have always been friendly to development. In other places, like New York and Boston, mayors have made a concerted push for new construction and have fought the enemies of growth. In these cities, affordability has its supporters and mayors respond to their advocacy.

A related dynamic is at play in states like Maryland where counties, not localities, have the final say over development decisions. In those larger governments, business groups are more likely to have a voice. In smaller, suburban enclaves, there are only homeowners. This is one reason why suburban Maryland has grown so much more than suburban Massachusetts. 329

The impact of housing supply restrictions on urban growth will continue to be significant. Areas that restrict housing supply will invariably have modest population growth, and often will have higher growth in housing prices. Areas that allow new development, both in the sunbelt and in larger cities, will continue to absorb much of America’s population growth. At the extreme, America will bifurcate into pockets of explosive growth and stagnation, which are defined not be the strength of local economies, but by political decisions about housing development.

I am concerned about these trends because they are making the country less productive. It is economically efficient for people to move to the more productive areas in the country. When we shut off growth in those regions and push people to less productive areas, the country becomes less productive. National incomes would rise dramatically if the growth in Phoenix and Houston was occurring instead in the far more economically productive San Francisco Bay region.

I am also concerned about these trends for environmental reasons. Local homeowners look after their own environment, not the environment of the nation. There is no obvious environmental gain associated with moving a real estate development from Santa Clara County to the desert around Las Vegas. There is surely an environmental loss associated with moving construction from Manhattan to suburban Phoenix. The environmental motives behind restricting growth are not being well served by a piece meal policy that gives local homeowners relatively unfettered control over their own development.

Finally, I am concerned about the trends in construction for reasons of social justice. Abundant construction means cheap housing. The growing areas of the sunbelt have done a wonderful job of making homes that would be the envy of almost any other age and almost any other place affordable to millions of Americans. When homeowners turn around and block new construction they are denying those benefits to others. The areas on the costs that have stopped supply are making it increasingly difficult for lower and middle income people to live in their areas.

330

My primary message on housing supply is not that there is an obvious right answer. Care of the environment is important. Local control over land use has some advantages. My point is that housing supply is extremely important to the growth of cities and deserves far more national discussion. More and more areas have moved from a regime where developers could essentially do what they wanted with their property to a regime where neighbors can essentially stop whatever they want to stop. That regime shift is important to urban America and deserves far more debate.

And What Does Naïve Prediction Give Us?

Finally, I turn to a more statistical exercise predicting the population growth of different metropolitan areas. Population changes have been enormously persistent and historically the best way to predict growth in the future of a city is to look at growth in the past. The same cities that are growing in the 1990s, grew in the 1980s, 1970s, and 1960s. Figure 10-1 looks at the 50 largest cities in the U.S. in 1980 and shows that population growth in the 1970s explains almost 60 percent of the population growth in the 1990s. Population growth in the 1980s does an even better job. While there are certainly some cities where growth shoots up and others where growth declines, the basic pattern is one of enormous persistence. It is this persistence that makes me mildly comfortable predicting growth into at least the near future.

The same persistence is not present in either income or housing price changes. Figure 10-2 looks at the correlation of income changes in the 1980s and income changes in the 1990s across the same cities that were shown in Figure 10-1. While population growth shows remarkable persistence, income growth does not. The basic pattern in Figure 10-2 is that income growth in one period is pretty independent of income growth in the previous period. This lack of persistence makes income growth far harder to predict than population growth.

Figure 10-3 shows the relationship between housing price growth in the 1990s and housing price growth in the 1980s across the same sample of cities. In this case, the 331 relationship is strongly negative. Cities that had booming prices in the 1980s had significantly less growth in the 1990s. This negative correlation does imply some predictability (Glaeser and Gyourko, 2006), but it also means that there are few common factors driving growth during each decade. The absence of such common factors is actually good news for economic theory since predictable components of housing demand should be reflected in housing prices quickly. Once people realize that California’s climate makes it attractive now and will only make it more attractive, then prices should rise quickly to reflect that amenity value. Home prices should reflect anticipated future demand less perfectly than stock prices should reflect anticipated future income growth, but the future still should be reflected in prices today.

The persistence of population growth is the starting point of my empirical procedure which requires that patterns in the future will resemble those in the past. I constructed a statistical model that used a number of city level characteristics in 1980, including education levels, climate and unemployment, to predict city population growth between 1980 and 2000. The most powerful variable for predicting growth between 1980 and 2000 was population growth between 1970 and 1980. I included all cities with more than 100,000 people in my analysis and together the explanatory variables were able to explain two thirds of the variation in population growth between 1980 and 2000.

I then used this statistical model and the values of the core variable in 2000 to predict growth over the next 20 years. For the lagged growth variable, I used growth in the 1990s in place of growth in the 1970s. These models are always imperfect and the results should certainly be taken with a grain of salt. Nonetheless, Table 10-1 presents a ranking of predicted growth over the next 20 years for America’s 100 largest cities.

I have grouped the panel into four groups. The top 25 are labeled high fliers. The next 25 are labeled solid growth. The next 25 are labeled slow growth and the bottom 25 are labeled urban stagnation. The top 25 are almost all in the sunbelt, except for Boise, Idaho and three cities in Colorado. The top four cities are all in Arizona. These places are growing rapidly and the model predicts that they will continue to do so. Strong demand 332

best on climate combined with permissive zoning suggests that these places will continue to include much of America’s future growth.

There are eight California cities in the top group, but they are generally places away from the coast. The model could be significantly overestimating their future growth if they start to follow the land use practices of coastal California. The three Colorado cities as well are places where increasingly stringent development policies are a possibility. They also might have slower growth than the model predicts.

The second group is also made up primarily of sunbelt cities, although these either have lower demand or tighter land use policies than the high fliers. San Jose and Los Angeles, for example, are cities with plenty of demand but significant restrictions on building. Tulsa, Oklahoma, and Lubbock, Texas, have relatively unrestricted building environments but more limited demand.

There are four non-sunbelt cities in this high growth group: Lincoln and Omaha, both in Nebraska, Anchorage, Alaska, and Tacoma, Washington. Lincoln and Omaha are both succeeding despite difficult climates. Anchorage has, of course, a fairly horrendous climate by any definition. It is essentially a 19th century city succeeding despite consumption disadvantages on the basis of natural resource wealth. Tacoma has mild weather, although considerable rain.

The third group is much more diverse, both geographically and in other respects. It includes high demand places, like San Francisco, that have enormously tough regulatory environments. The two more successful east coast cities, New York and Boston, are also in this group. My estimates for New York City are considerably more modest that the New York City Department of Planning suggestion that the city will grow to more than 9 million people. New York and Boston both also have reasonable high demand but limited new housing supply.

