Understanding the economy as a complex system operating far from equilibrium, prone to the periods of sudden, dramatic collapse that we know as financial crises.
Just as the UK and Holland invented the corporation as a holding tank for value left over after South Sea bound ships returned with spoils, sold them off and liquidated the proceeds (ships as the SPVs of the 17C) ... corporations are now being deconstructed (balance sheet DeFi) ... the post-covid City has become a work of the imagination and it may well be filling that gap.
But a city is tangible, not just an idea but also a living, physical balance sheet. Like all idealized balance sheets, it needs a mix of liquid and physical capital. It needs a steady or growing stream of tax receivables (which means happy citizens) shored up by investments in its physical capital. It needs leverage but not too much, and common equity spaces that make life more than a factory with absentee owners for its residents. Green patches not just for animal grazing but also people grazing and gazing. And, it should not have too many contingent liabilities. IE., sufficient thought should be given to design that the byproducts of urban living are planned for and integrated into asset renewal. For, a city is at the end of the day an idea that attracts and inspires people. Its citizens may be off the balance sheet, as labor, innovation and imagination are off the corporate balance sheet, but the relationship between the city balance sheet and its citizens is inextricable. A city without people has no assets.
Obviously this idea is consistent with the thesis of blogs #1 and #2. Big cities that have been successful in the past will be successful again. But timing matters (always!)
And, the existence and use of debt capital matters. A city that is bankable has debt capital. Fernand Braudel in L'Identité de la France tells a compelling story of how Beaucaire was the commercial capital of France because it had the largest market for Mediterranean goods--until it was overtaken by Lyons. It had credit markets.
But the use of credit introduces nonlinearity. It can be destabilizing. And money, contrary to all impression, has not been linearized. It is not on the clock in the same way that labor came under the clock in the industrial revolution.
There are two paths to capital appreciation. One is to understand the internal logic of crisis and exploit it. The other is to incentivize stable investment. There will always be disequilibria and there will always be ways to improve performance (including capital performance) through engineering. I don't think we are forced to choose between them.
Just as the UK and Holland invented the corporation as a holding tank for value left over after South Sea bound ships returned with spoils, sold them off and liquidated the proceeds (ships as the SPVs of the 17C) ... corporations are now being deconstructed (balance sheet DeFi) ... the post-covid City has become a work of the imagination and it may well be filling that gap.
But a city is tangible, not just an idea but also a living, physical balance sheet. Like all idealized balance sheets, it needs a mix of liquid and physical capital. It needs a steady or growing stream of tax receivables (which means happy citizens) shored up by investments in its physical capital. It needs leverage but not too much, and common equity spaces that make life more than a factory with absentee owners for its residents. Green patches not just for animal grazing but also people grazing and gazing. And, it should not have too many contingent liabilities. IE., sufficient thought should be given to design that the byproducts of urban living are planned for and integrated into asset renewal. For, a city is at the end of the day an idea that attracts and inspires people. Its citizens may be off the balance sheet, as labor, innovation and imagination are off the corporate balance sheet, but the relationship between the city balance sheet and its citizens is inextricable. A city without people has no assets.
Obviously this idea is consistent with the thesis of blogs #1 and #2. Big cities that have been successful in the past will be successful again. But timing matters (always!)
And, the existence and use of debt capital matters. A city that is bankable has debt capital. Fernand Braudel in L'Identité de la France tells a compelling story of how Beaucaire was the commercial capital of France because it had the largest market for Mediterranean goods--until it was overtaken by Lyons. It had credit markets.
But the use of credit introduces nonlinearity. It can be destabilizing. And money, contrary to all impression, has not been linearized. It is not on the clock in the same way that labor came under the clock in the industrial revolution.
There are two paths to capital appreciation. One is to understand the internal logic of crisis and exploit it. The other is to incentivize stable investment. There will always be disequilibria and there will always be ways to improve performance (including capital performance) through engineering. I don't think we are forced to choose between them.