188 ECONOMICA [JANUARY

more than would otherwise have been politically possible. This ambiguity remains in Steves
account. Thus on p. 111 he writes: Many have wondered whether the new policy was simply a
cover so that the Fed could raise interest rates while ducking direct responsibility . . . . but it is a
viewpoint that has never made much sense to me. But then on the same page, he states that: To
me, the new procedure adopted by the Volcker Fed had the great operational advantage of getting
interest rates as high as needed to restrain ination. And on the next page: In retrospect, the Fed
might have instead simply embarked on a policy of quickly raising the federal funds rate to a level
that in real terms was well above the real return on capital . . . Anyhow, raising the nominal rate at
a pace and in the sizeable steps that would have been required to achieve the desired effect was well
outside the box of Fed thinking. Nevertheless, he also continues: Adopting the money supply as
an operating target for policy certainly nessed such issues. That the empirical relationship between
money growth and eventual ination had been long studied and generally afrmed was also a great
advantage. It gave the target credibility.
The nal reason why this is an important book, though less substantial than the rst two
reasons, is that it provides a platform for Steve to present his own views and comments on a range
of monetary policy issues, not only those extant prior to 1986, when he left the Fed, but more
recently. With most of these I agree, for example that it was in practice a mistake to signal future
moves in Fed Funds rates so clearly in the years 200205, since it gave a green light to nancial
institutions to pile on extra leverage at little apparent risk. With a few others, I have some doubts.
Steve would, on balance, have let LTCM go bust. Post Lehman Brothers, I would not. Again Steve
is, to my mind, excessively concerned with the quality and liquidity of the assets on the Feds book.
But the power and role of a Central Bank derives not from the solidity of its balance sheet, but
from the fact that it is the Governments bank and that the tax, and fund-raising, power of the
Government stands behind it. What is crucial for a Central Bank is the credibility and scal
sustainability of the Government as a whole, rather than the details of its own asset holdings. If
quantitative easing and unconventional measures enhance the overall performance of the economy,
that will more than make up for some increased riskiness in the Central Banks assets.

London School of Economics CHARLES GOODHART

Complexity and Co-evolution: Continuity and Change in Socio-economic Systems. By

ELIZABETH GARNSEY and JAMES MCGLADE. Edward Elgar, Cheltenham. 2006. ix 219
pp. d65.

In 1995 John Horgan published in Scientic American a much remarked upon diatribe against
complexity theory as pseudo-science. From the vantage point of the book under review, we can
ask over ten years later whether his attack was justied. On the basis of this volume alone, one
would be tempted to say it was. Fortunately for complexity science, this impression is due mostly to
the books very poor job of representing the subject, so before passing judgment readers would be
well advised to search elsewhere for information about the successes and failures of this new
approach to social science modelling.
The book opens with a survey by the editors which, while touching many relevant bases, is guilty
of some technical errors and throws up some methodological warning signs. Thus, quoting Pavard
and Dugdale, they claim that [i]t is therefore difcult, if not impossible, to study [a complex systems]
properties by decomposing it into functionally stable parts (p. 3). Yet almost all complex systems
models I know of do precisely this: they analyse an at least two-level hierarchical system of
functionally stable parts. The authors also seem to confute nonlinearity with chaotic behaviour (pp. 5
6), while in fact low-dimensional chaotic behaviour has become less and less central to the study of
complex nonlinear systems. The proponents of at the edge of chaos theorizing even go so far as to
identify exactly those systems situated between periodic and chaotic behaviour as central to the study
of biological and social systems. And, while McGlade and Garnsey embrace formal, scientic models
based on some sort of deductive logic (p. 11) as the main concern of the book, they then immediately
back-pedal by refusing to submit to systemic models based on mechanistic prediction and quantitative
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2011] BOOK REVIEWS 189

