The machine that
made the economy flow
In 1949, in London, an engineer turned economist showed his future colleagues a machine of tanks and pipes in which coloured water stood for money. Built to teach, it proved accurate enough to simulate.
An economy flowing through pipes
Bill Phillips, a New Zealander trained as an engineer, had been studying economics at the London School of Economics since 1946. He wanted to make visible the flows that textbooks describe in equations: income, spending, taxes, saving, imports. So he built a hydraulic model, the MONIAC, short for "Monetary National Income Analogue Computer" and a nod to the ENIAC computer.
The prototype appeared in 1949 in his landlady's garage in Croydon, for about £400, with scavenged parts including pieces of Lancaster bombers. Walter Newlyn, a young academic, helped assemble it over a summer. It stands about two metres high and 1.2 metres wide: transparent tanks and pipes fixed to a wooden board, with a large tank at the top for the Treasury.
Each tank is a sector of the economy, and the coloured water stands for money. Taxes send it back to the Treasury, saving drains it from the circuit, investment feeds it back in, trade with the rest of the world lets it in and out. Pumps, floats and counterweights set the flows on their own. Turn a valve to lower a tax rate and watch the level rise elsewhere; if the shock is too violent, the water spills onto the floor.
Phillips showed it in 1949 to economists at the LSE, who received it well, and he was offered a teaching post soon after. Twelve to fourteen machines are thought to have been built, some reaching universities such as Harvard, Cambridge, Melbourne or Istanbul. Phillips and Newlyn reckoned it could be calibrated to within about 2%.
Seeing a flow before computing it
The MONIAC makes a simple idea tangible: the economy is a circuit, where what leaves one tank enters another. Saving takes water out, investment puts some back, a budget policy shifts the levels. The model is taught by watching it run, and it foreshadows, in mechanical form, the computer macroeconomic simulations that central banks would later use heavily. Phillips himself would publish in 1958 his relation between unemployment and wages, which became the Phillips curve. One machine still works at the Reserve Bank of New Zealand museum, another at Cambridge.
Its limits are just as instructive. The model has no prices apart from interest rates, hence no inflation; and it needed an electric pump to run, while the energy that powers the economy was absent from it. Every model simplifies: what it leaves outside its pipes says as much as what it shows.
Every model has its pipes, and it is outside them that the economy often ends up overflowing.