the environment

It's January 12, 2024. Actor Robert Downey Jr, who portrayed Iron Man in Marvel's Avengers, has shifted his focus away from onscreen villains to the real-life environmental crisis. To do so, he recently founded The Footprint Coalition, and this is his story.

Fossil Future: Why Global Human Flourishing Requires More Oil, Coal, and Natural Gas—Not LessBy Alex EpsteinPortfolio 2022xii + 468 pp.

In his remarkable new book, Alex Epstein has changed the terms of the debate about the danger of “global warming” and the alleged need to take drastic action in response to this. One side assures us that we must “follow the science,” which, it is claimed, has proved that the rise in global temperatures caused by fossil fuels, which emit carbon dioxide into the atmosphere, will soon result in catastrophe unless we “green” the economy. The opponents either question the evidence that disaster impends or argue that the threat can be handled without revamping the economy.

Epstein thinks that the danger from global warming has been much exaggerated, but though he presents extensive evidence in support of this, his primary contribution lies elsewhere. He argues that modern civilization depends on fossil fuels and that far from curtailing their use, we need to spread them to the impoverished parts of the world. So great are the benefits from using the fuels that only a true “end of the world” nightmare caused by CO2 emission could require that we shift to other energy sources, and despite the alarmists’ caterwauling, this nightmare is most unlikely to occur. Moreover, Epstein holds that the benefits of fossil fuels are so obvious that only a defect in thinking could have induced people to ignore them. He is a philosopher as well as an energy economist, and he expertly identifies the false thought pattern that has led to our current confusions.

Epstein says, “Whenever we hear about what the ‘experts’ think, we need to keep in mind that most of us have no direct access to what most expert researchers in the field think. We are being told what experts think through a system of institutions and people…. Understanding how this system, which I call our ‘knowledge system,’ works and how it can go wrong is the key to being able to spot when what we’re told the ‘experts’ think is very wrong—about fossil fuels or anything else.”

On the issue of energy, Epstein argues that the system has gone very wrong, indeed, owing to the fact that its leading lights are in the grip of a philosophy that views human beings as an upsetting intrusion on the earth: through their feverish pursuit of growth, people have interfered with the “delicate balance” of nature. Having done so, people must repent and “green” the economy, though some experts opine that it would be better to get rid of us altogether. Concerning this bizarre philosophy, Epstein remarks: “Why does our knowledge system always expect extreme negative impacts from cost-efficient energy’s side-effects and always expect that we will be unable to master these impacts? Because of a false assumption that leads anyone holding it to expect that all forms of significant impact on nature will inevitably be self-destructive. I call this the ‘delicate nurturer’ assumption … [which is] that Earth, absent human impact, exists in an optimal, nurturing ‘delicate balance’ that is as stable, sufficient, and safe as we can hope to expect.”

You might be inclined to object that scientific findings deal with facts, not philosophies: if “climate scientists” predict that continued global warming will have dire consequences, must we not judge their arguments strictly as they stand, without regard to their proponents’ views about the proper place of human beings, however repellent we may find these views? Epstein responds that predictions are far different from claims about what has happened in the past, which can often, though not always, be assessed objectively. Climate predictions are for the most part highly speculative, and the antihuman ideology of the “catastrophists,” as Epstein dubs the climate alarmists, should incline us to view what they say with doubt, all the more so if they have wrongly predicted catastrophes in the past. “Such predictions [about climate] necessarily rely on highly complex science and models that are difficult for non-researchers to assess … it is both far easier and highly informative to assess our knowledge system’s, including designated experts’, track record of climate prediction” (the “designated experts” are those whom the system treats as authoritative). One of these “experts,” Michael Mann, famed for his controversial “hockey stick” graph, is weighed in the balance and found wanting: “Designated expert Michael Mann has written: ‘We probably already exceed the [planet’s] carrying capacity by a factor of eight.’” It is unlikely that someone with this opinion will be eager to suggest policies that promote human welfare, and the same holds true of the notorious Paul Ehrlich, who has many times wrongly predicted disaster but whose oracular status nevertheless remains undiminished. Why listen to such as these?

Epstein must here face an objection. If, as he says, the catastrophists see the world through the distorting lens of their antihuman ideology, isn’t Epstein vulnerable to a parallel challenge? Does his own philosophy incline him unduly to discount arguments that global warming poses a real threat? He could readily reply that his prohuman ideology is correct; that since reality does not suffer from self-contradiction, it will not lead to distortion, and that in any case, he does not have a track record of bad predictions. On this issue, readers must judge for themselves, but to help them do it, Epstein has set forth his reasoning with exemplary clarity.

If the designated experts were not blinded by partisan passion, what would they see? The answer, Epstein says, is that our civilization depends on fossil fuels. Nature untouched by man is no “delicate balance” but rather an ever-dynamic, often hostile place. To survive and flourish in it, we must specialize in what we produce and use powerful machines in doing so. Such machines immensely multiply our natural energy and enable us to master the environment to our advantage. Only the fossil fuels— viz., coal, oil, and natural gas—can be used to produce these machines a cost-efficient way. Wind and solar power are paltry by comparison. Hydroelectric and nuclear power fare rather better, but even they are no match for the fossil fuels, and furthermore, fossil fuels are often required to produce and implement the other forms of energy.

Epstein says about the fossil fuels: “Contrary to our anti-impact, anti-energy knowledge system these are not trivial benefits that are already overwhelmed by fossil fuels’ negative side-effects on the livability of our world—they are fundamental to the livability of our world. The current benefit of the world’s massive use of ultra-cost-effective fossil fuel energy is a radical increase in the productive ability of billions of people—via ultra-cost-effective fossil-fueled machine labor and the enormous amount of mental labor it frees up, along with fossil fuel materials—that makes the world unnaturally livable, i.e., conducive to human flourishing.”

It is here that the primary source of the book’s originality lies, together with the author’s cogent analysis of the conflicting opinions’ philosophical underpinnings. Other critics of the global catastrophists propose palliative measures to cope with what they deem a much lesser threat than their opponents envision; they suggest, for example, a shift to nuclear power and the limitation of such pollution as remains through “cap and trade,” a carbon tax, and the like. Epstein, by contrast, is uncompromising. Not only does he want to maintain the use of fossil fuels; he relishes the prospect of the extended use of these fuels, particularly in poor areas of the world, where people without this resource languish. “Since 1980, the percentage of humanity living on less than $2 a day has gone from 42 percent to under 10 percent today. This wondrous development is the result of increasing and expanding productivity, which is driven by the increasing and expanding use of fossil-fueled machine labor and the enormous amount of mental labor it frees up. But there is still far more progress to be had…. Expanding fossil fuel use will enable everyone, especially the world’s poorest people, to become more productive and prosperous.”

But has Epstein dismissed the perils of untoward climate changes too quickly? Don’t floods that result from a rise in temperature pose real dangers, for example? Epstein responds by again appealing to the benefits of technology, made possible by fossil fuels. Technology enables us to achieve what Epstein calls “climate mastery.” He cites in this connection a telling statistic. Despite the temperature rise that occurred in the twentieth century, deaths from climate have sharply decreased. “In reality, dangerous temperatures—which overwhelmingly come from too much cold, not too much heat—are a smaller danger than ever thanks to two forces: fossil-fueled climate mastery and modestly warming temperatures…. Before human beings had fossil-fueled machines to master dangerous climates, they were overwhelmed by natural temperature dangers, both heat and (especially) cold…. Heat-related deaths are a much bigger problem in the unempowered world today, which is yet another reason why empowerment is a moral imperative.”

One other pleasing feature of the book should be noted, and it is one I confess I especially appreciated. Often books on the climate controversy are filled with technical language, difficult for the untutored reader to understand, let alone evaluate. Epstein has taken great pains to explain what he says in clear and simple terms, and for this, and much else, his readers are in his debt. Fossil Future has the potential to do great good, if its readers have the energy to put into effect the author’s cogent policy recommendations.

Green energy advocates want us to believe we easily can transition from conventional fuels to renewables. In truth, such a transition not only would devastate world economies, but also is not technologically possible.

Original Article: "Lighting the Gas under European Feet: How Politicians and Journalists Get Energy So Wrong"

This Audio Mises Wire is generously sponsored by Christopher Condon. 

Europe wants cheap and abundant energy, but politicians demonize nuclear, gas, and oil. All the interventionist proposals that are put forward by European politicians entail a higher cost for long-suffering consumers.

Original Article: "European Environmentalists Have Made Energy Independence Impossible"

This Audio Mises Wire is generously sponsored by Christopher Condon. 

A free market, capitalist, exchange, political, economic system is far more environmentally friendly than any statist system, including the welfare state, socialism (whether democratic or centrally planned), or fascism. To demonstrate this, I would like to engage in some conjectural history, that is, to imagine how the world might be different had government never intervened to protect the environment but rather left all matters to property owners to sort out.

When we examine history, part of this involves carefully imagining how things might have happened otherwise. It is plain enough, for example, that without the American Revolution, without slavery, without the Russian Revolution, without Hitler's Holocaust, and so forth, the world would be better or worse than it is.

In our personal histories, too, we can imagine, with some discipline and understanding of ourselves, of human psychology and of ethics, how our lives and that of those on whose lives we had an impact would be better or worse had we made different choices, taken different actions from those we actually took.

Indeed, the study of history has as one of its purposes to learn how in similar circumstances we can do better. And sometimes doing better means making sure that different laws and public policies from those that actually became part of our history would have had to be chosen.

This fact needs to be recalled when we consider such current problems as those involving what is commonly referred to as the environment. What might have prevented some of the lamentable pollution that we now experience? No, not all of it was preventable. Some environmental problems are inherent in the ecology of the globe—for example, the Los Angeles basin had been subject to atmosphere inversions throughout the past which left it filled with what we now call smog but was the combination of haze, dust, smoke from wild fires, and so forth.

Other so-called environmental problems, such as wildlife extinction, also occurred not through human agency but because of natural events. Only when human agency is involved—so that we can consider the different choices people could have made—can we entertain the possibility of having done things better. Indeed, a point rarely noted these days, the very idea of critically assessing past policies and conduct involves the assumption that human beings can make basic choices and they might have made ones different from those they did actually make.

Consider the proposal that current champions of free-market environmentalism often make, a proposal that defenders of the politicization of environmental problems oppose almost automatically.

This proposal boils down to the very general principle, namely, that it is better all around for land and other property to be owned privately than publicly. Common or public ownership results, in other words, in what has been dubbed the tragedy of the commons. This occurs when everyone in a given society is convinced that some realm belongs to us all, so that we all are entitled to make use of it to our hearts' content. This leads to depletion of resources.

The remedy champions of politicized environmentalism offer, namely, that the government ration our use of public or common resources, will not work. Environmentalists may gain temporary advantages from governments, but soon other interests take over.

Imagine how it might have been had the free-market idea been made part of basic law: all land would be owned by individuals and any use made of the land would require the agreement of the owners. This would have made it nearly impossible to implement massive technological projects such as building railways, highways, airports, sports and recreational arenas unless complete consent had been given by the owners over whose property these projects would have had to be constructed.

The Fifth Amendment to the U.S. Constitution suggests this approach, stating that only for public use may private property be taken. Public policies must protect individual rights. So, very little of what there is to be owned can belong to the public. The rest must remain at the disposal of private owners.