333

This third group also includes the higher human capital cities of the Midwest. Madison, Wisconsin, Columbus, Ohio and St. Paul, Minnesota are all in this third group. The concentration of successful northeastern cities in this third group reflects the limits of what we should expect in colder climates. Some places, especially those with high levels of human capital, will continue to grow, but the growth will be far more modest than in the southwest. Interestingly, Atlanta is in this third group which shows some of the limitations of looking at city rather than metropolitan level data. Any sensible model would predict that the Atlanta region will continue to grow substantially, but the city is only a small part of the region and its recent growth has been modest (5.7 percent in the 1990s). Accordingly, the model predicts that it will also grow modestly in the future.

The bottom group includes the least successful of America’s cities. Generally, these are places with low levels of human capital in the colder regions of the country. One prominent exception on the list is Miami which again occupies a similar position to Atlanta within its metropolitan area. The past growth of the city of Miami has been modest and the model predicts that this will continue.

Baltimore, Buffalo and St. Louis are picked to be the cities that will lose the most population which certainly corresponds with recent experience. These places have not managed to grow for decades and it would be shocking if they did now. Indeed, much of the housing stock in these cities costs less than the price of new construction which is a pretty sure sign that no builder is going to build and without new building, the cities will not grow. While the position of most cities throughout the list reflects both demand and supply factors, most of the cities in the bottom twenty are there because of low demand. The model is imperfect and some of these cities may yet turn themselves around. Yet, I suspect that effort is better spent on ensuring a better future for the residents of these places than on trying to resurrect those particular cities. New Orleans is a member of this list which uses only pre-Katrina information. Spending on New Orleans’ reconstruction would do well to consider the expected future of that place.

334

Concluding Remarks

America’s urban history is remarkably dynamic. Small outposts turn into great metropolises almost overnight. Once great cities get caught in spirals of decay and decline. While I am not sure about my predictions for any particular cities, I am sure that change will continue. Cities will rise and fall and sometimes rise again.

The rise and fall of cities is not random. Economic and social factors can explain the time paths of America’s great places. There is certainly some chance, but by and large, reasonable explanations exist for most of the trends that this book has explored. The urban system is volatile but its change is not without reason.

I think it is a mistake to fear urban dynamism. America at its best is always open to change. When cities try to block growth, people are prevented from sharing in the success. When governments try to reverse decline, the efforts are usually ineffective and often extremely costly. I don’t think that it is possible to stop urban fluctuations and I don’t think that we ought to try. The country has been built through the rise and fall of its cities and I suspect that it always will be.

America’s cities have had a remarkable history. They form for often mundane reasons. A small river on the edge of Lake Michigan provides a convenient spot for a trading spot. But as cities grow, their output far transcends their humble origins. The merchants of Boston connect over a common antipathy to British tariffs. The connection of lawyers, traders and brewers comes together to start an American revolution. The fur trading post on Manhattan evolved into one of the most potent engines of idea creation that the world has even seen. The consumer city of Los Angeles became a hotbed of innovation in fields from aviation to entertainment.

The great miracle of cities comes from interactions generated by urban density. We don’t create new ideas on our own. We borrow and steal and always stand on the shoulders of our predecessors. Humans are a remarkably social species and our great achievements 335

have all been the result of collective action. Cities—which appear to be so far from primitive landscape where we evolved—actually cater to the most important of mankind’s basic talents, our ability to learn from others. My confidence in the future of the city comes from a belief that our species is so innately social, both in our production and in our production. The great purpose of cities is to enable interactions. The human need for those interactions will never end.

336

Table 1-1 Employment by Sector for American Cities in 1880 (for cities with populations greater than 100,000)

Employment by Sector Total Percentage of Number of Trade and Employment in Employed Agriculture Services Transportation Manufacturing Manufacturing

Philadelphia 348,900 4,810 97,036 75,528 171,526 49.2% Brooklyn 209,065 981 55,546 59,869 92,669 44.3% Chicago 191,760 1,190 58,645 55,013 76,912 40.1% Boston 149,194 1,042 53,465 40,787 53,900 36.1% St. Louis 139,985 2,089 48,229 36,802 52,865 37.8% Baltimore 130,364 867 46,879 32,669 49,949 38.3% Cincinnati 100,454 1,196 29,068 22,904 47,286 47.1% San Francisco 104,650 1,965 35,060 30,150 37,475 35.8% New Orleans 78,336 2,032 36,686 20,510 19,108 24.4% Cleveland 56,919 694 17,021 12,974 26,230 46.1% Pittsburgh 52,173 466 20,792 9,711 21,204 40.6% Buffalo 54,647 1,091 17,880 12,387 23,289 42.6% Washington D.C. 57,262 463 34,931 8,596 13,272 23.2% Newark 49,066 556 9,118 9,409 29,983 61.1% Louisville 45,244 459 17,339 10,847 16,599 36.7% Jersey 42,356 504 17,327 12,113 17,412 41.1% Detroit 39,245 394 12,518 9,588 16,745 42.7% Milwaukee 40,900 334 12,979 9,322 18,265 44.7% Providence 43,878 490 11,105 8,509 23,774 54.2%

Source: U.S. Bureau of the Census. Statistics of the Population of the United States at the Tenth Census (860-909): June 1, 1880. U.S. Government Printing Office: Washington, 1883. www.census.gov/population/documentation/twps0027/tab11.txt

337

Table 1-2 United States Manufacturing Employment in 1950 (for eight of the largest cities and the United States as a whole)

Percentage of Employment in Total Employment Manufacturing Manufacturing

New York 3,276,624 916,911 28.0% Chicago 1,614,867 593,086 36.7% Philadelphia 827,243 291,312 35.2% Los Angeles 799,596 183,064 22.9% Detroit 1,193,344 559,898 46.9% Baltimore 391,487 113,618 29.0% Cleveland 615,809 249,651 40.5% St. Louis 575,942 194,420 33.8%

United States 56,239,449 14,575,692 25.9%

Source: U.S. Bureau of the Census. Census of Population: 1950. Volume II: Characteristics of the population. U.S. Government Printing Office: Washington, 1952

338

Figure 3-1 Population of New York City and Manhattan (1790 - 1990)

New York City

Manhattan

Source: Population Of The 100 Largest Cities And Other Urban Places In The United States: 1790 To 1990. Campbell Gibson. Population Division, U.S. Bureau of the Census, Washington, D.C., 1998, Population Division Working Paper No. 27 http://www.census.gov/population/www/documentation/twps0027.html

339

Figure 3-2 Population Growth of New York City and the United States: 1790 to 1990 (1970 - 1990)

