Sunday, November 18, 2012

Like Phillips, Irving Fisher Was a Plumber: Hydraulic Models of the Economy!

Back in March 2011 we posted on Bill Phillips and his model of the economy. Thanks to a highlight from FT Alphaville it became one of the more popular stories that we've linked to:

"The computer model that once explained the British economy (and the new one that explains the world)"
Here's the original Phillips (he of the curve) Machine:

The Phillips Machine

The Phillips Machine. Photograph: Graham Turner 
From the headline article at the Guardian.

Here's the schematic, from the New York Times...MORE
Here's the followup, from the Conversable Economist:
Hydraulic Models of the Economy: Phillips, Fisher, Financial Plumbing 
Part of the lore of earlier economists as it was passed down to me around the campfire back in the Neolithic era  is the story of how Alban William Housego (Bill) Phillips, the originator of the famous 1956 paper that drew the "Phillips curve" tradeoff between unemployment and inflation, also built a hydraulic economic model: that is, a physical model of the economy in which flows of consumption, saving, investment and other economic forces were represented by liquid moving through tubes and pipes. What I hadn't known until more recently is that Irving Fisher also created

As a starting point for background on Bill Phillips and his famous 1956 Phillips curve paper, I can recommend the article by A.G. Sleeman called  "Retrospectives: The Phillips Curve: A Rushed Job?" which appeared in the Winter 2011 issue of my own Journal of Economic Perspectives. (Like all articles in JEP from the current issue back to the first issue in 1987, it is freely available on-line compliments of the American Economic Association.) The hydraulic computer is not the main focus of Sleeman's article, but he provides evidence that it was a major part of Phillips' career....MUCH MORE
...But until recently, I hadn't known about that Irving Fisher had also built a hydraulic model of the economy as part of his doctoral dissertation back in 1891. I learned about it in the article by Robert W. Dimand and Rebeca Gomez Betancourt in the most recent issue of my own JEP. Their article is primarily focused, as the title notes on "Irving Fisher’s Appreciation and Interest (1896) and the Fisher Relation." But in their capsule overview of Fisher's life, they write (citations and footnotes omitted)...

...I'm not aware of any working models of Fisher's hydraulic computer, nor of any photographs of a working model. But  back in 2000, William C. Brainard and Herbert E. Scarf took on the task of investigating how the model worked in "How to Compute Equilibrium Prices in 1891."  They reprint these sketches of Fisher's hydraulic computer from his dissertation. It apparently consisted of a series of cisterns, rods, floats, bellows, and tubes. It represents three consumers and three goods that they consume....MUCH MORE