Such a general approach to ownership of land, for example, would not have made possible the implementation of massive projects in the name of the public and thus would have diversified resource use throughout the country. The building of railways, highways and many other pseudo-public projects would not have occurred with the aggressiveness they actually occurred in this country's history.

Of course, it may not be possible to know exactly what might have happened instead of what in fact did happen. But just as it is possible to know that freeing those held in slavery is better all around than keeping them enslaved, that not perpetrating the Holocaust is better than doing so, in less dramatic matters, too, it is possible to know that certain policies are superior to others. It is the contention of those who champion a free society that implementing the principles of the right to private property on the broadest possible scope would have worked out for better as far as our environmental woes are concerned.

And as with those more Draconian evils, so with this one, it is better late than never! Thus the best approach to environmental issues is to privatize—that is how responsible environmental management is encouraged (though never guaranteed, as it certainly isn't when government takes on the task).

Societies where the principle of freedom of association is upheld and where private property makes it possible for one to enjoy a significant measure of sovereignty, are certainly better ones than those growing in levels of involuntary servitude, even to the highest or noblest goals one can imagine, including environmental rectitude. This is true, beyond any reasonable doubt.

Yet, sadly, most propose political solutions to problems they see with the environment and support state regimentation as the default solution to whatever problem they perceive.

The late Michael Kelly, a very fine writer-thinker on many fronts, offered a line of criticism of the radical, free-market thesis which is worth quoting and scrutinizing at some length. Kelly argues that if you think that it is private individuals, working in voluntary cooperation, who make good things happen, think again:

This is mostly myth. If we look at the great moments in innovation, the developments that changed everything, we almost always find that the private geniuses did their bit, but the great clumsy, heavy hand of government is frequently what turned that bit into a new way of life.

Ford gave us the cheap car, but Eisenhower gave us the interstate. Edison gave us the light bulb, but the TVA wired the farms. Most of the great advances in flight, and all the advances in space flight, have their origins in government—specifically military—work. So, too, with the Internet, which rose out of the government’s ARPANET system. It was government that linked America’s coasts by rail, government that constructed the Panama Canal, government that built all the really big stuff. The revolution in flight … came about not only because of the work of private geniuses but also because a bunch of bureaucrats at NASA pushed it, and because those bureaucrats were lucky to have had as their boss since 1992 an engineer named Daniel Goldin …

Now consider some doubts about Kelly’s challenging remarks. Let’s start with Frederick Bastiat’s argument in which the French political economist shows that although what governments do often takes center stage on the historical and reportorial scene, it is folly to forget that such doings displace a lot else that might have happened had government not substituted its one size fits all judgment and coercive action for that of individuals who act by means of a great variety of voluntary cooperative efforts. This argument is especially relevant to Kelly's list.

To start with, consider Eisenhower and the interstate. No one can reasonably dispute that this federal policy gave a very serious boost to the automobile and in the process suppressed, most likely, the development of alternative, probably much more environmentally friendly, modes of transportation. Or take TVA, which was by no means a godsend to all, as some have maintained. Most of those in the region had electricity already, but TVA simply grabbed up many of the existing power companies.

With the TVA, all of the best farmland in the Tennessee Valley was placed under water. Farmers were kicked off their lands, forced to sell at below market prices and many died prematurely as a result of the stress. The Tellico Dam fiasco became famous because of the snail darter, but it was a horrible project even without the intervention of the flawed ESA. In that case, landowners were kicked off their lands even though they were not going to be under water. Instead, TVA sold the land to developers and figured in the potential profits as part of the cost-benefit analysis.

Of course, TVA’s environmental impact is now estimated as devastating.

The ARPANET system did give rise to the Internet but, as many historians argue, that was of minimal significance. The initial ARPANET was clumsy and only after a demand for the service developed did it become efficient and useful. Kelly was right—as was, also, former U.S. Vice President Al Gore—that the initial ideas that produced the Internet had come from efforts by the Department of Defense to enhance the defense of the country. However, these ideas could have developed independently and once they became divorced from state matters become far more productive than beforehand.

As to the railways that government has made possible from one end of the continent to the other, this has produced massive monopolies that later were used to justify antitrust legislation and that have run roughshod over private farming across the country. In the case of the Transcontinental Railroad, it was a subsidized fiasco. One of the consequences of this monstrosity was the early attempt to wipe out the Indians. The railroad certainly hastened their demise, especially since it came so soon after the Civil War when folks like Sherman and Sheridan were still in command and had prominently in mind eliminating the Indians altogether. I need say little about the fiasco that the Panama Canal has arguably been, politically and even economically, given what might have been done instead. The story is the same all the way across, including the flight industry where government airports have been the source of much consternation both for environmentalists and for those with different visions as to how that industry might and should have developed.

The bottom line, though, is this: Governments use force to accomplish their goals. Force, unless used in defense—as the military is supposed to use it—wreaks havoc in its path, even where the ostensible results seem to be grand.

When law and public policy favor the system of eminent domain and the use of publicly owned lands and waters for whatever happens to be in democratic demand, the result is akin to a zero sum game: the favored policy or law wins and the disfavored one loses. Whereas in the free market there are many demands that get satisfied to a greater or lesser extent.

My main point, then, is plain: had there been a consistent and firmly implemented system of private property rights, there would not have been massive environmental mismanagement. But it is better late than never.

Some of this essay draws on Tibor R. Machan, Putting Humans First: Why We are Nature's Favorite (Lanham, MD: Rowman and Littlefield, 2004).

The Biden administration will use the SEC to squeeze oil and gas companies on "climate risk." As is typical for progressive schemes that drive up the cost of living, the working classes will suffer the most.

Original Article: "Yes, They Are Coming for the Oil Companies"

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.

Western intellectuals are trying to tear down symbols of traditional colonialism. Yet the West still continues a form a colonialism in Africa: eco-imperialism.

Original Article: "Eco-imperialism: The West's New Kind of Colonialism"

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.

Wind and solar power can work well when placed in an ideal location. Much of the time, however, these projects require a lot of fossil fuel to produce, but then never deliver the promised "zero-carbon" energy.

Original Article: "Why a Green New Deal Is More Expensive Than Joe Biden Realizes"

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.

Normally the boosters of renewable energy point with pride to Texas, yet when wind collapsed during the deep freeze, suddenly even its biggest fans admit that nobody ever thought it could do the same job as natural gas.

Original Article: "Wind Power Is a Disaster in Texas, No Matter What Paul Krugman Says"

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.

The Best American Science and Nature Writing 2017Hope Jahren, ed.Wilmington, Mass.: Mariner Books, 2017, 352 pp. 

The Earth’s climate is extraordinarily complex. Unlike dinosaur fossils or organic chemistry or primate behavior, climate is always in flux, with countless factors influencing one another in an endless unfolding of diachronic stochastics. Given this complexity, one might presume that scientists who study planetary climate would be endowed with exceptional patience, scholarly integrity, and intellectual humility. After all, it takes a long time to learn even a little bit about such an intricate system, so part of the job description of climate scientist would seem to be acknowledging that there is only so much that is known about the 1.09 x 1044 or so molecules swirling about in the atmosphere. Even more complex than all that, though, is navigating the public’s interest in the field. Climate is contentious, and a climate scientist will have to keep his cool, sticking to the facts amidst even the most heated rhetorical environments.

And yet, this is precisely not how a startling number of climate scientists choose to behave. Former head of the National Aeronautics and Space Administration (NASA) Goddard Institute for Space Studies James Hansen, for example, once made the rather alarming claim that “it will soon be impossible to avoid climate change with far-ranging undesirable consequences. We have reached a critical tipping point. […] We have at most ten years—not ten years to decide upon action, but ten years to alter fundamentally the trajectory of global greenhouse emissions.”Nansen (2006). And what might happen if the Earth warmed by the five degrees Hansen was warning about? Hansen tells us in detail.

The last time that the Earth was five degrees warmer was three million years ago, when sea level was about eighty feet higher. Eighty feet! In that case, the United States would lose most East Coast cities: Boston, New York, Philadelphia, Washington, and Miami; indeed, practically the entire state of Florida would be under water. Fifty million people in the US live below that sea level. Other places would fare worse. China would have 250 million displaced persons. Bangladesh would produce 120 million refugees, practically the entire nation. India would lose the land of 150 million people.

Rather discomfiting for Dr. Hansen, who thought we had “at most […] ten years to alter fundamentally the trajectory of global greenhouse emissions,” those blood-curdling visions of hundreds of millions of drowning urbanites have now gone fully a dozen years without coming to pass.

Not to be dissuaded from his task—and traipsing rather lightly past the Climategate scandal, in which University of East Anglia scientists were caught in flagrante delicto discussing the doctoring of data to match the received narrative on anthropogenic climate change—Hansen next tried to set a new tone for the climate Armageddonists. The Earth’s failure to implode on cue led Hansen and others to blame the system instead. “The democratic process doesn’t quite seem to be working,” he said in 2009, for example (The Guardian, 2009). Naomi Klein, author of This Changes Everything: Capitalism vs. The Climate (2014), connected the dots between Hansen’s rantings and full-bore income redistribution, hyping the “People’s Recovery,” which attempted to shunt tax dollars into communities experimenting in “nonextractive living” and “new democratic processes”:

Any attempt to rise to the climate challenge will be fruitless unless it is understood as part of a much broader battle of world-views, a process of rebuilding and reinventing the very idea of the collective, the communal, the commons, the civil, and the civic after so many decades of attack and neglect.

It would be hard to beat this orchestral crescendo of embarrassments to real scientific inquiry, this twisting of science into balloon animals shaped like either Chicken Little or Karl Marx. But in The Best American Science and Nature Writing 2017, series editor Tim Folger gives it a try. In large measure, he succeeds, calling into question whether “climate science” has not perhaps become an oxymoron.

First, a word about the 2017 iteration of the series. The editor for that year, Hope Jahren (the author of Lab Girl (2016)), has assembled a rather puzzling collection of genuinely interesting and valuable pieces, interspersed with tendentious politically-correct huff-puffing and special pleading. To take the good entries first, Robert Draper’s essay (reprinted from National Geographic), “The Battle for Virunga,” is a tightly-written piece on the intersection of economics, politics, and wildlife in the Democratic Republic of the Congo. David Epstein’s ProPublica essay, “The DIY Scientist, the Olympian, and the Mutated Gene,” tells the richly human story of Jill Viles, a muscular dystrophy patient whose extraordinary etiological insights helped track down important genetic information about lipodystrophy. And Ann Finkbeiner’s “Inside the Breakthrough Starshot Mission to Alpha Centauri,” taken from Scientific American, is a character-driven look at how new space technologies travel down the R&D pipeline. There are other fine essays in this volume, too: Tom Philpott’s on the political economy of chicken farm antibiotics, Kim Tingley’s on Polynesian navigation techniques, and Christopher Solomon’s well-researched look at Bureau of Land Management machinations in the American West.