Ne York

Sources: Population Of The 100 Largest Cities And Other Urban Places In The United States: 1790 To 1990. Campbell Gibson. Population Division, U.S. Bureau of the Census, Washington, D.C., 1998, Population Division Working Paper No. 27 http://www.census.gov/population/www/documentation/twps0027.html Historical Census Statistics on Population Totals By Race, 1790 to 1990, and By Hispanic Origin, 1970 to 1990, For The United States, Regions, Divisions, and States http://www.census.gov/population/www/documentation/twps0056.html

340

Figure 3-3 Exports from Principle Ports (1821 - 1860)

Source: Urban Colossus: Why Is New York America's Largest City? (HIER, Glaeser 2005)

341

Figure 3-4 Exports and Imports for New York and New Orleans (1820 - 1860)

Source: Urban Colossus: Why Is New York America's Largest City? (HIER, Glaeser 2005)

342

Figure 3-5 Immigration to the United States (1820 - 1970)

Source: Urban Colossus: Why Is New York America's Largest City? (HIER, Glaeser 2005)

343

Table 4-1 Population of American Cities from 1860 to 1920 (for the 10 largest cities in the United States)

Population % Growth

1860 - 1860 1870 1880 1890 1900 1910 1920 1920

New York City 813,669 942,292 1,206,299 1,515,301 3,437,202 4,766,883 5,620,048 591% Philadelphia 565,529 674,022 847,170 1,046,964 1,293,697 1,549,008 1,823,779 222% Brooklyn 266,661 396,099 566,663 806,343 1,166,582 1,634,351 2,018,356 657% Baltimore 212,418 267,354 332,313 434,439 508,957 558,485 733,826 245% Boston 177,840 250,526 362,839 448,477 560,892 670,585 748,060 321% New Orleans 168,675 191,418 216,090 242,039 287,104 339,075 387,219 130% Cincinnati 161,044 216,239 255,139 296,908 325,902 363,591 401,247 149% St. Louis 160,773 310,864 350,518 451,770 575,238 687,029 772,897 381% Chicago 112,172 298,977 503,185 1,099,850 1,698,575 2,185,283 2,701,705 2309% Buffalo 81,129 117,714 155,134 255,664 352,902 423,715 506,775 525%

Source: Population of the 100 Largest Urban Places, U.S. Bureau of the Census http://www.census.gov/population/www/documentation/twps0027.html

344

Figure 4-1 The Urbanization of the United States 1820-1990

Source: Historical Statistics of the United States

345

Table 5-1 Labor Force by Occupational Sector for Los Angeles in 1910

Workers

Male Female Total % of Total

Total 114,827 32,393 147,220

Agriculture 3,820 92 3,912 2.7%

Clerks 8,590 5,054 13,644 9.3%

Domestic and Personal Service, Total 10,388 11,340 21,728 14.8%

Manufacturing, Total 39,590 6,041 45,631 31.0%

Professional Services 7,717 5,094 12,811 8.7%

Trade 26,849 3,881 30,730 20.9%

Transportation 13,814 841 14,655 10.0%

Automobile factories 73 4 77 0.1%

Car and railroad shops 280 2 282 0.2%

Wagon and carriage factories 6 57 63 0.0%

Motormen 920 0 920 0.6%

Mechanics 238 1 239 0.2%

Total building transportation equipment 1,517 64 1,581 1.1%

Machinists, millwrights & toolmakers 2,542 1 2,543 1.7%

Source:

346

Table 5-2 United States MSA with Highest and Lowest Estimated Amentity Values

Source: Consumer City. (HIER, Glaeser, Kolko, and Saiz, 2000)

347

Figure 5-1 Correlation Between Population Growth and the Amenity Index (1980 - 2000)

Source: Consumer City. (HIER, Glaeser, Kolko, and Saiz, 2000)

348

Figure 5-2 Motor Vehicle Registrations per Capita for the United States (1900 - 1950)

Source: Highway Statistics Summary to 1995. US Department of Transportation Federal Highway Administration. http://www.fhwa.dot.gov/ohim/summary95/section2.html

349

Figure 5-3 Commute Times and Public Transportation Use (for the 50 largest American cities in 2000)

Commute Time - 2000 Fitted values

40 New York

Chicago

Philadel OaklandBaltimor San Fran 30 Los Ange Washingt Long Bea Boston Detroit Atlanta San Jose Houston Dallas Phoenix Mesa ClevelanNew Orle CharlottLas Vega Fort Wor Denver Seattle VirginiaSan Anto Sacramen MemphisSan Dieg HonoluluPortland El PasoAustin Milwauke FresnoColumbusKansasTucson C Minneapo Oklahoma Albuquer 20 Tulsa Omaha

0 20 40 60 Public Transportation Use - 2000

Source: Census City Data

350

Figure 5-4 Population Growth and Average January Temperatures (1930 - 2000) Log Change in Population (1930- Fitted values

Phoenix

Albuquer SanTucson Jose c Austin c Colorado Santa An Lubbock Bakersfi Corpus C Boise Ci Fresno c RiversidSan Dieg Raleigh Baton Ro Orlando 2 Charlott Houston St. Pete El Paso BurbankInglewoo AlexandrSalemNewportAbilene ciStockton Laredo c Dallas cSanSan Anto Bern Ann Arbo AmarilloGreensbo Sacramen SiouxMadison Fa Durham cJackson Aurora c Wichita FortMontgome Wor GlendaleLong BeaTampa ci Miami ci Green Ba Lincoln OklahomaTulsa ci Mobile c Los Ange Joliet cColumbusStamfordSpringfi MemphisWinston- Shrevepo LittleWichita RColumbia Cedar Ra Pueblo c Portsmou Waco cit Omaha ciTopekaDenver c c TacomaNorfolk c Beaumont RockfordFortSpokane Way KnoxvillPortland Pasadena LansingSpringfi Yonkers SeattleAtlanta Savannah Des MoinManchestSalt Lak Chattano Oakland Have to do this… Grand RaAllentowKansasEvansvilNew C YorkWashingt SanBerkeley Fran St. Paul MilwaukePeoriaSouthToledoGary Lowellc citSpringfiWaterburBe cKansas cElizabetPaterson C Richmond New Orle Erie citCambridgBridgepo Birmingh 0 Minneapo ChicagoWorcesteAkronDayton ci c LouisvilBaltimor Flint ciHartfordNewBostonCincinnaJerseyPhiladel Have c C SyracuseRochesteProviden Detroit Newark c BuffaloClevelanPittsbur St. Loui

-2

0 20 40 60 80 Average Daily Temperature, Janua

Source: Census Data

351

Table 6-1 Ten Largest American Cities by Population 1950 and 1980

1950

Ranking City Population

1 New York City 7,891,957 2 Chicago 3,620,962 3 Philadelphia 2,071,605 4 Los Angeles 1,970,358 5 Detroit 1,849,568 6 Baltimore 949,708 7 Cleveland 914,808 8 St. Louis 856,796 9 Washington, D.C. 802,178 10 Boston 801,444

