Scholars from different areas hold divided opinions on the origin and nature of cities. There are a large number of definitions, but most of them are descriptive or separately studies. No standard academic paradigm or common theoretical concept has so far been established. In recent years, studies on the institutional nature of cities have opened up a new approach. In the field of economics, studies on the nature of cities have been overlooked for ages. From the perspective of mainstream economists, cities are just a point with a high density on the space coordinates. Their main pursuit is the inclusion of space cost into the model of mainstream economics, particularly the land and transportation costs. The crucial roles division of labor and transactions and their related institution play in the origin and development of cities has long been ignored and constitutes a significant problem in urban economics. Abstract deduction and induction based on the logic of economics reveals that product specialization and trade demand constitute the most fundamental elements in the emergence and evolution of a city and that the spatial agglomeration of transactions is the spontaneous choice of human society. In the institute of aggregate transactions, transaction costs are reduced and transaction efficiency is increased (increasing returns) based on which, comparative advantages, economy of scale and agglomeration economies (externalities) come into existence and turn out to be the sustained driving force of the urban evolution. If we expand the concept of transactions into the political and social sphere and view transactions, as in accordance with Greif's view, as a basic form of human activity and also expand the scope of participants of urban transaction from firms and residents to government and social organization, then we can ascribe the prime impetus of city formation to the political, economic and social transactions. This abstractly expanded concept of transaction, and not the concept that has been used in economics for a long time and features transportation costs and aggregate economy, develops a linking bridge between separate disciplines and illustrates the political, social and economic origin of a city. Cities appear as an image of powerful space. We often see man-made city walls and buildings, man-made social fabrics, man-made enterprises and visible markets but we overlook the spontaneous agglomeration of transactions and the institutionalization of aggregate transactions underneath. The very need of saving on transaction costs generates the natural impetus of transaction agglomeration while aggregate transaction automatically generates a corresponding spatial order and institution|which make a city. Transaction does not only engender market order. As a matter of fact, the agglomeration of transactions produces another order-spatial order, namely a city. Cities and markets, in a sense, are consistent in nature. ''City, ''the spatial order featuring aggregate transactions, measures up to the so-called spontaneous order of human beings proposed by Hayek. Under this order, the space agglomeration of the core or derived transactions are followed by the creation of rules and institution. The aggregate transactions are not only conducive to tacit knowledge learning and externalities acquisition, but also bring about transaction failure such as conflict, default and disorder, which results in the need for rules. City in this sense is a complex of institutions which guarantee and give rise to transaction agglomeration.  All in all, cities are a spontaneous spatial order linked by various transaction rules, beliefs, approaches and transaction participants. It is an institution of human space fabric on the basis of saving transaction costs and realizing aggregate economy. Cities, in the process of spontaneous ordering and institutional agglomeration, are fused as a new economic, political and social organic body, taking on distinctly different appearance and features from the rural area and playing a revolutionary role in the evolution of human society.