Unfortunately, Jahren’s editorial heuristic, saturated in identity politics, leads her in the very unscientific direction of putting the scientist ahead of the science. This is especially odd, given that the writers who take the Cartesian plunge and delve into innerspace are forced to admit to having no idea who they are. Listless atheism marks Omar Mouallem’s “Dark Science,” for example. Ostensibly writing about light pollution and the efforts to combat it, Mouallem lets slip, “I once found myself in the middle of a field staring at a glistening sky. Had I still believed in him, I’d say it looked like God sneezed glitter.” Azeen Ghorayshi’s “He Fell in Love with His Grad Student—Then Fired Her for It” is the Glenn Close-esque tale of Christian Ott, a Caltech astrophysics professor who unburdens himself to his protégé about his deep-seated insecurities while publishing dozens of poems about her online. Sally Davies’ “The Physics Pioneer Who Walked Away from It All” tells us about physicist Fotini Markopoulou, who avers that “between the truth of the physical world and a physics theory, there’s humans. Of course, nothing happens there, because removing the person is the whole point of training as a scientist.” And then there is Michael Regnier’s heartbreaking true story of George Price, the man who literally did just that: removed himself, by killing himself in the name of the scientific study of altruism (“The Man Who Gave Himself Away”).

But the real editorial knifepoint of this book is its global warming agenda. Climate change crops up everywhere, from essays on Greenland (“A Song of Ice”) to Alaska (“The New Harpoon”). However, the pièce de résistance is Nathaniel Rich’s “The Invisible Catastrophe,” reprinted from The New York Times Magazine. This is passive-aggressiveness cranked up to eleven. Here, Rich manages to take a story about a methane leak in Aliso Canyon, outside Los Angeles, and turn it into a schadenfreude smorgasbord, with Rich secretly reveling in the fact that the wealthy residents of Porter Ranch—many of whom are Republicans—are finally getting a taste of their own medicine by being sickened by greenhouse gases.

But even this essay pales in comparison with Folger’s truly unhinged Foreword. Here, we find the favorite trope of the unscientific, namely, that everyone with whom one disagrees is a Nazi. Yes, a National Socialist. And not just any kind of National Socialist, but active, core members of the Party. To be more specific, bookburning Nazis. Here’s Folger:

Modern cosmology was born in Germany a century ago, and within two decades of its birth it almost died there. When Albert Einstein published his general theory of relativity in November 1915, it’s doubtful he could have imagined how profoundly deranged his country would become. On May 10, 1933—the same year Einstein left Germany forever—mobs of young Nazis and their supporters across Germany were feeding bonfires with his papers, along with works by Sigmund Freud, Thomas Mann, Bertolt Brecht, Erich Maria Remarque, and others supposedly contaminated with undeutschen Geist—un-German spirit. More than 25,000 books burned on that day, including those of the 19th-century Jewish poet and playwright Heinrich Heine, who had once written, “Where they burn books, they will also ultimately burn people. […]”

Where is Folger going with all this? Who are the modern-day Nazis in our midst? Why, climate skeptics and Trump supporters, of course:

One measure of the health of any modern society must be the degree to which it supports its scientists. A few days before I started to write this foreword, hundreds of thousands of people in dozens of cities across the country participated in the March for Science. It was an event at once inspiring and worrisome: inspiring because so many took a stand for rationalism—a public rebuke to the nation’s leaders that couldn’t be more different from the German book burnings of the 1930s; worrisome because who would have thought that in the 21st century scientists and citizens would feel the need to gather in support of something so self-evidently valuable as unfettered scientific research?

Yet the march was necessary, urgently so. Scientists at more than a dozen federal agencies have launched rogue Twitter feeds to counter the policies of a frighteningly uninformed president who once tweeted that “global warming was created by and for the Chinese.” We live at a pivotal moment in history[; …] climate change threatens not just “the environment” but civilization itself.

Now, to be fair to Folger, he is hardly the only “scientist” to have had a Hitler-themed meltdown over thermometer readings in Queen Maud Land. We are fallen creatures, and we all let our passions get the better of us from time to time. Scientists are people too, and when they get caught rigging the deck so that every card comes up the Ace of Hockey Sticks, they are apt to lash out at the whistleblowers just like anyone else. If anything, in his extremism Folger is simply following in the footsteps of his fellow “earth scientists.” Like Jacques Cousteau, for instance, who once opined that “world population must be stabilized and to do that we must eliminate 350,000 people per day.”

But there is much more to Folger’s brand of meteorological trolling than there might first appear. For example, there is the revealing research of William N. Butos and Thomas J. McQuade, whose 2015 paper on boom-and-bust cycles in the global warming industry shows the deep intertwinings of “scientific” research and the political economy. From the mid 1990s, global warming became a fashionable topic. From that point, governments increasingly began funding global warming-themed research to the exclusion of other projects. The much-touted “consensus” on global warming turns out to be little more than an illusion created by preferential funding by Washington and foregrounding by the United Nations Intergovernmental Panel on Climate Change (IPCC). As Butos and McQuade point out, science is supposed to be about hypotheses and experiments, but scientists turn out to be as susceptible to chicanery as politicians are once money for research starts to change hands.

Would that that were all. For what lies beneath even this fen of politicking under the rent veil of scientific disinterest is a deep uneasiness, felt most acutely by scientists themselves, over the true nature of their “scientific” enterprise. Folger is driven to accuse his critics of Nazism because he is afraid to confront their arguments head on. Why? Could it not be because of the epistemological bankruptcy of what passes as science?

Now, before the QJAE offices are deluged with hate mail, let me state that I am not a flat earther. I fully accept that pterodactyls and diplodocuses and trilobites were real, that the universe is billions of years old, that the earth goes around the sun, and that electricity is electrons, not voodoo. I also agree that carbon dioxide, methane, water vapor, ozone, and other substances are greenhouse gases, and that reducing the concentration of these gases in the atmosphere will reduce the greenhouse effect that they cause. I watched Mr. Wizard, too, and I am not here to dispute whether force equals mass times acceleration, or whether energy equals matter times the speed of light squared.

No, the claim I make here is much more serious than the denial of these facts would be. I am saying, in short, that scientists today, with rare exceptions, do not do science at all. They do sociology. As Thomas Kuhn pointed out in The Structure of Scientific Revolutions (1962), for instance, science lurches and stalls through a series of paradigm shifts, with the behavior of scientists themselves being the real dark matter moving research and consensus. And Karl Popper, were he alive today, might be interested in applying the falsifiability criterion to wild speculations such as Hansen’s and Folger’s. The line between science and pseudoscience might lie much closer to the latter than many in the general public suspect.

I began this review by arguing that climate is complex. What we need, then, is a science capable of investigating it, and real scientists, for a change, who can rise above herd behavior and try to figure out exactly what is going on with all of those 1.09 x 1044 molecules in our atmosphere. What we do not need are any more quacks or snake oil salesmen who see science as a bandwagon and scientists as responsible for keeping everyone on board. On that note, Friedrich Hayek’s The Counter-Revolution of Science: Studies in the Abuse of Reason (1952) would be a good place to start for learning the key difference between science and scientism, or the ill-starred attempt to bend science towards less noble ends than truth. Perhaps the next edition of The Best American Science and Nature Writing will heed some of Hayek’s sound advice and feature much more writing of a scientific nature. But at the very least, let us hope that it has much fewer comparisons of honest dissenters—those who truly want empirical facts and dispassionate interpretations—to bookburning Nazis.

Recorded at the Mises Institute in Auburn, Alabama, on 27 July 2016.

Recorded at the Mises Institute in Auburn, Alabama, on 27 July 2016.

ABSTRACT: In March 2014, I presented a paper on Austrian Environmental Economics in Auburn, Alabama, as the F.A. Hayek Memorial Lecture at the Austrian Economics Research Conference, sponsored by the Ludwig von Mises Institute, which was subsequently published in the Quarterly Journal of Austrian Economics (Dolan 2014b), along with comments by Art Carden (2014) and Walter Block (2014). This short paper replies by emphasizing the importance of an institutional framework for environmental mass torts, without which a strict application of libertarian ethics leads to corner solutions in which there is a coordination failure.

California Governor Jerry Brown has announced that private citizens and small businesses — among others — will have their water usage restricted, monitored, and subject to heavy fines if state agents determine that too much water has been used. Noticeably absent from the list of those subject to restrictions are the largest users of water, the farmers.

Agriculture accounts for 80 percent of the state’s water consumption, but 2 percent of the state’s economy. To spell it out a little more clearly: Under Jerry’s Brown water plan, it’s fine to use a gallon of subsidized water to grow a single almond in a desert, but if you take a shower that’s too long, prepare to be fined up to $500 per day.

The fact that the growers, who remain a powerful interest group in California, happen to be exempt from water restrictions reminds us that water is not allocated according to any functional market system, but is allocated through political means by politicians and government agents.

When pressed as to why the farmers got a free pass, Jerry Brown was quick to fall back on the old standbys: California farms are important to the economy, and California farms produce a lot of food. Thus, the rules don’t apply to them. If translated from politico-speak, however, what Brown really said was this: “I have unilaterally decided that agriculture is more important than other industries and consumers in California, including industries and households that may use water much more efficiently, and which may be willing to pay much more for water.”

In California, those who control the political system have ensured that water will not go to those who value it most highly. Instead, water will be allocated in purely arbitrary fashion based on who has the most lobbyists and the most political power.

Numerous economists at mises.org and elsewhere (see here and here and here) have already pointed out that the true solution to water shortages lies in allowing a market price to determine allocation — and in allowing there to be a market in water — just as there is a market in energy, food, and other goods essential to life and health. Supporters of government-controlled water claim that billionaires will hoard all the water if this is allowed, although it remains unclear why the billionaires haven’t also hoarded all the oil, coal, natural gas, clothing, food, and shoes for themselves, since all of these daily essentials are traded using market prices, and all are used daily by people of ordinary means.

For a clue as to how divorced from reality is current water policy in California, we need only look at the government-determined “price” of water there. Even under current conditions, water remains very inexpensive in California, but for the record, city dwellers have historically paid much, much higher prices for water than growers.

For example, according to this study, water for residents of San Francisco rose by 50 percent from 2010 to 2014, but residents were still paying about 0.8 cents per gallon for water. In Los Angeles, the price growth was a little less over the same period, but the Los Angeles price was also low, coming in a little over 0.6 cents per gallon. City dwellers are told that water is incredibly scarce, but as Kathryn Shelton and Richard McKenzie have noted, the price of water is so low that virtually no one even knows the per-gallon price.

But how much do growers pay for their water? In a recent LA Times article contending that growers “aren’t the water enemy,” it was noted that growers are now paying $1,000 per acre foot. This is supposed to convince us that water prices are incredibly high. But how does this compare to city prices? An acre-foot is about 326,000 gallons of water, so if we do the arithmetic, we find that growers who pay $1,000 for an acre-foot are paying about 0.3 cents per gallon for their water. That’s a little less than half as much as the city users are paying.

Now, city water is treated potable water, so we might expect a premium for city water. Historically, however, the gap between city prices and agricultural prices is much, much greater. Bloomberg notes that as of 2014, the price of water had risen to $1,100 “from about $140 a year ago” in the Fresno area. Going back further, we find that in 2001 many farmers were paying $70 per acre foot. Prices well below $1,000 are far more typical of the past several decades than the $1,000 to $3,000 per acre-foot many growers now say they pay. In fact, if we see what the per-gallon price would be for a $140 acre-foot of water, we find that a city dweller could use fifty gallons per day at a monthly price of 64 cents per month, or a per-gallon price of 0.04 cents.

At prices like these, it is no wonder that there is now a shortage of water. The price of water has for years been sending the message that water is barely a scarce resource at all.

