When Money Flowed Like Water
This article profiles a computer created nearly fifty years ago that used liquid data to model the economy.
Published September 1995
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COMMENT ON THIS ARTICLENearly fifty years ago, a novel computer used liquid data to model the economy
When most people hear the word computer, they think of a PC. Those in the industry are likely to think of a large fridgelike cabinet whirring away in a special room. To a 19th-century mathematician, a computer was not a machine but a person who performed calculations. In fact, there are instances of that usage as recently as the mid-1950s, when electronic computers were still far from commonplace. In those days, marrying your computer was not the bizarre action it would be today. But whatever image the word computer conjures up, it is not likely to resemble the Phillips machine -- a large contraption of Perspex (clear plastic) pipes and tanks in which colored water sloshes around.
The machine, conceived and designed by Bill Phillips (1914-1975), a New Zealand-born engineer turned economist, was created to model income flow in a national economy. The prototype caused a minor sensation when it was first demonstrated at the London School of Economics, in November 1949. The bizarre device stood nearly seven feet high and five feet wide. Rube Goldberg would have been pleased. Certainly professors of economics were impressed.
In the Phillips machine the flow of water through the plastic pipes represents the movement of money in an economy, and the collection of water in various holding tanks represents the accumulation of money in an economy. For example, savings reduce the funds consumers can spend, while the income from investments increases those funds. The Phillips machine shows this by siphoning off "savings" from the expenditure stream and injecting "investment income" into that stream. When the savings flow exceeds the investment flow, the level of water in the savings and investment tank -- the surplus-balances tank -- rises to reflect the accumulated balance. When the investment flow exceeds the savings flow for any length of time, the surplus-balances tank runs dry.
In a nutshell, the machine is a hydromechanical analog computer designed to demonstrate the effects on total national income of government taxing and spending, consumer saving and investment, and imports and exports. The process is circular. Water is pumped to the top of the machine and then cascades down a central column. Taxes, savings, and imports are siphoned off into separate loops. Some part of each element rejoins the main flow as government expenditures and the income from private investment and exports. The net flow at the bottom of the central column accumulates in a tank. It represents the minimum working balances required for a given level of economic activity and is duly pumped back into the system, starting the cascade and flow all over again.
The strength of the model is in the interaction of economic factors. Rates of taxation and levels of investment and foreign trade can be altered by setting valves and sluices. More subtly, the accumulation of money (represented by the level of water in each tank) controls flows elsewhere in the system by automatically altering the settings of valves. If the settings represent a viable economy, the model stabilizes and the results can be read from scales calibrated to an accuracy of 4%. The dynamic changes between one equilibrium state and another are also modeled and drawn automatically by cord-driven pen plotters. Small wonder the professors were impressed.