1980

Ranking City Population

1 New York City 7,071,639 2 Chicago 3,005,072 3 Los Angeles 2,966,850 4 Philadelphia 1,688,210 5 Houston 1,595,138 6 Detroit 1,203,339 7 Dallas 904,078 8 San Diego 875,538 9 Phoenix 789,704 10 Baltimore 786,775

Source:

352

Table 6-2 Population by Race of American Cities in 2000 (for the ten largest cities in 1950)

Total White Alone % White Black Alone % Black

New York 8,008,278 3,576,385 45% 2,129,762 27%

Chicago 2,896,016 1,215,315 42% 1,065,009 37%

Philadelphia 1,517,550 683,267 45% 655,824 43%

Los Angeles 3,694,820 1,734,036 47% 415,195 11%

Detroit 951,270 116,599 12% 775,772 82%

Baltimore 651,154 205,982 32% 418,951 64%

Cleveland 478,403 198,510 41% 243,939 51%

St. Louis 348,189 152,666 44% 178,266 51%

Washington, D.C. 572,059 176,101 31% 343,312 60%

Boston 589,141 320,944 54% 149,202 25%

Source: http://factfinder.census.gov/home/saff/main.html?_lang=en

353

Figure 6-1 Population Growth from 1950-1980 and Temperature (for America's 50 largest cities in 1950) Log of Population Change 1950-1 Fitted values

Houston 1 San Dieg

Dallas Tulsa San Anto

Oklahoma .5 Memphis Columbus Los Ange Long Bea Fort Wor Miami Omaha NorfolkAtlanta Toledo Denver

Seattle Milwauke Kansas C Portland 0 Richmond New Orle Salt NewLak York St. Paul Akron BirminghSanOakland Fran Chicago Baltimor WorcesteDaytonPhiladelLouisvilWashingt Syracuse CincinnaNewark Rocheste Jersey C Minneapo Boston Detroit BuffaloClevelanPittsburProviden -.5 St. Loui

-1

0 200 400 600 800 Jan Avg. Daily Tmp - 1980

Source: Census city data

354

Figure 6-2 Population Growth from 1950-1980 and Population Density (for America's 50 largest cities in 1950)

Log of Population Change 1950-1 Fitted values

1 San DiegHouston

Dallas Tulsa San Anto .5 Memphis Oklahoma Los Ange Columbus Long Bea Fort Wor Miami Omaha Norfolk Atlanta Denver Toledo Seattle KansasPortland C Milwauke 0 New Orle Richmond Salt Lak New York BirminghAkron St. Paul Oakland San Fran Baltimor Chicago Worceste LouisvilDayton Washingt Philadel Cincinna Syracuse Newark Rocheste Jersey C Minneapo Boston Detroit ClevelanPittsburProvidenBuffalo -.5 St. Loui

-1 8 9 10 Log Density 1950

Source: Census city data

355

Figure 6-3 Population of Detroit by Race 1900-2000

%Black

Pop lati

Source: http://factfinder.census.gov/home/saff/main.html?_lang=en

356

Figure 6-4 Dissimilarity Indices for Detroit and the United States (1890 - 2000)

Detriot

United States

Notes: The dissimilarity index uses ward data prior to 1940, and tract data after and including 1940. Thus, a correction factor is added to data prior to 1940. The United States Index is the mean across all cities.

Source: Cutler/Glaeser/Vigdor Segregation Data at http://trinity.aas.duke.edu/~jvigdor/segregation/

357

Figure 7-1 Share of Population with a BA in 1980 and Population Change over 1980-2000 (for the 30 largest Midwestern and Northeastern Cities in 2000)

Log of Population Change 1980-2 Fitted values

Lincoln

Columbus Omaha Wichita Madison .2 Fort Way

New York Providen Grand Ra Jersey C St. Paul Boston Des Moin Minneapo Yonkers 0 Kansas C Chicago Milwauke Akron PhiladelRocheste Toledo Cincinna ClevelanNewark -.2 Buffalo Detroit Pittsbur St. Loui

-.4 0 10 20 30 40 Share of Population with BA 1980

Source: Census City Data

358

Figure 7-2 Homicides in New York City 1800-2000

Source: Urban Resurgence and the Consumer City. (HIER, Glaeser and Gottlieb, 2006)

359

Figure 7-3 Log of Real Wages and City Size - 1970

Source: Urban Resurgence and the Consumer City. (HIER, Glaeser and Gottlieb, 2006)

360

Figure 7-4 Log of Real Wages and City Size - 2000

Source: Urban Resurgence and the Consumer City. (HIER, Glaeser and Gottlieb, 2006)

361

Figure 7-5 Correlation of Per Capita Income and Share of Population with BAs in 1970 (for the 30 largest Midwestern and Northeastern MSAs)

Per Capita Income 1970 ($2000) Fitted values New Have 18000

New York Hartford Chicago- Detroit- 16000 Rocheste Clevelan Minneapo Dayton-SMilwauke Indianap Boston-W PhiladelKansas C Toledo, Albany-S St. Loui Allentow Harrisbu Buffalo- Cincinna Columbus 14000 Providen Springfi Omaha, N Syracuse Youngsto Grand RaPittsbur

12000 Scranton .05 .1 .15 Share with BA 1970

Source: Census MSA data

362

Figure 7-6 Correlation of Per Capita Income and Share of Population with BAs in 2000 (for the 30 largest Midwestern and Northeastern MSAs) Per Capita Income 2000 Fitted values

35000

New Have

30000

Boston-W NewHartford York Minneapo

25000 Detroit- Chicago- Philadel Kansas C IndianapMilwauke Columbus CincinnaSt. Loui Clevelan Albany-S Harrisbu Omaha, N Dayton-S Rocheste Allentow Providen Grand PittsburRa Toledo, Buffalo-SyracuseSpringfi 20000 Youngsto Scranton

15000

.15 .2 .25 .3 .35 Share with BA 2000

Source: Census MSA data

363

Figure 7-7 Distibutions of Median Income (for Midwestern and Northeastern MSAs)

Source: Census data

364

Figure 7-8 Growth in Share of Population with BAs (for the 30 largest Midwestern and Northeastern Cities in 2000)

Change in Share with BAs 1970-2 Fitted values

Boston 25 Minneapo

Jersey C

St. Paul 20 Madison

Columbus ChicagoPittsbur New York Omaha Kansas C Cincinna 15 Providen Lincoln

St. Loui Grand Ra

Rocheste YonkersWichita Buffalo PhiladelMilwauke Des Moin 10 Fort Way Akron Toledo

Clevelan

5 Newark Detroit

0 10 20 30 Share with BAs in 1970

Source: Census data

365

Figure 7-9 Housing Permits and Prices in Manhattan

Source:

Glaeser, Edward L., Joseph Gyourko, and Raven E. Saks. "Why Have Housing Prices Gone Up?" Harvard Institute of Economic Research Discussion Paper No. 2061 (also NBER Working Paper No. W11129), February 2005.