In many cases, the low prices are enabled by decades of taxpayer subsidization of water infrastructure. A year round flow of water to both cities and growers is ensured in part by huge New Deal-era projects like Shasta Dam, and Hoover Dam, which the State of California could not afford to build, but which today California largely relies upon for water, care of the US taxpayer.

In central and northern California, the primary beneficiaries of federal water projects are growers, although it’s the city dwellers, who use a relatively small amount of water, who get lectured about conserving water. Were an actual market in water allowed, however, growers would have to compete for water with city dwellers, whose industries are far more productive than agricultural enterprises and who are likely to be willing to pay higher prices. Even when the private sector owners of water are old farming families (a legacy of prior appropriation), the water would still tend to go to those who value it the most as reflected in the per-unit prices they are willing to pay. That is: city dwellers

The fact remains that much California farmland is in a desert where it rains under twelve inches per year. Massive irrigation projects have made farming economical in the region, but it’s unlikely that the status quo can continue forever if California dries up and cities begin to compete for more water.

When crops like pecans, which are native to Louisiana where it rains over fifty inches per year, are being grown in central California, we will have to ask ourselves if there is true comparative advantage at work here, or if the industry is really sitting upon a shaky foundation of government-subsidized and -allocated resources.

The rhetoric that’s coming out of the growers, of course, is that California growers are essential to the American food supply. Some will even suggest that it’s a national security issue. Without California growers, we’re told, we’ll all starve in case of foreign embargo.

But let’s not kid ourselves. North America is in approximately zero danger of having too little farmland for staple crops. In fact, one can argue that some of the best farmland in the world — in Iowa for instance — is underutilized because policies like Jerry Brown’s farm favoritism send the message that California will prop up its desert agriculture no matter what.

No, if California farmland continues to go dry, this only means that Americans will have to turn to other parts of the US or imports. After all, many of the crops grown in dry parts of California are much more economically grown in more humid environments, including citrus plants, avocadoes (which are native to Mexico), and various tree nuts. And of course, it’s these crops, which are already fairly expensive and water-intensive that get mentioned when we’re told that California growers must be given what they want until the end of time. This will likely mean higher prices for some of these crops in the short run, the correct response is not government favoritism, but free trade, and letting comparative advantage work. In a world with market prices, it’s simply not economical to grow everything under the sun in the California desert. If markets were allowed to function, with real water prices and free trade, this would quickly become abundantly clear.

Scarcity is an important aspect of our lives as it affects us everyday, although many people may overlook it when they generally enjoy high standards of living. But scarcity makes itself obvious to high-income people at times, as it will in September, for example, when people will line up for hours to get their hands on the iPhone 6. Ludwig von Mises explained the situation well in Human Action:

The available supply of every commodity is limited. If it were not scarce with regard to the demand of the public, the thing in question would not be considered an economic good, and no price would be paid for it.

Indeed, scarcity is a reason most people work since their financial resources are limited and finite and work provides them the income necessary to accumulate resources to exchange for the goods and services of another. Consumers demand scarce goods (housing, clothes, a night out, travel, school supplies) and people have to economize their decisions based on scarcity.

In the case of water scarcity, however, we find that the challenge of scarcity is met in some very peculiar ways.

For examples, we can look to the Indian River Lagoon, Lake Okeechobee, and the Everglades where water is plentiful, but clean water is scarce. Moreover, we might look to the western United States where an arid climate makes all types of water scarce.

Yet in all of these places there is one thing in abundance — clean and drinkable bottled water.

Why is it that we can we have too much dirty water in one place, not enough water in another, and be surrounded by an abundance of bottled water?

Murray Rothbard explains:

The first thing to be said about this is that on the free market, regardless of the stringency of supply, there is never any “shortage,” that is, there is never a condition where a purchaser cannot find supplies available at the market price. On the free market, there is always enough supply available to satisfy demand. The clearing mechanism is fluctuations in price. If, for example, there is an orange blight, and the supply of oranges declines, there is then an increasing scarcity of oranges, and the scarcity, is “rationed” voluntarily to the purchasers by the uncoerced rise in price, a rise sufficient to equalize supply and demand. If, on the other hand, there is an improvement in the orange crop, the supply increases, oranges are relatively less scarce, and the price of oranges falls consumers are induced to purchase the increased supply.

In the case of droughts government monopolies set prices arbitrarily and this sends consumers distorted prices. Just as bad crops increase the price of oranges so should droughts increase the price of water. Individuals then internalize their decisions to make best use of the scare resources — their own finances and the water commodity. Government distorting prices prevents individuals from acting most efficiently to conserve scarce resources.

The Indian River Lagoon and other areas in South Florida are impacted by the lack of clear pricing signals to individuals. Meanwhile, bottled water is so easy to obtain that this past weekend at the Indian River Lagoon Clean Water Rally, free clean bottled water was given away during an event to protest the lack of clean water in the environment.

Floy Lilley writes:

Bottled water is the only water product that Americans have routinely priced and marketed. We now happily pay as much as four times the cost of gasoline for potable water that we could have for free from fountains and taps. Of course, economists will tell us factually that bottled water is not the same good. The square Fiji bottle is a sexy statement; and the ubiquitous bottle of water in hand is a fitness and convenience statement. Subjective valuation determines price. A real market in this water product does exist.

Markets for other water products are, meanwhile, mainly nonexistent. We routinely do not pay market prices for most other forms of water. Until recently, water has been viewed and treated as a free good by all Earth’s peoples. As with all free goods, water experiences unlimited demand. But water cannot meet unlimited demand. Water needs prices in order to signal scarcity and inform demand. Different categories of water need different prices to reflect the different preferences of users. Free can no longer be water’s price. The profligate glory days of limitless water everywhere seem to be over.

The lack of market pricing affects the Indian River Lagoon as it encourages pollution. By allowing farms and industries to pump byproduct into the water the waterways are essentially being used as a free garbage dumping ground. The permitting of pollution by government recklessly encourages more pollution by firms rather than firms benevolently opting to pay to have it properly disposed. The business who pays extra to have waste properly treated and disposed of may not be able to compete with the businesses who opt to take advantages of government allowing dumping of byproduct into waterways at virtually no cost.

The lack of market pricing occurs largely due to lack of ownership and governmental edict. With “public” ownership bureaucrats and politicians charged with maintaining resources lack capital value interest in the resources. They only preside over the current use as Hans Hoppe taught us, “it makes exploitation less calculating and carried out with little or no regard to the capital stock. Exploitation becomes shortsighted and capital consumption will be systematically promoted.” The long-term calculations of the bureaucrat is distorted by this.

Ownership being replaced with stewardship and the lack of the profit and loss mechanism prevents the water bureaucrats from making the most efficient decisions. It is not for the lack of caring but the inability to make economic calculation as Mises explained in Bureaucracy:

Bureaucratic management is management of affairs which cannot be checked by economic calculation.

... The bureaucrat is not free to aim at improvement. He is bound to obey rules and regulations established by a superior body. He has no right to embark upon innovations if his superiors do not approve of them. His duty and his virtue is to be obedient. ... Nobody can be at the same time a correct bureaucrat and an innovator.

Yet if the same waterways were privately owned the property owners could charge for the all uses of waterways. Non-pollutive by products may be charged less than damaging pollutive byproducts which negatively affect water quality. The scarcity of the water quality would set prices to discourage pollution and incentivize firms to find cleaner and more efficient production methods.

Furthermore with ownership provides the long-term capital value incentive which encourages conservation. We see this in forestry where forests are replanted to ensure the forest owner has income in the future. We see this at Adams Ranch where the stock of cattle is not wiped out all at once. Adams Ranch does a particularly good job of conserving grass to feed and support their cattle because the land they have to raise cattle on is limited. If grass goes so does the cattle.

In the case of the Lagoon, waterway owners might decide not to allow pollution. Instead, deciding that the boaters, fisherman, divers, swimmers, etc., are a preferable source of revenue for decades into the future.

Prices would help owners calculate that using the water for leisure and conservation is more efficient and useful than making it unusable dumping grounds. Prices would help consumers appreciate the use of clean waterways. Up the Kissimmee River Disney is able to charge huge entrance fees to maintain a safe clean park and facilities. In other unmaintained areas people dump litter in the river, like they do on the roadways. Notice, other than on trash day, people do not litter their own driveway. That is because of the tragedy of the commons. Nobody has an incentive to keep it clean as nobody owns it.

When we fail to understand the basics of scarcity and prices, however, we are left with the current and dominant view of water in which everyone owns it, and action to maintain it can only be undertaken communally. We see this attitude reflected in recent social media posts (1, 2, 3,) on the Indian River Lagoon, including: Thousands of people came out to rally for the lagoon cleanup and to raise awareness and money. Obviously, a clean lagoon is valuable to many people, but we will never know just how valuable as long as government precludes pricing from working in the lagoon’s favor.

In other words, let’s allow the people who care to put money where their mouths are and allow the marketplace to incentivize the people who are most motivated to have a long-term stake and interest in conserving the capital value of the lagoon.

Only the market can provide this, for no matter how hard bureaucrats try they cannot imitate market forces. Lilley explains:

Perhaps the best concise summary of this book is given by editor Alexander Tabarrok in his concluding chapter. As he points out, where most urbanists see market failures, the authors of The Voluntary City see market opportunities. Needless to say, such a perspective will come as a shock to theorists and practitioners whose raison d’être is built around notions such as public goods and externalities.

While The Voluntary City is mostly an attempt to provide a stepping stone to illustrate how services that are currently provided by politicized bureaucracies could be better delivered through market-based arrangements, the editors have had the good sense to frame their discussion not so much in terms of market versus public planning, but rather along the lines of civil society (which includes not only market processes, but also nonprofit firms and other not-for-profit organizations) versus bureaucratic-political procedures. (But while this may be a good rhetorical strategy, I suspect that in its present-day incarnation, the nonprofit sector has essentially become nothing more than a grab bag of cheap-labor extensions and lobby groups of government agencies and that casting too much hope in it might prove disappointing. Yet, reminding readers of what it once was and might again be is a useful task.

Austrian economics lacks a formalized, self-conscious theory of environmental economics. But in fact all of the major elements of such a theory already exist and in that sense what is needed is to piece together the relevant aspects of Austrian economics in order to draw out and focus a theory that is already there.

The purpose of this paper is to do just that. In developing an Austrian theory of environmental economics, very little new theoretical ground will be plowed. But by bringing together Austrian concepts of costs and the praxeological foundations of economics we discover a unique perspective on pollution and the role of property rights in solving environmental problems. Furthermore by placing environmental problems within the context of personal and interpersonal plan formulation, we discover that they are not about the environment per se but about the resolution of human conflict.

