The 'Indiana Jones' of Economics

12 July 2017

Alan Bollard explains why maverick New Zealand economist Bill Phillips was worthy of a Nobel Prize.

With good reason, Dannevirke-raised Bill Phillips (1914-75) has been called the 'Indiana Jones' of economics. An inventive electrical engineer with a chequered work history – which included a spell as a crocodile hunter – and a gift for unorthodox thinking, he studied at the London School of Economics and went on to write the world's second most cited economics article. He also designed and built an ingenious 2m-high hydraulic computing machine – the MONIAC – that mimicked the intricate workings of national economies.

Phillips' biographer, and former Reserve Bank Governor, Alan Bollard talked to Knowledge editor Vaughan Yarwood about the work and achievements of one of New Zealand's most influential economists.

Bill Phillips began studying economics at a time when Britain was crippled by war debt and suffering under a severe and prolonged austerity programme. Did that experience influence what he chose to investigate?

Alan Bollard: I think it was rather the terrible experiences he had suffered during the Second World War, under attack in Singapore and in a POW camp in Java, that convinced him he needed to understand the world better. That said, life in Britain in 1946-48 was very cold, tough, and hungry.

The analogue computer that he built using pumps, valves, and Perspex seems a particularly New Zealand approach to research. What was the advantage of a hydraulic model of the economy?

Alan Bollard: Building such a computer called for mental creativity, engineering ingenuity and DIY self-help. The advantage of a hydraulic model was that you could use water as a continuous analogue of the economy, with water stocks and flows representing money circulating.

The MONIAC, as it was called, was more than a teaching and demonstration machine, wasn't it? It delivered significant new economic insights.

Alan Bollard: The MONIAC was principally an apparatus to show how the economy fitted together and how government policy worked. It was built as a demo device, a “white box” model, but it was also calibrated so that you could do measurable experiments with it. It could show how shocks might affect the economy and how fiscal or monetary policies might work, and it incorporated some very modern views about exchange rates and capital flows.

His name is forever attached to the 'Phillips curve', which mapped the relationship between unemployment and inflation. What did it reveal? And why was it so controversial?

Alan Bollard: The Phillips curve showed specifically an historical relationship between unemployment and the rate of change of money wages in Britain in the period to 1957. More generally, it was the first durable link between prices and outputs that could be used for modelling. Most controversially, it was the battleground between economists arguing whether or not there was a policy choice between suffering unemployment or suffering inflation.

Phillips was one of the first to embrace econometrics, and tirelessly sought better ways to represent the economy. Is that search at an end? Do we now have all the tools we need?

Alan Bollard: Phillips did a lot to move this forward, but the search to better represent the economy and to manage it better will never end!

Some economists consider that, had he lived longer, Phillips may well have been awarded a Nobel Prize. In your judgement, what were his major achievements?

Alan Bollard: He very likely would have received the Nobel Prize. The Annex in my book lists more than a dozen of his major economic achievements. Among them:

• World's first dedicated economic computer (1949)

• First multi-economy economic modelling (1950)

• First control theory work on economic stabilisation (1954)

• Forerunner of stabilisation policy working rules (1954-7)

• Pioneer of systems dynamics work in economics (1957)

• First economic model estimated on an electronic computer (1957)

• Only economist to model on mechanical, hydraulic analogue, electrical analogue, and digital computers

• Originator of the Phillips curve (1958)

• Pioneer of continuous time modelling (1959)

• Forerunner of rational expectations hypothesis (1967)

• Proposer of fiscal, monetary, and macro-financial policy tools for stabilisation (1968)

• One of the first mainstream economists to study China (1968)


Alan Bollard

Dr Alan Bollard is Executive Director of the Singapore-based APEC Secretariat. He is a former Governor of the Reserve Bank of New Zealand and an alumnus of the University of Auckland Business School.

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