Technology can transform science like little else can. The MONIAC hydraulic computer, which stands for Monetary National Income Analogue Computer, was created by the great economist William Phillips while he was just a university student. The computer’s aim: to model the national economic processes of the United Kingdom. Before going into a bit more detail, it is worth putting the computer’s creation into context.
Phillips was born on the 18th November 1914, at Te Rehunga near Dannevirke, New Zealand, leaving school prematurely and moving to Australia in order to start a career. At this point in his life he had not yet developed a passion for economics so tried his hand at a few different careers, including crocodile hunting and cinema management. But none of these try-outs truly inspired Phillips. So in 1937 he moved to Japan, but escaped to Russia when Japan was invaded by China. From there he travelled along the Trans-Siberian Railway and made his way to Britain. Here he began to create a career for himself as he started to study electrical engineering in 1938. His progress was cut short as he joined the Royal Air Force at the outbreak of World War II. He was sent to Singapore but he escaped to Java when Singapore was attacked, and here he was captured by the Japanese. During his time as a prisoner of war his electrical engineering background came in handy, since he was able to repair and miniaturise a secret radio, as well as creating a water boiler for tea. He was eventually released after three and a half years.
Phillips decided to move back to London in order to study Sociology at the London School of Economics. He became fascinated by Keynesian theory,so decided to change his course to Economics, and this was where he started to develop the MONIAC Hydraulic computer
Phillips invented the MONIAC in order to demonstrate the macro (or national) economy to his students. It was a pioneering econometric computer, using water quantities and flows to simulate the flow of money through the economy. The water that was pumped around the system could show GDP, income and spending, which could be programmed in order to carry out experiments with fiscal policy, monetary policy and exchange rates.
In the model, water is pumped in as income, which is then split into two different tanks. The first tank represents taxes - a percentage of income that is taken by the Government. The MONIAC assumes that all Government revenue come through taxes. The rest of the income goes to consumers in the disposable income tank, which can either be spent or saved, depending on consumer confidence about the future stability or instability of the economy. From this point consumption, savings and taxes all flow into a domestic expenditure tank as the money is moved around the economy and spent on goods, services and investments. This then either goes straight into the national income tank or is spent on imports, meaning it leaves the economy. However, the foreign balances tank accounts for exports, which contribute to the national income of the economy.
The model was a revolutionary idea, and earned Phillips a name for himself. But by today’s standards, it can be seen as a very limited model, as it makes no account for inflation. Professor Brian Henry, a visiting fellow at the National Institute for Economic and Social Research, said, "It was a child of its time. It looked at how the economy could be stabilised when people were worried about the stabilisation of aggregate demand. That is the way things were in the 1950s. Things are different now. There is a different financial system and a completely different global economy. But Phillips was a brilliant guy. He came up with interesting ways of providing practical advice on policy." Despite being out of date, The Bank of England’s models aim to show how shocks will affect the economy and the amount of time it takes for policy measures to take effect. This is what Phillips’ computer tries to show. Even in early demonstrations of the model, it was important in showing how the economy fits together. Symbolically, at least, Phillips’s eloquent model can still teach us the following lesson: just like water flowing through a tank, economic policies must be synchronised in order to create a steady stream of economic income.
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