A Geographical Perspective on Austrian EconomicsPierre Desrochers    About a year ago I more or less suddenly realized that I have spent my whole professional life as an international economist thinking and writing about economic geography, without being aware of it.    —Paul Krugman, Geography and Trade    It has long amused high school philosophers that medieval theologians debated hotly about how many angels could stand on the head of a pin. It has only recently struck economists as strange, although not funny, that the bulk of economic theory assumes that all economic activities take place on the head of a pin. Given the capital equipment involved in most economic activities, compared to the harps and wings of angels, one would think that the pin-headed economic assumption the more ludicrous to maintain. Perhaps its greater longevity in economics says something about the relative realism involved in economics and theology.    —Michael Bradfield, Regional EconomicsIt has long been recognized that in order to postulate strict laws and equilibrium, neoclassical economists have oversimplified their basic models to such an extent that they have, until very recently, almost entirely excluded processes relating to time and space. As economic geographers would have it, most economists have long inhabited a “spaceless wonderland” and have behaved as if the invisible hand was located on the head of a microscopic pin. Topics like the location of the various elements of an economic system, their connection and interaction in space or the spatial impact of economic processes, most certainly because they made basic assumptions like perfect competition untenable, were thus simply tossed aside and, it seems, in time unconsciously forgotten.Despite the fact that they were not prisoners of these constraints, Austrian economists’ treatment of geographical space has been rather limited, with perhaps the exception of Fetter’s turn-of-the-century contribution to the theory of rent (Fetter 1977). Otherwise, one can find echoes of a distinct Austrian perspective on geographical space in the few comments Mises made on the important role that the limited convertibility of capital goods plays in human geography (Mises 1966, p. 513). Murray Rothbard wrote somewhat more extensively on the “economics of location and spatial relations” and on “interlocal exchange,” but he followed the lead of traditional location theory by focusing almost exclusively on transportation and sunken costs. He wrote:

[The distribution of people and business over the face of the earth] will differ from location to location in accordance with the distribution of natural resources and the distribution of capital equipment inherited from ancestors. Another factor influencing location will be positive or negative attachments to certain areas. . . . The actual dispersal over the face of the earth is caused chiefly by the distribution of productive land and natural resources over the earth’s surface. This has been one of the chief forces limiting the concentration of industry, the size of each firm, and population in purely industrial areas. (Rothbard 1993, p. 551)

Hayek’s classical argument on the importance of “particular circumstances of time and place” (Hayek 1948) could have opened the way to a different line of argumentation. By that now-famous phrase, he meant things such as the heterogeneity of capital goods (i.e., that some goods are tailored for the specific needs of a very small number of consumers) and the importance of non-material components to goods (such as ease of availability, quality of service, reputation of a supplier, etc.). Obviously, these circumstances will differ greatly from one location to another, but his treatment of the impact of geographical space on these circumstances remained rather casual.To be sure, most economic geographers would not debate Hayek, Rothbard, and other Austrians’ views on economic geography, but most of them would argue that there is much more to be said on this topic. Somewhat curiously though, they would be pointing toward the importance of local conditions on a number of issues that Austrians have been addressing for a long time, such as the diffusion of tacit knowledge, and importance of local conditions on economic coordination.Once the sole province of economic geographers and regional scientists, regional growth and development theory has been supplemented in the last two decades by a number of new offerings, both theoretical and empirical, by business school professors, political scientists, economic sociologists and, lately, by some economists.[1] In the wake of the spontaneous and spectacular rise of some regions of the world (Silicon Valley, Third Italy, M4 Corridor, Orange County, Baden-Württemberg, etc.) and the decline of once-prominent manufacturing centers (some portions of the American Midwest, Wallonie, Lorraine, etc.) which could not be accounted for by the theories then available, a large number of scholars have begun taking a new look at the industrial and social characteristics of a given place (be it a city, a town, or a region) in providing (or not) fertile soil for economic development and technological innovation. The distinctive feature of most of these analyses has been the movement away from mechanistic and static “resources allocation” or “location scanning” perspectives towards more qualitative and dynamic analysis of technological change emphasizing the role of competition, cooperation, innovation, entrepreneurship, information diffusion, small business culture, flexibility, adaptability, and many other factors at the regional level. To put it somewhat succinctly, some places are said to be better than others at integrating the formal and informal collective processes essential to the production of permanent innovation. All participating agents profit from the advantages to be gained from being located in those special places, but the biggest benefits are said to be enjoyed by entrepreneurs and small firms who rely much more on their local economic environment than large, multi-plant corporations. The message emerging from this literature is two-fold: (1) where prosperity exists, it is regionally based; (2) the sources of this prosperity are to be found in the regions themselves and not in some exogenous factors.This article is therefore intended as a complement to the Austrian tradition and will point out more specifically the importance of local conditions for the production of innovative goods and services. In doing so, it will borrow heavily from the main thrust of work in economic geography in the last decade, although it is not intended to be an exhaustive review of recent articles and current debates,[2] nor of the fate of planned science parks.[3] In fact, the views expressed in this article should not be taken as representative of those of the majority of economic geographers, for they depart from most of this literature on at least two counts. First, this author’s views are not rooted in a belief that the “complex web of transactional relations” or the “network of synergy-producing interconnections” in a certain region—variously labeled industrial districts, innovative milieux, regional innovation systems, geographic industrial concentrations, technology districts, etc.—is an economic entity in its own right.[4] The purpose here is rather to illustrate how individuals living in the particular socio-economic environment of a region can have an economic advantage over other individuals living elsewhere. Second, it will be this author’s purpose to illustrate that there is a body of economic geography theorems that are valid for all human action irrespective of time, something which is at odds with the “post-fordist”[5] theoretical framework now prevalent in economic geography.

Few economic phenomena can be considered ubiquitous. Somewhat paradoxically, one that qualifies best as a certainty, urbanization, has been virtually ignored by most economists. There is, however, a long tradition of spatial-economic analysis that can be traced back to some aspects of the work of classical economists (most notably Ricardo) and the German Raumwirtschaft tradition (featuring most notably the work of von Thünen and Weber), and that culminated in this century in the development of the fields of economic geography, regional science, and urban economics.[6] But to state matters briefly, until perhaps fifteen years ago the dominant approach toward geographical space was to view it as an abstract support for locational factors on which a purely exogenous “economic development” was equilibrating economies of agglomeration (centripetal forces) on the one hand, and diseconomies of agglomeration (centrifugal forces) on the other. Overall, these frameworks have mostly proven useful in explaining the locational behavior of consumer services and retail trade. Despite the completely static character of these schemes, some of the ideas used in those models are undoubtedly of great value, chief among which are “agglomeration economies,” i.e., the benefits that derive from the spatial concentration of a certain number of firms. Agglomeration economies are of two types: those relating to the agglomeration of firms of the same industry in one area (localization economies), and those relating to the agglomeration of various industries in one location (urbanization economies).

It has long been observed that most industries are not evenly distributed through space, but, rather, are usually highly concentrated in a few places. Thus, throughout history various cities have, at one point or another, been labeled “the capital of the world” in a highly specialized area of production. The universality of this phenomenon has long been established. For example, the Italian city of Sassuolo is famous for its ceramic tiles, Carpi for its woodworking machinery, Montebelluna for its ski boots, Arezzo for its jewelry, and Prato for its wool textiles. In Germany, Soligen has a long tradition in cutlery, Remscheid in toolmaking, Nuremberg in pen and pencils, Velbert in locksmith wares, Pforzheim in jewelry, etc. (Porter 1990).Such geographical agglomerations of firms can be found at the city, neighborhood, or sometimes at the street level, usually depending on the capital requirements of each industry. Los Angeles’s aeronautical firms are scattered throughout the city, whereas the firms involved in the specialized production of gems and jewelry in various metropolitan areas are usually packed close to the cores of their cities (Scott 1994). For example, in the middle of this century, the following trades were to be found within the confines of a few streets in Birmingham (England): goldsmiths, silversmiths, electroplaters, medalists, gilt and imitation jewelry fabrication, gem setting, stamping and piercing, engraving, polishing and enameling, die sinkers, jewelry repair, refiners, general outwork, factors and merchants, dealers in bullion and precious stones, jewelers’ material suppliers, manufacturers of optical goods, watchmakers, and miscellaneous manufacturers (Wise 1949).Vertical disintegration is known to be positively associated with geographical agglomeration. Typically, apart from highly capital-intensive industries (steel, petrochemical, etc.), these dense agglomerations are usually made up for the most part of a huge collection of small firms from the same or closely interconnected branch of industry employing only a handful of workers, though often enough large producers are found in them. Thus, more than 60 percent of the firms in Birmingham’s jewelry district had ten employees or fewer, and all were bound together in a dense structure of transactional interrelations. Closer to us, before mini-computers ran into trouble in the late 1980s, more than 70 percent of software firms along Boston’s Route 128 employed fewer than 25 people, and more than 60 percent of manufacturing companies in that area employed fewer than fifty (Rosegrant and Lampe 1992, p. 27).What are the advantages of a cluster of apparently redundant small firms over the economies of scale that a single large firm should bring? It mainly has to do with permanent innovation, flexibility, and sudden shifts in market demand. In short, the real economy is a turbulent, uncertain and highly dynamic phenomenon. Silicon Valley’s Sun Microsystems will provide an illustration.[7]

While specialization is often an economic necessity for start-ups, Sun did not abandon this strategy [of outsourcing] even as the firm grew into a multi-billion dollar company. Why, asked Sun’s Vice President of Manufacturing Jim Bean in the late 1980s, should Sun vertically integrate when hundreds of Silicon Valley companies invest heavily in staying at the leading edge in the design and manufacture of integrated circuits, disk drives, and most other computer components and subsystems? Relying on outside suppliers greatly reduced Sun’s overhead, while ensuring that the firm’s workstations contained state-of-the-art hardware.

This focus also allowed Sun to introduce complex new products rapidly and to alter their product mix continuously. According to Bean: “If we were making a stable set of products, I could make a solid case for vertical integration.” Relying on external suppliers allowed Sun to introduce an unprecedented four major new product generations during its first five years of operations, and to double the price-performance ratio each successive year. Sun eluded clone-makers through its sheer pace of new product introduction. By the time a competitor could reverse-engineer a Sun workstation and develop manufacturing capability to imitate it, Sun had introduced a successive generation. (Saxenian 1990, pp. 5–6)

Although Silicon Valley is a recent phenomenon, the geographical clustering of small firms is in no way new, and tales similar to Sun’s can be found in various historical records. Indeed, many people noticed the phenomenon long ago and began positing various explanations for it.[8] The most well-known classical treatment of this question is Alfred Marshall’s succinct characterization of “industrial districts.”[9] Although Marshall apparently first noticed the phenomenon by looking at the cutlery industry of Sheffield and the cotton weaving industry of Lancashire, he noted that “indications of a like stage of things are found in the histories of oriental civilizations and in the chronicles of medieval Europe.” He thus referred to a book written in about 1250 which noted such specialized production of scarlet at Lincoln; blankets at Bligh; burnet at Beverley; russet at Colchester; linen fabrics at Shaftesbury, Lewes, and Aylsham; cord at Warwick and Bridport; knives at Marstead; needles at Wilton; razors at Leicester; soap at Coventry; horse girths at Doncaster; skins and furs at Chester and Shrewsbury; and so on (Marshall 1986, p. 223). From these observations, he would derive his notion of “external economies of scale” to refer to the sources of a productivity increase that lie outside of the individual firm. As he put it:

the economic use of expensive machinery can sometimes be attained in a very high degree in a district in which there is a large aggregate production of the same kind, even though no individual capital employed in the trade be very large. For subsidiary industries devoting themselves each to one small branch of the process of production, and working it for a great many of their neighbors, are able to keep in constant use machinery of the most highly specialized character, and to make it pay its expenses, though its original cost may have been high, and its rate of depreciation very rapid. (Marshall 1986, p. 225)

In Marshall’s view, producers derive external benefits by sharing the fixed costs of such common resources as specialized infrastructure and services[10]; skilled labor pools[11] and specialized suppliers; and a common knowledge base. Although in the following decades many districts faded away with the obsolescence of their production, or through mergers,[12] or deliberate state planning,[13] most of them proved remarkably resilient and new ones kept appearing spontaneously. In Italy, the phenomenon became so widespread by the mid-1970s that it prompted some local sociologists and economists to resurrect Marshall’s analysis. In Switzerland, the painful but quick adaptation of the local watch districts, following the serious setback brought about by the introduction of Japanese digital watches, also prompted a closely related literature. In the United States, high-technology analysts witnessing the spectacular rise of Boston’s Route 128, California’s Silicon Valley, and Orange County realized that, contrary to popular belief, agglomerative tendencies were not vanishing, and that the more “high-tech” an industry was labeled, the more likely it was to be geographically localized. As more scholars became involved in this research agenda, thousands of geographically concentrated industries were “discovered” the world over, from Thailand to France, Denmark to Japan, and Mexico to Portugal (Courlet and Soulage 1995; Garofoli 1992; Hansen 1992; Maillat 1995; Saxenian 1994; Sternberg 1996; Storper 1995). It has also been noted that metropolises are typically patchworks of industrial districts. Thus New York has, among others, its garment, financial, diamond, and advertising districts, while Los Angeles has its film and TV, clothing, furniture, and jewel manufacturing districts (Scott 1988).

