Liquid Assets

New Zealand engineer Bill Phillips found a unique way to model a national economy in 1949: He used water. Working in his garage, he assembled a conglomeration of tanks, pipes, sluices, and valves into MONIAC, a 7-foot hydraulic computer that modeled the economy of the United Kingdom. Colored water, representing money, is pumped from a bottom reservoir to the top, where it’s distributed among taxes, consumer expenditure, and investment, then finds its way downward through the economy. The user can set “functions” that regulate the effect of national income on tax revenue, government spending on consumption, domestic spending on imports or exports, the interest rate on investment, and the exchange rate on exports and imports.

“To approximate a national economy, a ‘Federal Reserve System’ is added (from a tank through the top U-shaped pump) and bank credit is drawn to expand surplus balances when needed,” noted Fortune in a March 1952 feature. “And, if a Keynesian touch is wanted, the government can engage in ‘deficit financing’ by tapping the surplus balances to increase its own expenditures without additional taxation.”

Phillips unveiled the computer at the London School of Economics in 1949 and impressed his audience so much that he was asked to build copies for Harvard, Cambridge, Oxford, the Ford Motor Company and the Central Bank of Guatemala. Unfortunately his invention was soon outmoded by electronic computers, and today only two working “Phillips machines” remain: one at Cambridge and the other (above) at the Reserve Bank of New Zealand.

UPDATE: Yale economist Irving Fisher proposed a similar system in his Ph.D. dissertation in 1891, described by Paul Samuelson as “the best of all doctoral dissertations in economics.” Fisher used a working model of his machine as a teaching tool for 25 years. (Thanks, Sroyon.)