analysis. Mechanistic seems in these quarters to be the bogeyman for formal models of any precise
kind, the alternative being models as non-formal (and non-testable) metaphors.
And gradually the cat is let out of the bag: The approach we advocate, congruent with post-
modernist concerns but rejecting intellectual nihilism, promotes a model of conceptual pluralism as
opposed to strategies based on scientic reductionism (p. 12). While it is certainly true that
complexity theory has claimed to introduce a new holism into scientic research, it nevertheless
remains reductionistic in the sense of formulating precise models and ultimately hoping to make
empirically testable statements. (Whether this represents a hegemonic scientic discourse or a
plurality of paradigms is another matter.) This turns out to be the overall failing of this book.
Rather than transcending the relatively narrow focus, directed at the functional development of
appropriate computational architectures (p. 12), with few exceptions the contributions to this book
fall behind prevailing complexity research to indulge in rather traditional social science
speculations, with some of the trappings of complexity science but little of the substance.
The second chapter by Allen, Strathern and Baldwin, is the only one that represents complexity
theorizing in any meaningful sense, relying on precisely those mechanistic models from which the editors
have just distanced themselves. Those who have followed Peter Allens work over the last forty years will
nd themselves on familiar ground. This chapter covers quite a lot of it, but provides a nice balance
between detail and salient, overarching implications. The only fault one can nd is that much of this
work is quite old (by the standards of the subject) and has already been reported on many times.
The chapter on Cities by Batty, Barros and Junior does provide an elementary introduction to
cellular automata and percolation with a view to applications to urban systems; but it never seems
to take it as far as a real model that might address a question with nontrivial empirical implications
(such as in the work on cities by e.g. Portugali 2000, Benenson and Torrens 2004 or Batty 2007
himself). Such questions immediately present themselves in the form of Zipfs law for the size
distribution of cities, or the scaling behaviour of population density around central places. And we
are left in the dark about whether the historically changing evolution of cities is the result of one
simple underlying mechanism generating the complex appearances or a succession of complex
models resulting from an until now unfathomable complexity.
McGlades chapter on la longue duree starts out by rejecting any traditional model based on
stages of development and invoking complexity theory as a viable alternative. The historical example he
then analyses, however, does not seem to benet from any explicit complexity theorizing, and in fact
seems more amenable to the classical stages thinking he has just rejected. That bifurcations or sudden
changes have taken place in the course of history is indisputable, but is in no way incompatible with a
narrative stages approach. To really inform an historical study by complexity methodology, one might
proceed along the lines of, for example, Turchin (2003, 2006), who actually formulates explicit dynamic
models of history and brings the (admittedly limited) empirical evidence to bear on them.
Chapter 5, on Restless Capitalism by Ramlogan and Metcalfe, is a wonderful read that
recapitulates Schumpeters creative destruction and a bit of Hayek in the era of the knowledge
society, but again it is largely uninformed by anything we can really call complexity theory. And
once again, it is a message many of us in evolutionary economics will have heard or read before in a
number of other venues. Chapter 6, on Industrial Resilience by McGlade, Murray, Baldwin,
Ridgway and Winder, is all boxes and arrows and a narrative that could just as well have been
written in blissful ignorance of complex systems. The same is true of the concluding chapter on
Information and Communications Technologies by Garnsey, Heffernan and Ford, which is a
rather traditional and standard narrative of recent technological and industrial history. I do not
mean to disparage these exercises, but it is rather farfetched to regard them as transcending the
mechanistic limits of complexity theorizing heretofore.
This volume is the outcome of a research consortium, and its particular structure and contents
can undoubtedly be explained only by some features of the academic funding complex system and
a mild case of fashionable post-modernism. However, if readers are interested primarily in what
complexity approaches can really accomplish in the social sciences, they would be much better
advised to consult some of the volumes in the Santa Fe Institute Studies in the Sciences of
Complexity, journals such as Advances in Complex Systems, Physica A and D or Journal of
Articial Societies and Social Simulation, and websites such as http://www.ge.infm.it/  ecph/
index.php (econophysics) and http://etss.net (evolutionary theories in the social sciences).