Although most cities are usually specialized in a few lines of work, they are also the hosts to many other activities supplying the most ordinary to the most prestigious piece of equipment or services to a whole range of industries. The spatial agglomeration of various activities will, for example, allow the operation of airports, hospitals or cultural activities, as well as law, accounting, and various consulting firms of the first order. The recent “core competencies” and “just-in-time” strategies of many firms has also reminded us of the benefits of a greater division of labor between firms in close geographical proximity to one another. It thus obviously makes sense for any business to externalize a function that can be done more effectively by a specialized external firm, but there are also many advantages for a subcontractor serving firms in a wide range of industries to be located close to its customers, both in terms of reducing transaction costs and increasing speed of delivery (i.e., by making daily deliveries, saving the buyer warehousing space, reducing the risk of running out of a needed item while it is being shipped from a long distance, etc.).

Agglomeration economies have existed from time immemorial, but non-specialists typically assume that they are something on the verge of collapse. Alfred Marshall thus wrongly believed, like many earlier and later popular writers and scholars, that production on a large scale and the fall of transportation costs of both knowledge and people—which he associated in his time mostly with the railway and the telegraph—would deal a major blow to geographic concentration. Like other prophets of the end of economic geography, however, he was proven wrong. The same can be said for the advanced telecommunication systems of recent years that show no signs of wiping out geographically concentrated industries and cities. The efficient allocation of resources over geographical space plays an obvious role in shaping the economic landscape of our world, but it cannot be the whole story behind the persistence of the geographic concentration of economic activity. What is it then? As a number of writers have pointed out, one must look at the importance of geographical proximity for innovation.

To understand the persistence of geographical clusters of innovative firms, we first need to return to Marshallian analysis. As we have seen, Marshall identified the importance of a common knowledge base as the third major force behind agglomerative trends. As he put it:

When an industry has thus chosen a locality for itself, it is likely to stay there long: so great are the advantages which people following the same skilled trade get from near neighborhood to one another. The mysteries of the trade become no mystery; but are as it were in the air, and children learn many of them unconsciously. Good work is rightly appreciated, inventions and improvements in machinery, in processes and the general organization of the business have their merits promptly discussed: if one man starts a new idea, it is taken up by others and combined with suggestions of their own; and thus it becomes the source of further new ideas. (Marshall 1986, p. 225)

In short, Marshall rightly pointed out that people of related trades gather close to each other because geographical proximity increases the concentration of tacit knowledge and the speed of information flows. As Austrians have long pointed out, innovation is all about continuous learning. The crucial knowledge in an industry is not standardized information, routine patterns, or even the public knowledge of science. The important knowledge is uncodified and is not available in any formalized mode of communication. It is what is new, what are the latest changes, and what is the specialized know-how that individuals have acquired through practice and mistakes. To compete effectively in many industries, it is not enough to look at trade journals or computer screens, to communicate via telephone conferences, or to monitor plants in remote locations via modern communication means. Being where your partners and competitors are is an important asset. Socializing with them allows the opportunity to ask for advice or for a specific bit of information, but it can also lead to unexpected benefits. Informal encounters where one person says to a second, “What are you working on?” and where a third jumps in and adds “I know somebody you’ve got to talk to; I’ll call you with the number” are often very fruitful. Although exchanges of this kind might last less than two minutes, they may prove to be the most productive encounter of the entire day for everybody involved. It was true in Marshall’s time and earlier. It is still true in today’s geographical clusters of innovative firms.According to Saxenian, it is not simply the concentration of skilled labor, suppliers, and information that distinguish Silicon Valley, but the dynamics of its social networks.

 A variety of regional institutions—including Stanford University, several trade associations and local business organizations, and a myriad of specialized consulting, market research, public relations and venture capital firms—provide technical, financial, and networking services which the region’s enterprises often cannot afford individually. These networks defy sectoral barriers: individuals move easily from semiconductor to disk drive firms or from computer to network makers. They move from established firms to start-ups (or vice versa) and even to market research or consulting firms, and from consulting firms back into start-ups. And they continue to meet at trade shows, industry conferences, and the scores of seminars, talks, and social activities organized by local business organizations and trade associations. In these forums, relationships are easily formed and maintained, technical and market information is exchanged, business contacts are established, and new enterprises are conceived—This decentralized and fluid environment also promotes the diffusion of intangible technological capabilities and understandings. (1990, pp. 96–97)

Some authors studying less dynamic firms in stagnant regions have, however, downplayed the role played by social networks in local environments and have stressed that most small firm owners and managers tend to be individualistic and too busy to engage in constant networking (Rallet 1993; Julien et al. 1994; Joyal 1996). Be that as it may, geographical proximity in an urban setting has some undeniable advantages for those individuals who are willing to use them, namely timeliness in getting or delivering something and the opportunity of frequent face-to-face communication. Often enough, if most economic actors do not realize the importance of physical proximity when they first go into business, it later becomes apparent to them, through trial-and-error, that it is an important asset in any innovative business venture.We shall now look in more detail at the advantages of geographic concentration on the transmission of tacit knowledge, human cooperation, and entrepreneurship.

The main argument in favor of the importance of physical proximity for the transmission of tacit knowledge is that deconcentration cannot be accomplished easily for activities dealing with creative work, mainly because long-distance communication is still inadequate for the continuous and detailed engineering or technical adjustments that are needed in the course of technological creation. Technology transfer typically involves specialized knowledge and is thus a personal interaction process. Information systems and data bases are enabling tools, but successful technology transfers still require the personal contact with the persons possessing effective knowhow. It has also been pointed out that local distributors and representatives are usually considered poor alternatives to the actual producers (Gertler 1995).Following von Hippel (1988), we can assume a situation in which a firm’s staff of engineers has to develop a new product (exchanges of technical information take place frequently between firms, but it is not possible to apprehend the magnitude of these activities in financial or statistical terms). When required know-how is not available in-house, it is often not in publications either. It either does not exist or is only in the minds of other technical people. Since in-house development is always time-consuming and expensive, there is often a high incentive to seek the needed information from people working in other firms. And although engineers and technologists have met other technical people at various meetings, trade shows and conferences, they are more likely to be acquainted with and ask for help in the staff of nearby firms, if only because it is more convenient.von Hippel has described this process, but in an a spatial context, in this way:

The informal proprietary know-how trading behavior I have observed to date can be characterized as an informal trading network that develops between engineers having common professional interests. In general, such trading networks appear to be formed and refined as engineers get to know each other. . . . In the course of such contacts, an engineer builds his personal informal list of possibly useful expert contacts by making private judgments as to the areas of expertise and abilities of those he meets. Later, when Engineer A encounters a difficult product or process development problem, A activates his network by calling Engineer B—an appropriately knowledgeable contact who works at a competing (or non-competing) firm—for advice. Engineer B makes a judgment as to the competitive value of the information A is requesting. If the information seems to him vital to his own firm’s competitive position, B will not provide it. However, if it seems useful but not crucial—and if A seems to be a potentially useful and appropriately knowledgeable expert who may be of future value to B—then B will answer the request as well as he can and/or refer A to other experts. (von Hippel 1988, p. 77)

The importance of physical proximity in producer-user relations is also well documented. Considering the fact that in many industries, users, and not manufacturers, create most innovations (von Hippel 1988; Slaughter 1993),[14] this point seems indeed most relevant and explains why, historically, physical proximity between the producer and user of machinery seems to have been indispensable. In short, as Rosenberg (1970, p. 570) noted almost three decades ago, successful instances of technological change typically involve

a direct confrontation between the user of a machine, who appreciates problems in connection with its use, and the producer of machinery, who is thoroughly versed in problems of machinery production and who is alert to possibilities of reducing machinery (and therefore capital) costs.

To quote the down-to-earth language of a Silicon Valley president:

I don’t care how well the specifications are written on paper, they are always subject to misinterpretation. The only way to solve this is to have the customer’s engineers right here. There is no good way to do it if you are more than fifty miles away. (Saxenian 1990, p. 17)

In reporting the results of a survey of users of advanced manufacturing technologies in southern Ontario, Gertler (1995, p. 16) wrote that his interviews revealed an

emphatic and widespread agreement that site visits between user and producer—ideally throughout the entire acquisition [of a new technological] process—were absolutely crucial for ultimate success when the technology was new, complex, and expensive.

Typically, face-to-face contact was deemed especially important during the installation and initial operation of a newly acquired technology. But actually, the importance of face-to-face communication went beyond the effective exchange of information. It was also judged extremely useful in delivering training to the user’s technical and operative personnel. As he put it, printed manuals were often considered “next to useless” and videotapes were regarded as poor substitutes to “being there.” Gertler also mentioned the following anecdote to illustrate implementation difficulties resulting from geographical distance.

 One [Ontario] medium-sized manufacturer of plastic products described how a service person for a machinery producer in Ohio failed repeatedly to solve the user’s technical problem despite repeated contact via telephone and fax. In frustration, the producer finally “sent a box of parts” by courier for the user to try. This strategy too was unsuccessful. After the user had incurred considerable expense and delay, the service person finally paid a site visit to the user’s plant, whereupon the problem was solved “in about five minutes.” (Gertler 1995, p. 11)

This author has also alluded to the difficulties faced by European producers in serving the North American market directly from Europe or through American distributors. Some evidence thus indicates that, unless the information transmitted is relatively standardized, new telecommunications technologies still cannot be substituted adequately for face-to-face contact.The conventionally held view that telecommunications technology will produce a decentralization of economic production is, as we have seen, a very old one. But history tells us otherwise, as typically better communication technologies are associated with a higher geographical concentration of decisionmaking centers and highly specialized productions of goods and services, while only the most standardized operations usually become truly footloose. And although, under particular circumstances, some people might like to work from their home offices, in the end it is probably true that most humans are really social animals who like to be with other humans.

