develop models of the economy. These simplified or stylized versions of the real thing are similar in concept to architects’ models of buildings. An architect’s model does not try to capture every detail of the actual building – very few have running water or working miniature coffee machines – but they give a good idea of what the full-sized building will look like. Economic models try for something similar. Disappointingly, however, when economists say they are building a model of the economy, this does not mean they are getting out the hardboard, sticky-backed plastic and papier-mâché. Models of the economy are usually linked sets of mathematical equations that churn away in the recesses of computers. One of the exceptions, still in existence at the Science Museum in London, was built at the London School of Economics.
In the late 1940s A. W. ‘Bill’ Phillips was a New Zealander in his early thirties who had emerged from a Japanese prisoner-of-war-camp (Laurens van der Post, Prince Charles’s mentor, was a fellow prisoner). Phillips had suffered near starvation, as was obvious to fellow students when he came to study at the LSE. He also had difficulty understanding what he was being taught and in particular the flow of money around the economy. So, using Perspex tubes, levers, pulleys and windscreen-wiper motors scavenged from a wartime plane, he built a model of it. It was and is a device of extraordinary complexity. Not only was it a fully working hydraulic model showing money (water) flowing around the system but it also provided a primitive printout, as a pen attached to the machine plotted the results. When Phillips demonstrated the machine to a sceptical LSE audience in 1949 by pouring in red liquid at the top to demonstrate the effects of adding cash to the economy, there was general acclaim. The model, conceived in an age when computers were still the stuff of science fiction to most people, could simulate the effects of, say, cutting taxes or boosting government spending. Punch , the humorous magazine, said a Phillips machine should be installed in every town hall in Britain. ‘The machine is taller than the man in the street and wider and heavier and much, much cleverer,’ it said. ‘Using coloured water (a convenience denied the man in the street) it reacts obediently to every morsel of economic information communicated to it, and records, with its mechanical pens on its calibrated charts, the subtle impact of a slump in the second-hand ship market, the slightest hint of a boom in soap, emery wheels or white fish.’ Phillips did not make one of his machines for every town hall but he did make fourteen of them. The Ford Motor Company bought one, and so did Harvard. Phillips went on to become an influential economist. Computers, initially bigger and more unwieldy than his machine, took over the job of running models of the economy – which was a pity.
Anyway, let me return to the question of trying to pin the economy down a little more closely.
Adding it all up
Until about 100 years ago, economists knew, or thought they knew, what the economy was but they had no means of measuring it. When William Gladstone was Chancellor of the Exchequer in the nineteenth century he had no difficulty in finding things to talk about. Most modern Chancellors manage to get through their annual Budget speeches in about an hour. Gladstone made one last more than four hours, and this was without the benefit of the kind of macroeconomic statistics regarded as essential today. Britain’s Central Statistical Office, now called the Office for National Statistics, was not set up until 1941, because at the time it was recognized that there was an urgent need for accurate and timely statistics on production, particularly of munitions, and of the supply–demand situation for scarce food. During the war Britain effectively became a command economy, with 70 percent of it government controlled but the statistical
In the late 1940s A. W. ‘Bill’ Phillips was a New Zealander in his early thirties who had emerged from a Japanese prisoner-of-war-camp (Laurens van der Post, Prince Charles’s mentor, was a fellow prisoner). Phillips had suffered near starvation, as was obvious to fellow students when he came to study at the LSE. He also had difficulty understanding what he was being taught and in particular the flow of money around the economy. So, using Perspex tubes, levers, pulleys and windscreen-wiper motors scavenged from a wartime plane, he built a model of it. It was and is a device of extraordinary complexity. Not only was it a fully working hydraulic model showing money (water) flowing around the system but it also provided a primitive printout, as a pen attached to the machine plotted the results. When Phillips demonstrated the machine to a sceptical LSE audience in 1949 by pouring in red liquid at the top to demonstrate the effects of adding cash to the economy, there was general acclaim. The model, conceived in an age when computers were still the stuff of science fiction to most people, could simulate the effects of, say, cutting taxes or boosting government spending. Punch , the humorous magazine, said a Phillips machine should be installed in every town hall in Britain. ‘The machine is taller than the man in the street and wider and heavier and much, much cleverer,’ it said. ‘Using coloured water (a convenience denied the man in the street) it reacts obediently to every morsel of economic information communicated to it, and records, with its mechanical pens on its calibrated charts, the subtle impact of a slump in the second-hand ship market, the slightest hint of a boom in soap, emery wheels or white fish.’ Phillips did not make one of his machines for every town hall but he did make fourteen of them. The Ford Motor Company bought one, and so did Harvard. Phillips went on to become an influential economist. Computers, initially bigger and more unwieldy than his machine, took over the job of running models of the economy – which was a pity.
Anyway, let me return to the question of trying to pin the economy down a little more closely.
Adding it all up
Until about 100 years ago, economists knew, or thought they knew, what the economy was but they had no means of measuring it. When William Gladstone was Chancellor of the Exchequer in the nineteenth century he had no difficulty in finding things to talk about. Most modern Chancellors manage to get through their annual Budget speeches in about an hour. Gladstone made one last more than four hours, and this was without the benefit of the kind of macroeconomic statistics regarded as essential today. Britain’s Central Statistical Office, now called the Office for National Statistics, was not set up until 1941, because at the time it was recognized that there was an urgent need for accurate and timely statistics on production, particularly of munitions, and of the supply–demand situation for scarce food. During the war Britain effectively became a command economy, with 70 percent of it government controlled but the statistical
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