366

Table 8-1 Twenty Fastest Growing Metropolitan Areas in the 1990s

Las Vegas, NV-AZ MSA Laredo, TX MSA McAllen-Edinburg-Mission, TX MSA Boise City, ID MSA Naples, FL MSA Austin-San Marcos, TX MSA Fayetteville-Springdale-Rogers, AR MSA Phoenix-Mesa, AZ MSA Provo-Orem, UT MSA. Atlanta, GA MSA Wilmington, NC MSA. Raleigh-Durham-Chapel Hill, NC MSA. Olympia, WA PMSA. Fort Collins-Loveland, CO MSA Yuma, AZ MSA Brownsville-Harlingen-San Benito, TX MSA Ocala, FL MSA Colorado Springs, CO MSA Greeley, CO PMSA Las Cruces, NM MSA

Source: Census http://www.census.gov/popest/archives/1990s/MA-99-01.txt

367

Figure 8-1 Share of Population with a BA in 1980 and Population Change over 1980-2000 (for the 30 largest Southern and Western Cities in 2000)

Log of Population Change 1980-2 Fitted values

Las Vega 1

Fresno Austin

Charlott Phoenix .5 Virginia Sacramen San Anto Tucson Portland Fort Wor San Jose San Dieg Albuquer El Paso Dallas Long Bea OklahomaLos Ange Houston Denver SanSeattle Fran Memphis 0 Atlanta

Washingt New Orle Baltimor

-.5 10 20 30 40 Share of Population with BA 1980

Source: Census city data

368

Figure 8-2 Share of Population with a BA in 1980 and Housing Value Change over 1980-2000 (for the 30 largest Southern and Western Cities in 2000) Log Change of Hsg Value 1980-20 Fitted values

Atlanta

San Fran San Jose Seattle .5

PortlandCharlott

Denver Austin Baltimor San Anto Long Bea San Dieg SacramenLos Ange Fort Wor Albuquer Washingt 0 Las Vega Memphis Oklahoma DallasVirginia Phoenix El Paso Tucson New Orle Fresno Houston

-.5

10 20 30 40 Share of Population with BA 1980

Source: Census data

369

Figure 8-3 Change in Median Income and Share with BA in 1980 (for the 30 largest Southern and Western Cities in 2000) Log Change of Per Capita Income Fitted values

Atlanta

.6 San Fran

Charlott Austin Seattle San Jose Washingt .4 San Anto San Dieg Baltimor Virginia Portland AlbuquerDenver Memphis Las Vega New Orle El PasoPhoenix Fort Wor Dallas .2 Tucson SacramenLos Ange Oklahoma Long Bea Houston Fresno

0 10 20 30 40 Share of Population with BA 1980

Source: Census data

370

Figure 8-4 Supply Elasticity and Price Volatility

Housing Inelastic Supply Price

Elastic Supply

Rise in Demand

Number of Homes

Source: Urban Growth and Housing Supply. (Glaeser, Gyourko, Saks, 2005)

371

Figure 8-5 Change in the Population and Housing Units 1990-2000 (for the 30 largest Southern and Western Cities in 2000)

Log Change in Housing Units 199 Fitted values

.6 Las Vega

Charlott

Austin .2 Portland AlbuquerSan Anto Phoenix El Paso TucsonFresno Virginia MemphisSeattleSan DiegSan JoseFort Wor SacramenOklahomaHouston San Fran DallasDenver LosAtlanta Ange Long Bea 0 Baltimor Washingt New Orle

-.2 -.2 0 .2 .4 .6 Log Change in Population 1990-20

Source: Census city data

372

Figure 9-1 Share of Population with a BA in 2000 and Median Home Value in 2000 (for the 50 largest American cities in 2000) Log Median Home Value 2000 Fitted values

San Fran

400000 San Jose

Honolulu 300000

Seattle Oakland New York San Dieg Los Ange Boston Anaheim Long Bea 200000 Santa An Denver Anchorag Portland Washingt Raleigh AuroraChicago ColoradoAtlanta Newark LasRiversid Vega Charlott Sacramen Virginia Albuquer Austin Miami Mesa Minneapo Phoenix St. Paul Fresno ColumbusArlingto 100000 TucsonNewCincinna OrleDallasOmaha Louisvil KansasTampa CTulsa ToledoMilwauke OklahomaWichitaHouston Clevelan El BaltimorPasoCorpusMemphisSan C Fort Anto Wor Detroit Port Sai PhiladelBuffaloSt. Loui Pittsbur

0 10 20 30 40 50 Share with BA in 2000

Source: Census city data

373

Figure 9-2 Correlation of the Share of Population with BA in 1970 and 2000 (for the 50 largest American cities in 2000) Share with BA in 2000 Fitted values

50 Seattle

San Fran

Austin 40 Washingt Minneapo Charlott Boston Atlanta DenverSan Dieg Colorado Portland San Jose Albuquer Oakland Honolulu 30 Columbus Omaha Tulsa VirginiaDallas New York Houston Chicago KansasNew C Orle Los Ange SacramenLongOklahoma Bea Tucson PhoenixFort Wor San Anto Mesa Memphis 20 Baltimor Fresno PhiladelMilwauke Las VegaEl Paso Miami

Clevelan Detroit 10

5 10 15 20 Share with BA in 1970

Source: Census city data

374

Figure 9-3 Change in the Population and Housing Units 1980-2000 (for the 50 largest American cities in 2000) Log Change in Housing Units 198 Fitted values

Las Vega 1 Mesa

Charlott Austin Virginia Colorado Fresno .5 Phoenix San Anto AlbuquerTucson El PasoPortland ColumbusFortSan WorDieg Omaha Sacramen OklahomaSan Jose Dallas Seattle Tulsa Houston MemphisHonoluluDenverLos Ange NewSan YorkFranLong Bea KansasAtlantaBoston C Oakland Miami 0 BaltimorWashingtMilwaukeChicagoMinneapo NewPhiladel Orle Clevelan