Human cooperation is, of course, nothing new to Austrian economists (Mises 1966, p. 143). But cooperation of the type mentioned before is not always easily done, for the most important question is always: “Can I trust this guy?”, something which is still impossible to establish over a telephone or a computer. Lack of full trust or a sense of insecurity typically implies some concealment of information or the expensive hiring of attorneys. Geographical proximity, because of the frequent interactions and long-term contracts or commitments between people that it allows (whether in working environments or in social activities), often plays a crucial role in building the trust bonds that are needed in this process or in a successful customer-supplier relationship. As a Silicon Valley CEO put it:

We’ve never been successful for any length of time outside of a local area. We might get a contract initially, but the relationship erodes without constant interaction. Sophisticated customers know that you must be close because these relationships can’t be built over long distances. (Saxenian 1990, p. 22)

Many authors have, however, pointed out that regions dominated by large firms or branch plants, as well as almost all scientific parks, are less likely to develop cooperative behaviors than others in which the industrial structure is predominantly made up of small- and medium-sized businesses who need to get most of their inputs from their region (Piore and Sabel 1984; Hansen 1992).

Another area where the recent economic geography literature differs markedly from older offerings is in the focus now being put on entrepreneurship, but more specifically on “spin-offs” or “start-ups.” Following Côté (1991), we can describe a typical situation. While employed, a dynamic worker acquires specialized knowledge and credibility in a particular line of business. He gets to know a number of workers who also possess specialized know-how in production, management, marketing, finance, and so on. He learns about the marketplace and about the features and weaknesses of products that sell. He also gets to know who matters in the industry, the important clients, the key distributors, the potential mentors. He learns about marketing practices and techniques, upcoming developments, and so on. Although he has seen reports on TV about great entrepreneurs, it is the successes of a former co-worker or of an acquaintance in his neighborhood that has made him realize that he too could make it on his own.Then one day, this salaried worker sees an opportunity in the marketplace, a fragment of work in which his current employer is not interested. Leaving the security of a salaried job, however, is not an easy decision. The potential entrepreneur recognizes that he is taking a risk with his money, his future, and that the opportunity that he wants to seize must be developed as quickly as possible in order to achieve a good position in the market. Finding competent employees quickly, various inputs at an affordable price, potential buyers, and maybe an investor who believes in him weighs heavily in his decision to launch or not launch his business. It is at this junction that agglomeration economies are often the key. Their importance is highlighted by the fact that most “spin-offs” always tend to be located close to their former employers. Thus, to take a typical example, the highly successful medical equipment industry of Minneapolis-St. Paul can in many ways be traced back to Medtronics, whose spin-offs include, or have included: Cardiac Pacemakers Inc., Renal Systems, Stimulation Technology, EMPI, Aequitron Medical, Med Tel, Medical Devices Inc., Pharmadyne Corp., Vivatron Inc., WR Medical Electronics Company, Population Research, Angiocor, Biomedicus Inc., Sei Med Life Systems, and Mentor (Miller and Côté 1987, p. 92). As one might expect, it has also been pointed out that cooperation with the parent company is often secured if the new product is different from that produced in the mother enterprise and that spin-off activities not only lead to the exploitation of product niches, but also to an intensive interplay among local firms (Hansen 1992).

If it is well known that people in organizations continually absorb new technologies (by buying them from external suppliers, inventing their own, or doing some of both) and that they also diffuse their own in numerous ways (by employees changing jobs, client-supplier relations, sponsor relations, incubation of entrepreneurs, etc.), it seems fair to say that local conditions often play a crucial, if neglected, role in this process. Although a large number of reconceptualizations have done a lot to point out the importance of local conditions, in the opinion of this writer most of these contributions do exhibit a major flaw. It is that, although their main goal is to explain the impact of local conditions on technological innovation, the analyses offered typically focus on highly specialized districts or holistic concepts. They implicitly ignore the most fundamental aspect of any type of creative process, which is that innovation typically proceeds by combining heterogeneous facts, ideas, faculties, and skills.As a design engineer has put it: “[the main thrust of an engineer is] to gather knowledge from diverse places in order to help solve technical problems” (Fores 1979, p. 853). This obviously has happened countless times in the past. Practical metallurgy thus began with the making of necklace beads and ornaments in hammered native copper long before knives and weapons were made. Ceramics began with the fire-hardening of fertility figurines molded of clay. Rotary motion was first used in the drilling and shaping of necklace beads, and it is most likely that the playful rolling of beads strung upon a wire is an antecedent to the idea of a pair of wheels turning purposefully on the axle of a cart or carriage, and so on (Smith 1982). There is actually plenty of evidence, both quantitative and qualitative, showing the importance of the diffusion of technical knowledge between industries (Glaeser et al. 1992; Desrochers 1996; Feldman and Audrestch 1997).If there are reasons to believe that small- and medium-sized firms get most of their technological inputs from their region’s industrial base, there are also many reasons to believe that they do not limit themselves to one industrial fragment of it. This is a point that the urban theorist Jane Jacobs addressed more than twenty-five years ago (Jacobs 1969). In short, her argument is based on the contention that the spatial concentration of large groups of people permits a great deal of personal interaction, which in turn generates new ideas, products, and processes. Although her argument on the importance of local conditions for the cross-fertilization of ideas and techniques is often sketchy, it proved to have remarkable insight.[15] It was also in many ways a forerunner of the current qualitative work now being done in economic geography, although, following Lucas’s endorsement (Lucas 1988), it mostly drew the attention of scholars with a more quantitative frame of mind. Some of them have presented evidence pointing toward the greater importance of industrial diversity on local job creation in both American (Glaeser et al. 1992) and Canadian cities (Coffey and Shearmur 1996), while others have used data on new product announcements at the city level to conclude that the presence of diverse industries within the same science-base in a city appears to lead to increased innovation (Feldman and Audretsch 1997). However, quantitative analysis cannot properly address the impact of local conditions on the cross-fertilization of knowledge, and only by looking closely at the actions of individuals will we gain any real insights into the processes at work (Desrochers 1996).Gutenberg’s invention of the printing press will afford a first illustration. In many ways, this story helps us to understand why historically most inventions have been made in cities, and why the combination of agglomeration economies and of various people interacting together indeed seems to be a major factor in technological creation. At the dawn of the fifteenth century, printing was no longer a novelty in Europe. Printing from wooden blocks on vellum, silk, and cloth apparently started in the twelfth century, and printing on paper was widely practiced in the second half of the fourteenth. Oddly enough, though, the starting point of Gutenberg’s invention was playing-cards on which a few words had been printed by way of rubbing wood-blocks on a sheet of paper. As he wrote in his correspondence to a clergyman:

Well, what has been done for a few words, for a few lines, I must succeed in doing for large pages of writing, for large leaves covered entirely on both sides, for whole books, for the first of all books, the Bible. How? If is useless to think of engraving on pieces of wood the whole thirteen hundred pages. . . . What am I to do? I do not know: but I know what I want to do: I wish to manifold the Bible, I wish to have the copy ready for the pilgrimage to Aix-la-Chapelle. (Koestler 1969, p. 122)

Gutenberg then searched for a device more resistant than wood-block, which lead him to notice the seals used to authenticate documents, but rubbing them on paper did not give a clear print. He found the solution one day, while attending a wine harvest near his city.

 I took part in the wine harvest. I watched the wine flowing, and going back from the effect to the cause, I studied the power of this press which nothing can resist. . . . God has revealed to me the secret that I demanded of Him. . . . One must strike, cast, make a form like the seal of your community; a mold such as that used for casting your pewter cups; letters in relief like those on your coins, and the punch for producing them like the foot when it multiplies its print. There is the Bible! (Koestler 1969, pp. 123–24)

Closer to us is Stan Mason, a prolific inventor who has made innovations in a wide range of industries.[16] Mason has frequently claimed that he doesn’t know a thing about a lot of things, but that he does keep a very thick Rolodex. According to one reporter, “for most projects, Mason calls in three or so outside experts to noodle the problem, usually without each other’s knowledge [and then] picks the best solution” (Cyr 1997, p. 47). Being based in the Connecticut extension of the New York City metropolitan area gives Mason the opportunity to easily access the tacit knowledge of a large number of experts, and clearly this seems to have been an asset in his case. Similarly, Petroski (1994, p. 35) describes the extraordinary ingenuity of Jacob Rabinow,[17] a man who lived almost all of his life in the bustling industrial and commercial diversity of New York City. His creativity was greatly enhanced by living in a city where he had contact with a variety of people and their wide range of technical problems. Rabinow was able to apply the knowledge he gathered to a broader range of problems than if he had lived in a less diverse environment.Another classical type of intersectoral diffusion is that many technology transfers between industries actually take place as a result of firms adding to, or switching, their product lines. This typically happens when individuals in a firm have developed a new technique in response to a particular problem in one industry and when it later becomes apparent that this technique, or the know-how associated with it, is applicable in another industry. This is a process that defies the economists’ notion of products or well-defined industries.[18] While trying to match patent classification and SIC classification for further statistical analysis, Schmookler (1966, p. 23) made some interesting comments on this issue.

[A major] deficiency arose from the fact that I could not assign many [patented] inventions to a single industry. In part this resulted from my own ignorance, but often it reflected the interindustry character of technology. Thus, a given improvement in the diesel engine may be used in generating electricity or driving a locomotive, a given bearing may be used in a shoemaking machine or a lawn mower, and a given knife may be used in harvesting or in kitchens. In consequence, the patent statistics used below generally do not include power plant inventions, electric motors, bearings, or other instruments or materials whose industry of origin was either multiple or simply not evident. Unfortunately, this means that the railroad data do not include inventions in the field of the steam or diesel engines, and that neither the farm nor the construction data include inventions on tractors.

This phenomenon is well documented, but to this writer’s knowledge, nobody has specifically looked at the impact of local conditions on this process. Although this was not the primary focus of their study, researchers have recently begun addressing this issue in some detail in the context of the skills acquired by various Montréal firms in developing new materials and technologies for a magnetic fusion facility (Trépanier and Bataïni 1995). Thus sometimes the specific technology, but more typically the know-how that was developed in providing new components and apparatus for this particular facility, has been reused in fourteen other domains such as telecommunication, aerospace, and electronics industries. In most cases, geographical proximity was deemed crucial in the development of new technologies by providing a setting for frequent face-to-face communication between people working in various industries and in the magnetic fusion center itself and, in a later stage, by providing either local customers or a network of various technical people on which the firms could rely were they to run into particular problems in selling and implementing their new expertise outside of Montreal’s metropolitan area.After a reasonably diligent search (Desrochers 1996), I think that we can identify five frequent modes of intersectoral diffusion, although it is true that they are only variations of the combined problem-solving process involved in any creative act. Some of them occur in the diffusion of products or processes: (1) an individual working alone or for a firm[19] sells his new product or process to firms from various industrial sectors; (2) a product or process already sold to firms in many industries is improved in a specific manner, and this improvement in the product or process then benefits all the previous customers. Others occur in the production of products or processes: (a) individuals working for two or more firms from various industries collaborate to develop a new product or process; (b) a product or a process already used in one industry is noticed and picked up by an individual working in another industry, with or without the collaboration of individuals working in the industry of origin; (3) an entrepreneur/manager hires workers from another sector so that they can apply their knowledge to a new production. If there are still no detailed studies of the impact of local conditions on these processes, it seems fair to postulate that the phenomena described earlier will probably play the same role here.Without getting into the specifics of each of these modes of diffusion, the following example will provide an illustration of these processes. In the 1980s, aerospace manufacturers began using carbon composite material instead of aluminum to make tail sections, wings, noses, and fuselages. Used first in tennis rackets and skis, composite material is just as strong but typically only weighs about half as much as aluminum. But it is also far more expensive and much more difficult to handle because if the composite material is not kept refrigerated before being cut to the proper shape, the material will be wasted. Properly refrigerating a huge aircraft while in production, however, was no simple task. When production managers at Northrop began wrestling with this practical dilemma, one of them decided to call up the refrigeration specialists at Sara Lee. Not long after that, knowledge and expertise gathered through decades of refrigerating large facilities became part of modern aircraft production technology (Rothschild 1990, p. 128).Examples of this type abound, either in historical records, technical magazines, or newspapers, but although the reasons for these transfers are intuitively well understood, their timing and the circumstances that are conducive to them are still not very well documented, probably because they usually don’t leave any of the “paper trails” which social scientists are used to following. Nevertheless, they appear to be an important determinant of technological progress. One may hope that they will generate more interest on the part of students of regional growth in years to come. The final words here belong to scientist/entrepreneur/manager turned academician Ralph Landau.