ICASA and University of Maastricht GERALD SILVERBERG

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190 ECONOMICA [JANUARY

REFERENCES
BATTY, M. (2007). Cities and Complexity. Princeton, NJ: Princeton University Press.
BENENSON, I. and TORRENS, P. (2004). Geosimulation: Automata-based Modeling of Urban Phenomena.
Heidelberg: Springer Verlag.
PORTUGALI, J. (2000). Self-Organization and the City. Heidelberg: Springer-Verlag.
TURCHIN, P. (2003). Historical Dynamics. Princeton, NJ: Princeton University Press.
FFF (2006). War and Peace and War. New York: Pi Press.

Competition in the Provision of Local Public Goods: Single Function Jurisdictions and Individual
Choice. By ALEXANDRA PETERMANN REIFSCHNEIDER. Edward Elgar, Cheltenham. 2006, viii
283 pp. d65.00.

The Tiebout hypothesis provides a description of what could be achieved in an ideal world with
costless mobility and an unlimited number of competing jurisdictions. The practical outcome with
costly mobility and limited jurisdictional choice can be very far from the ideal. What the book
under review considers is an idea for enhancing competition between providers of local public
goods in an urban region to try and approximate the outcome of the Tiebout hypothesis. The book
has developed out of a PhD dissertation undertaken at the University of Freiburg, Germany. It
consists of three main chapters, but the real core content is contained in just two of these.
Chapter 2 stands alone and can be dealt with quickly. It looks at the consequences of
introducing a regulation that places a maximum size upon the area of land that can be occupied by
a single household. The motivation for regulation is that private agents who extend the boundaries
of an urban region do not take into account the cost of supporting infrastructure. Consequently,
the urban region covers an inefciently large geographical area. The book notes the range of
policies aimed at reducing the use of space, and chooses to focus on the effect of a maximum lot
size. Equilibrium in the urban region is represented by a bid-rent function, with rents rising to a
maximum as the central business district (CBD) is approached, and falling to the level of the
agricultural rent at the boundary of the region. Conversely, lot sizes are smallest at the CBD and
rise until the agricultural boundary is reached. A restriction on lot size is shown to truncate the size
of lots from some distance from the CBD onwards, to make the urban region smaller in
equilibrium, and to cause the bid-rent function to kink downward at the point where the restriction
bites. By introducing a cost of urbanization an optimal lot-size regulation is derived. Interestingly,
the size of the optimal lot allowed under the restriction rises as income rises.
The major contribution of the book is developed in Chapters 3 and 4. These chapters provide a
formal analysis of proposals for functional overlapping competing jurisdictions (FOCJ). The
substance of these proposals is to un-bundle the provision of local public goods and to de-localize
the demand for local public goods. To relate these concepts to practice, it is helpful to think of a
local council as providing a bundle of local public goods to a population that must consume what is
provided by its own local council. The bundling and the (relatively) captive population provide the
council with monopoly power that can be used to extract rent and support inefciency. The only
option open to the population if dissatised with the outcome is to move to a different jurisdiction
entirely. If there are rigidities in the housing market moving can be a costly option to exercise. The
FOCJ proposal would not permit a local council to supply a bundle of public goods but would
restrict a provider to deliver only one public good. Moreover, the FOCJ proposal would allow
individuals to choose the provider who supplies them with any particular public good.
The FOCJ proposal is represented in the formal model of the book by assuming that each type
of public good is provided by a number of different suppliers, and that each supplier can provide
only one type of public good (this is the un-bundling). Suppliers compete to choose the location at
which they supply their public good, and the price at which they supply it. The population are
permitted to travel wherever they wish within the urban region to consume each public good (this is
de-localization), but incur a travel cost. The aim of the model is to determine the equilibrium
properties of such a system and to compare it to the optimal outcome.
r The London School of Economics and Political Science 2011
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