Detroit

-.5

-.5 0 .5 1 Log of Population Change 1980-20

Source: Census city data

375

Table 10-1 Ranking of Predicted Growth for America's 100 Largest Cities

High Flyers Solid Growth Slow Growth Urban St

1 Mesa, AZ 26 Irving, TX 51 Wichita, KS 76 Grand Ra 2 Phoenix, AZ 27 San Jose, CA 52 Huntington Beach, CA 77 Hialeah, F 3 Glendale, AZ 28 Spokane, WA 53 Fort Wayne, IN 78 Richmond 4 Tucson, AZ 29 Greensboro, NC 54 Virginia Beach, VA 79 Chicago, 5 Bakersfield, CA 30 Long Beach, CA 55 Oakland, CA 80 Washingt 6 Aurora, CO 31 Anchorage, AK 56 Madison, WI 81 Shrevepo 7 Santa Ana, CA 32 Portland, OR 57 Columbus, OH 82 Mobile, A 8 Anaheim, CA 33 Dallas, TX 58 Montgomery, AL 83 Newark, N 9 Austin, TX 34 Garland, TX 59 New York, NY 84 Philadelp 10 Boise, ID 35 Chesapeake, VA 60 Tampa, FL 85 New Orle 11 Scottsdale, AZ 36 Fort Worth, TX 61 Atlanta, GA 86 Louisville 12 Albuquerque, NM 37 San Diego, CA 62 St. Paul, MN 87 Rocheste 13 Raleigh, NC 38 Lincoln, NE 63 Yonkers, NY 88 Akron, OH 14 Riverside, CA 39 San Antonio, TX 64 Boston, MA 89 Miami, FL 15 Plano, TX 40 Fremont, CA 65 El Paso, TX 90 Pittsburgh 16 Colorado Springs, CO 41 Glendale, CA 66 Minneapolis, MN 91 Milwauke 17 Las Vegas, NV 42 Los Angeles, CA 67 San Francisco, CA 92 Toledo, O 18 Stockton, CA 43 Tacoma, WA 68 Des Moines, IA 93 Cincinnat 19 Modesto, CA 44 Oklahoma, OK 69 Corpus Christi, TX 94 Detroit, M 20 Denver, CO 45 Omaha, NE 70 Seattle, WA 95 Cleveland 21 Durham, NC 46 Houston, TX 71 Baton Rouge, LA 96 Birmingha 22 Fresno, CA 47 Lubbock, TX 72 Memphis, TN 97 Norfolk, V 23 Arlington, TX 48 Tulsa, OK 73 Jersey, NJ 98 Buffalo, N 24 Charlotte, NC 49 Honolulu CDP, HI 74 St. Petersburg, FL 99 St. Louis, 25 Sacramento, CA 50 Orlando, FL 75 Kansas, MO 100 Baltimore

376

Figure 10-1 Correlation of Population Growth in the 1970s and the 1990s (for the 50 largest American cities in 2000) Log Change in Population 1990-2 Fitted values

.4 Austin Charlott Phoenix

San Anto .2 Portland Fort Wor TucsonHouston Denver Dallas Omaha Albuquer Oklahoma San Jose Columbus San Dieg New YorkSeattle El Paso OaklandSan FranLong Bea Tulsa Atlanta MemphisLos Ange MinneapoChicago Boston Kansas C Miami Honolulu 0 Newark New Orle LouisvilPhiladel Clevelan WashingtMilwaukeToledo Detroit PittsburCincinna Buffalo St. Loui Baltimor

-.2

-.4 -.2 0 .2 .4 Log Change in Population 1970-19

Source: Census City Data

377

Figure 10-2 Correlation of Per Capita Income Growth in the 1980s and the 1990s (for the 50 largest American cities in 2000) Log Change in Per Capita Income Fitted values

.3 San Fran

Austin Atlanta Seattle

San Anto .2 Cincinna Charlott Louisvil San Jose Detroit Portland OmahaChicago Columbus ClevelanMiami Denver MemphisMinneapo New Orle Washingt Kansas C El Paso St.Pittsbur LouiAlbuquerOakland Boston Milwauke ToledoTucson .1 San Dieg BuffaloFort Wor Baltimor Houston Oklahoma Phoenix Tulsa Newark New York Dallas Philadel

0 Honolulu Los Ange

Long Bea

-.1

0 .2 .4 Log Change in Per Capita Income

Source: Census City Data

378

Figure 10-3 Correlation of Housing Price Growth in the 1980s and the 1990s (for the 50 largest American cities in 2000) Log Change in Housing Value 199 Fitted values

1 Portland Detroit

Denver Atlanta

Louisvil Chicago Seattle Clevelan Omaha Austin .5 Charlott Minneapo Toledo CincinnaColumbus MilwaukePittsbur KansasMiami C San Jose OklahomaAlbuquer San Fran Phoenix HoustonTucsonTulsa San Anto Memphis Oakland Boston New Orle Baltimor WashingtSt. LouiPhiladelBuffalo El Paso Newark Fort WorSan Dieg New York Dallas

HonoluluLos LongAnge Bea -1 -.5 0 .5 1 Log Change in Housing Value 1980

Source: Census City Data

379

References Albion, Robert Greenhalgh. The Rise of New York Port, 1815-1860. New York: Scribner, 1970.

Albion, Robert Greenhalgh. “Yankee Domination of New York Port, 1820-1865,” The New England Quarterly 5, no. 4 (1932): 665-698.

Arsenault, Raymond. “The End of the Long Hot Summer: The Air Conditioner and Southern Culture,” The Journal of Southern History 50, no. 4 (Nov. 1984): 597-628.

Autor, David H., Lawrence F. Katz, and Alan B. Kreuger. “Computing Inequality: Have Computers Changed The Labor Market,” Quarterly Journal of Economics 113, no. 4 (1998): 1169-1213.

Beason, Richard and David E. Weinstein. “Growth, Economics of Scale, and Targeting in Japan (1955-1990).” The Review of Economics and Statistics 78, no. 2 (May 1996): 286- 295.

Bourne, Russell. Cradle of Violence: How Boston's Waterfront Mobs Ignited the American Revolution. Hoboken, New Jersey: John Wiley & Sons, 2006.

Brands, H. W. Masters of enterprise: giants of American business from John Jacob Astor and J.P. Morgan to Bill Gates and Oprah Winfrey. New York: Free Press, 1999.

Bremer, Francis, J. John Winthrop: America’s Forgotten Founding Father. Oxford: Oxford University Press, 2003.

Bryce, James. The American Commonwealth. New York: Macmillan, 1914.

Burrows, Edwin G. and Mike Wallace. Gotham: A History of New York City to 1898. New York: Oxford University Press, 1999.

Chicago Library digital database: http://www.chipublib.org/digital/sewers/canal.html

Costa, Dora L. and Matthew E. Kahn. “Cowards and Heroes: Group Loyalty in the American Civil War.” Quarterly Journal of Economics. 118 (May 2003): 519-548.

Craig, Tom and Robert Shogan. The Detroit Race Riot: A Study in Violence. Philadelphia: Chilton Company, 1964.