 Once, in a philosophical discussion with a representative from my corporate partner . . . we examined why our relatively small research organization consistently seemed to produce extraordinary results when many other similar organizations in large companies did not, despite the obvious advantages they were offered. We attributed it in part to the fact that we had employees who lived close to the large metropolitan center of New York and who were intimately involved with global problems through the participation of the entire organization in world affairs. This gave them an extremely cosmopolitan perspective.

In private life, these people enjoyed many of the features that only a large city can offer. In fact, the kind of person who is attracted to New York is very often the kind who would not fit into the culture of a large company. For New York one can substitute few other major cities in the United States. Nevertheless, research organizations are often located on predominantly semi-rural or rural campuses where it is supposed that people can think more effectively. I have often felt that this is not always so and that the research environment for an industrial organization requires a feeling of intense energy—even pressure—and the knowledge that there are important problems that must be solved every day. (Landau 1996, p. 2)

Economic geography as an area of inquiry has enjoyed tremendous popularity in recent years, as it moved from essentially the two sides of location theory—the cost-oriented analysis of optimum plant location and the demand-oriented analysis of sales areas—to more qualitative analysis of networks of firms and the regional systems they generate. The main message emerging from the new literature is that if geography is not always a necessary condition for innovation, some environments are more likely than others to bring forth a stream of innovations. There are still, however, a number of problems with recent contributions and thus a number of reasons to believe that an Austrian perspective on regional analysis could add much to the study of these questions.Somewhat paradoxically, the new popularity of economic geography has not so much been the outcome of economic geographers and regional scientists somehow being able to market their work to a larger audience, but rather the result of a number of outsiders to the discipline who have stressed the importance of geographical space to an audience unfamiliar with these issues, often enough making a name for themselves in the process or confirming their reputation as “authentic visionaries.” Thus, few people paid attention to the “Third Italy” phenomenon before Michael Piore and Charles Sabel presented the work of Italian scholars to the world in their 1984 bestseller, The Second Industrial Divide. Clusters of innovative firms were “discovered” by many people through Harvard Business School’s Michael Porter in his 1990 Competitive Advantage of Nations. Lately, business guru Kenichi Ohmae (1995) has been praised by one Wall Street Journal reviewer for advancing the “provocative thesis” that nation-states are dinosaurs waiting to die and that there are mysterious creatures, region states, each inhabited by five to twenty million people, that have somehow emerged as real natural units. By and large, these works have been welcomed by economic geographers and regional scientists as interesting additions to their own work.The same can probably not be said about the work emanating from more mainstream economists who began “discovering” geography at the turn of the decade, mostly through the work of Paul Krugman (1991). Thus, the reviewer in the Southern Economic Journal obviously had a vocabulary problem when describing his admiration for Krugman’s “meaty ideas” such as his insight of bringing “Alfred Marshall up to date” and for making the important observation that “most localizations are not high-tech” (Khalil 1992). In what has now become a typical disclaimer, prominent mainstream economists have recently written: “The second set [of theories of international trade patterns] interacts increasing returns with transport costs to create what Krugman . . . has clubbed models of ‘economic geography’” (Davis and Weinstein 1996).The point here is not to express the frustrations of geographers and regional scientists with the recent work of mainstream economists,[20] something which has been done in much detail elsewhere (Martin and Sunley 1996; Hansen 1995), but rather to underline the fact that many economists, from the neoclassical mainstream to the various neo-institutionalist subdivisions, have admitted the value of a geographical perspective to our understanding of a market economy. Only Austrians as a group seem to have been spared the “geography fever” of recent years, although Austrian economics has recently been making some headway in regional analysis (Kirat 1993; Hite 1995). 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Évaluation des retombées socio-économiques et technologiques du CCFM. Rapport synthèse. Montréal: INRS-Urbanisation.Waldrop, M.M. [1992] 1993. Complexity. New York: Touchstone.Williams, K., T. Cutler, J. Williams, and C. Haslam. 1987. “The End of Mass Production?” Economy and Society 16, no. 3: 405–40.Wise, M.J. 1949. “On the Evolution of the Jewelry and Gun Quarters in Birmingham.” Transactions of the Institute of British Geographers 15: 57–72.Pierre Desrochers teaches geography at the University of Montreal.[1] The recent work of mainstream economists will not be discussed at length in this article, mainly because in the opinion of this writer (and of most regional scientists and economic geographers) most of it is not very original. Additional comments and references on that issue can be found in the conclusion of this article.[2] There have been many reviews of this literature in recent years. See, among others, Courlet and Soulage (1995), Garofoli (1992), Hansen (1992), Maillat (1995), Saxenian (1994), Sternberg (1996), and Storper (1995).[3] To put things briefly, most science parks which have attempted to replicate the processes that will be described in this article have been failures. See, among others, Côté (1991) and Massey et al. (1992) for a broader discussion of this topic.[4] A number of authors have pointed out that the conceptual apparatus used in the last two decades has still not been clearly defined, still lacks operational feasibility, and has often led to analytical confusion (Sternberg 1996). Storper (1992, p. 85) has even written that these concepts are sometimes so vague that they can be cut “to fit any circumstance, and that no particular factor or combination thereof corresponds to the cases.”[5] In short, the fordist mode of production, consisting of the mass production of standardized outputs using single-purpose equipment, is allegedly being replaced by newer production systems more attuned to greater demands for quality and variety, relying mostly upon flexible machine tools, programmable multi-task production equipment, just-in-time deliveries, and greater worker responsibility for work organization and quality control (Piore and Sabel 1984). For a critical look at this thesis, see Williams et al. (1987) and Gertler (1992).[6] On the relationships between economics and spatial analysis, see, among others, Hoover and Giarratani (1984), Dicken and Lloyd (1990), Coffey (1992), Mills and Hamilton (1994), Milne (1993), Feldman and Florida (1994), Scotchmer and Thisse (1994), and Hansen (1995). There are at least three theoretical traditions in spatial analysis, all of which are discussed at length in the classic textbook in economic geography (Dicken and Lloyd 1990): the neoclassical, the behavioral-organizational, and the structuro-marxist.[7] There will be a number of references to Silicon Valley in this article, but similar answers are obtained in all unplanned geographically localized industries (whether in manufacturing, financial services, entertainment, etc.). The emphasis on Silicon Valley is used mainly to illustrate that even in the industries most likely to use sophisticated means of communication, physical proximity still has some important benefits.[8] Classical articles on this topic are F.S. Hall’s Census monograph, “The Localization of Industries” (U.S. Census of 1900, Manufactures, part 1, pp. cxc–ccxiv); chapter 5 of A. Weber’s 1909 Theory of the Location of Industries; and A.P. Usher’s note on the location of industries in the 1912 U.S. Census of Manufactures. A classic analysis of the clustering of certain manufacturing industries on the basis of agglomeration economies external to the individual firm is Lichtenberg’s (1960) study of the New York metropolitan-region in which he identified eighty-seven industries dominated by external-economy factors of location. For a more colorful description of geographically concentrated industries, one can also look at some of the earliest articles (1937) of a young freelance journalist, Jane Butzner—who would later marry an architect by the name of Robert Jacobs—on the flower and diamond districts of New York City. These articles were recently reprinted in Allen (1997).[9] Marshall’s characterization of industrial districts reportedly appeared in the first edition of his Principles in 1890 (see chapter 10, book 4 of his Principles of Economics, 8th ed., 1920, for the quotations used here).[10] For example, various firms in the petro-chemical industry will cluster their installations to save on the cost of pipelines, oil ports, etc.[11] Marshall (1986, pp. 225–26) noted that this benefited both the workers and the employers:    Employers are apt to resort to any place where they are likely to find a good choice of workers with the special skill which they require; while men seeking employment naturally go to places where there are many employers who need such skills as theirs and where therefore it is likely to find a good market. The owner of an isolated factory, even if he has good access to a plentiful supply of general labor, is often put to great shifts for want of some special skilled labor; and a skilled workman, when thrown out of employment in it, has no easy refuge. Social forces here co-operate with economic: there are often strong friendships between employers and employed: but neither side likes to feel that in case of any disagreeable incident happening between them, they must go on rubbing against one another: both sides like to be able easily to break off old associations should they become irksome. These difficulties are still a great obstacle to the success of any business in which special skill is needed, but which is not in the neighborhood of others like it.[12] Thus, Detroit’s auto industry before Henry Ford and Alfred Sloan, was made up of a huge number of small firms.[13] The silk and textile district of Lyon thus fell victim in the 1960s to the French state’s campaign of economic modernization (i.e., unilateral mergers), whereas the gun district of Birmingham (U.K.) was dealt a major blow by state encouragement of mass-production in non-central areas.[14] Kealey (1996) reminds us that this is a point Adam Smith made in the Wealth of Nations.[15] This article can thus be interpreted as an attempt to clarify and elaborate on Jacobs’s work.[16] A man who, among other things, perfected the stringless Band-Aid package, the squeezable ketchup bottle, wilt-proof microwave cookware, placenta bins, double-sided acne pads, and plastic underwire supports for bras. His clients have ranged from medical entrepreneurs to Pepsico. In inventing across industries, this inventor reflects the rule rather than the exception.[17] Born Jacob Rabinovich, he produced a huge number of inventions ranging from self-regulators for watches and clocks to the automatic letter-sorting machines used by the Postal Service.[18] As the prominent mainstream economist Zvi Griliches has put it, the idea of a well-defined industry “may be a mirage anyway” (Griliches 1990, p. 1666).[19] There can, of course, be more than one individual involved.[20] Although a comment is probably worth making here. The most prominent mainstream economists involved in the “new regional economics” are also regulars of the trendiest academic think tank, the Santa Fe Institute, where they closely interact with luminaries of diverse fields (physics, cognitive psychology, computer science, etc.) (Waldrop 1993 [1992]). As might be expected, their work shows tremendous cross-fertilization of ideas from these other fields, yet some of them, such as Brian Arthur (1990) and Paul Krugman (1991), cling to the view that the regional specialization of industries is somehow the most efficient form of spatial organization. One of the few exceptions in that group is Jose Scheinkman (Glaeser et al., 1992). This probably shows that there is nothing mechanical about the cross-fertilization of ideas, and that any attempts at formalizing this phenomenon as if it was somewhat automatic is probably misguided.