It’s not what you know, but who you know and where they are

Alfred Marshall didn’t have to wait for Silicon Valley to evolve before concluding that some places are hubs of intangible knowledge. In 1890, the renowned Cambridge economist opined that “great are the advantages which people following the same skilled trade get from near neighbourhood to one another. The mysteries of the trade become no mysteries; but are as it were in the air … 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 knew that where you live and work affects what you learn and what you earn. One question that economists have struggled to answer, though, is exactly how and between whom knowledge spreads.

Marshall emphasised the spread of ideas between similar companies, but there are other plausible possibilities. Jane Jacobs, author of The Death and Life of Great American Cities, was more excited by the spread of ideas across industries, citing examples from the invention of the bra by Ida Rosenthal to the development of Scotch tape by 3M, originally a mining company.

More mundane forces could also be at work: maybe innovative cities are innovative because, with so many jobs and so many workers, it is easier for each worker to find the perfect job. City-dwellers may become smarter just because they are surrounded by some well-educated people.

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Tim, also known as the Undercover Economist, writes about the economics of everyday life.