Cronon, William. Nature’s Metropolis, Chicago and the Great West. New York: W.W. Norton & Company, 1991.

380

Cudahy, Brian J. Cash, Tokens, and Transfers : a History of Urban Mass Transit in North America. New York: Fordham University Press, 1990

Cutler, David M. and Edward L Glaeser. "Are Ghettos Good or Bad?" The Quarterly Journal of Economics 112 (August 1997): 827-872. Cutler, David, and Grant Miller. “Water, Water, Everywhere : Municipal Finance and Water Supply in American Cities.” Corruption and Reform: Lessons from America's Economic History. Ed. Edward L. Glaeser and Claudia Goldin. Chicago : University of Chicago Press, 2006.

Danziger, Sheldon, Reynolds Farley and Harry J. Holzer. Detroit Divided. New York: Russell Sage Foundation, 2000.

Dolezel, Janine M. and Bruce N. Warren. “Saving San Francisco Bay: A Case Study in Environment Legislation,” Stanford Law Review 23, no. 2 (Jan. 1971): 349-366

Drennan, M. and C. Matson “Economy” pp. 358-362 in K. Jackson, Ed. The Encyclopedia of New York City. New Haven: Yale University Press, 1995.

Eckert, Ross D. and George W. Hilton, “The Jitneys,” Journal of Law and Economics 15, no. 2 (Oct. 1972): 293-325.

Ellis, Edward Robb. The Epic of New York City. New York: Coward and McCann, 1966.

"English Civil Wars." Encyclopædia Britannica. 2006. Encyclopædia Britannica Online. 16 Oct. 2006 http://www.search.eb.com/eb/article-9032663.

Fine, Sidney. Violence in the Model City: The Cavanagh Administration, Race Relations, and the Detroit Riot of 1967. Ann Arbor: University of Michigan Press, 1989.

Finke, Rodney and Roger Stark. “Religious Economies and Sacred Canopies: Religious Mobilization in American Cities, 1906.” American Sociological Review. 53 (February 1998): 41-49.

Frieden, Bernard J. “The Exclusionary Effect of Growth Controls,” Annals of the American Academy of Political and Social Science 465 (Jan. 1983).

Forman, Chris, Avi Goldfarb and Shane Greenstein. “How Did Location Affect Adoption of the Commercial Internet? Global Village vs. Urban Leadership.” Journal of Urban Economics 58, no. 3 (November 2005): 389-420.

Galloway, J. H. The Sugar Cane Industry: An historical geography from its origins to 1914. Cambridge: Cambridge University Press, 1989.

Glaab, Charles N. and A. Theodore Brown. A History of Urban America. New York: Macmillan, 1967. 381

Glaeser, Edward L. “Reinventing Boston: 1640-2003,” National Bureau of Economic Research, Inc., 2003.

Glaeser, Edward L. “Urban Colossus: Why is New York America’s Largest City?” NBER Working Paper Number 11398. 2005

Glaeser, Edward L. and Albert Saiz. “The Rise of the Skilled City.” Harvard Institute of Economic Research Discussion Paper Number 2025. December 2003. Harvard University, Cambridge, Massachusetts.

Glaeser, Edward L. and Bruce Sacerdote. “Why Is There More Crime in Cities?” JPE. 107 (December 1999): 225-258.

Glaeser, Edward L., David Cutler, and Jacob Vigdor. "The Rise and Decline of the American Ghetto." Journal of Political Economy 107 (1999): 455-506.

Glaeser, Edward L. and Joseph Gyourko. “Housing Dynamics.” NBER Working Paper, 2006.

Glaeser, Edward L. and Joshua D. Gottlieb. “Urban Resurgence and the Consumer City.” Discussion Paper no. 2109. Cambridge, Mass.: HIER, February 2006

Gallup, George Horace, ed. The Gallup Poll: Public Opinion, 1935-1971. New York: Random House, 1972.

Gaspar, Jess and Edward L. Glaeser. “Information Technology and the Future of Cities.” Journal of Urban Economics 43 (1998): 136-156.

Governor Winthrop's Garden Crop: The Significance of Agriculture in the Early Commerce of Massachusetts Bay. Darrett B. Rutman. The William and Mary Quarterly, 3rd Ser., Vol. 20, no. 3. (July 1963): 396-415.

Gyourko, Joseph. “Looking Back to Look Forward: Learning from Philadelphia’s 350 Years of Urban Development.” Brookings-Wharton Papers on Urban Affairs. 6 (2005): 1-58.

Hanushek, Eric A. “The Economics of Schooling: Production and Efficiency in Public School.” Journal of Economic Literature 24, no. 3 (Sept. 1986): 1141-1177.

Hart, Oliver, Andrei Shleifer and Robert W. Vishny. “The Proper Scope of Government: Theory and an Application to Prisons.” Quarterly Journal of Economics. 112 (November 1997): 1127-1167.

382

Hoxby, Caroline M. “How Much Does School Spending Depend on Family Income? The Historical Origins of the Current School Finance Dilema.” The American Economic Review 88, no. 2 (May, 1998): 309-314.

Humphrey, Norman D. and Alfred M. Lee. Race Riot. New York: The Dryden Press, 1943.

Illinois Central Historical Society: http://icrrhistorical.org/.

Jackson, Kenneth T., Editor. The Encyclopedia of New York. New Haven: Yale University Press, 1995.

Jackson, Kenneth T. The Ku Klux Klan in the City, 1915-1930. New York: Oxford University Press, 1967.

Jacobs, Jane. The Economy of Cities. New York: Random House, 1969.

Jankowski, Marin Sanchez. Islands in the Street: Gangs and American Urban Society. Berkley: University of California Press, 1991.

Kain, John. "Housing Segregation, Negro Employment, and Metropolitan Decentralization." The Quarterly Journal of Economics, 82 (1968): 175-197.

Kantrowitz, Nathan. “Population” in K. Jackson, Editor. The Encyclopedia of New York City. New Haven: Yale University Press, 1995.

Katz, Lawrence F., Jeffrey R. Kling, and Jeffrey B. Liebman. “The Early Impacts of Moving to Opportunity in Boston.” CEPS Working Paper No. 67 (October 2000).

Katz, Lawrence F., Jeffrey R. Kling, and Jeffrey B. Liebman, in J. Goering and J. Feins, eds., Choosing A Better Life: Evaluating the Moving to Opportunity Social Experiment. Urban Institute Press, 2003: 177-211.

Katz, Lawrence F., and Kevin M. Murphy. "Changes in relative wages, 1963-1987: Supply and demand factors." Quarterly Journal of Economics 107 (1992): 35-78.

Kim, S. “Notes on Legal Developments in Colonial Massachusetts and Virginia,” mimeographed. 2003.

Koeppel, Gerard T. Water for Gotham: A History. Princeton: Princeton University Press, 2000.

Krugman, Paul. “Increasing Returns and Economic Geography” Journal of Political Economy 99, no. 3 (1991): 483-499.

Larson, John Lauritz. Bonds of Enterprise: John Murray Forbes and Western 383

Development in America’s Railway Age. Cambridge, MA: Harvard University Press, 1984.

Lomack, Milton. Aaron Burr: The Years from Princeton to Vice President, 1756-1805. New York: Farrer, Straus, Giroux, 1979.

Lomack, Milton. Aaron Burr: The Conspiracy and Years of Exile, 1805-1836. New York: Farrer, Straus, Giroux, 1982.

Madsen, Axel. John Jacob Astor: America’s First Multimillionaire. New York: John Wiley & Sons, Inc., 2001.

Maloney, T.N., Whatley, W.C.. “Making the Effort: The Contours of Racial Discrimination in Detroit’s Labor Markets, 1920-1940.” The Journal of Economic History 55, no. 3 (Sept. 1995): 465-493.

Marshall, Alfred. Principles of Economics. London: Macmillan, 1890.

McCormick, Cyrus. The Century of the Reaper. Cambridge, MA: The Riverside Press, 1931.

Miller, Donald L. City of the Century. New York: Simon and Schuster Inc., 1996

Mitchell, Broadus. Alexander Hamilton: A Concise Biography. New York: Oxford University Press, 1976.

Morison, Samuel Eliot. The Maritime History of Massachusetts, 1783-1860. Boston: Houghton Mifflin, 1961.

Moyer, J.A. “The Telephone and the Uses of Time” in I. de Sola Pool, Ed., The Social Impact of the Telephone. Cambridge: MIT, 1977.

Nardinelli, Clark and Curtis J. Simon. “The Talk of the Town: Human Capital, Information and the Growth of English Cities, 1861 to 1961.” Explorations in Economic History 33, no. 3 (1996): 384-413

Nash, Gary B., First City: Philadelphia And The Forging Of Historical Memory. Philadelphia, University of Pennsylvania Press, 2002.

North, Douglass C., “Sources of Productivity Change in Ocean Shipping, 1600-1850,” The Journal of Political Economy 76, no. 5 (Sept. 1968): 953-970.

Olmstead, Alan L. and Paul W. Rhode. “Beyond the Threshold: An Analysis of the Characteristics and Behavior of Early Reaper Adopters.” The Journal of Economic History 55, no. 1 (1995): 27-57.

384

“Population of the 24 Urban Places: 1790.” U.S. Bureau of the Census. 15 Oct. 2006. http://www.census.gov/population/documentation/twps0027/tab02.txt

Population of the 100 Largest Urban Places, U.S. Bureau of the Census. http://www.census.gov/population/www/documentation/twps0027.html

Pudup, Mary Beth. “From Farm to Factory: Structuring and Location of the U.S. Farm Machinery Industry.” Economic Geography 67, no. 3 (1987).

Putnam, James William. “An Economic History of the Illinois and Michigan Canal: III.” The Journal of Political Economy 17, no. 7 (1909): 413-433.

Ramsaye, Terry. A Million and One Nights: A History of the Motion Picture Through 1925. NY, NY: Simon and Schuster, 1926.

Rauch, James E. “Does History Matter Only When It Matters Little? The Case of City- Industry Location.” MIT Quarterly Journal of Economics.

Rothstein, Jesse. “Does Competition Among Public School Benefit Students and Taxpayers? A Comment on Hoxby (2000).” NBER Working Paper no. 11215. Cambridge, MA., 2005.

Schwantes, Carlos A. “The West Adapts the Automobile: Technology, Unemployment, and the Jitney Phenomenon of 1914-1917.” The Western Historical Quarterly 16, no. 3 (July 1985): 307-326

Sinai, Todd and Joel Waldfogel. “Geography and the Internet: Is the Internet a Substitute or a Complement for Cities.” Journal of Urban Economics 56, no. 1 (July 2004): 1-24.

Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. 1776.

Smith, John. A Description of New England: or the Observations and Discoveries of Captain John Smith. London: Humfrey Lownes, 1616.

Stover, John F. History of the Illinois Central Railroad. New York: Macmillan Publishing Co., Inc., 1975.

"Suffolk Resolves." Encyclopædia Britannica. 2006. Encyclopædia Britannica Online. 3 Oct. 2006 .

Sugrue, Thomas J. The Origins of the Urban Crisis: Race and Inequality in Postwar Detroit. Princeton: Princeton University Press, 1996.

Tenth Census of the United States, 1880. Vol. 2 Manufacturing. Washington, Government Printing Office, 1883.

385

Topel, Robert H. and Michael P. Ward. “Job Mobility and the Careers of Young Men.” Working Paper no. 2649. Cambridge, Mass.: NBER, July 1988.

Tunell, George, G.. “The Diversion of the Flour and Grain Traffic from the Great Lakes to the Railroads.” The Journal of Political Economy 5, no. 3 (1897): 340-375.

Twelfth Census of the United States, 1900. Vol. 1, Population and Vol. 13, Occupations. Washington, United States Census Office, 1901

U.S. Bureau of the Census. Census of Population: 1950, Vol. 2: Characteristics of the Population. U.S. Government Printing Office: Washington, 1952.

U.S. Bureau of the Census. Fourteenth Census of the United States. U.S. Government Printing Office: Washington, 1921.

U.S. Census Bureau. “Per Capita Income by Metropolitan Statistical Areas.”

U.S. Bureau of the Census. Report on Population of the United States at the Eleventh Census: 1980. U.S. Government Printing Office: Washington, 1895.

U.S. Bureau of the Census. Return to the Whole Number of Persons within the Several Districts of the United States. Philadelphia: Childs and Swaine, 1791.

U.S. Bureau of the Census. Statistics of the Population of the United States at the Tenth Census. U.S. Government Printing Office: Washington, 1883, 860-909.

U.S. Bureau of the Census. Statistics of the United States of America at the 6th Census. Blair & Rives: Washington, 1841, Vol. 1, 115.

U.S. Bureau of the Census. Statistics of the United States of America at the 6th Census. Blair & Rives: Washington, 1841, Vol. 2, 53.

Weitzman, Martin L. “Recombinant Growth,” Quarterly Journal of Economics, 113, no. 2 (May, 1998): 331-360.

Wrigley, E. A. and R. S. Schofield. The Population History of England 1541-1871. Cambridge: Harvard University Press, 1981.

Zunz, Oliver. The Changing Face of Inequality: Urbanization, Industrial Development, and Immigrants in Detroit, 1880-1920. University of Chicago Press, 1982.