Using '40s technology to predict how policies affect our economy

How can you predict the effect of monetary policy on the economy? Apparently, the answer has been around since the ’40s!

Back in late 1940s a very clever engineer and economist from New Zealand, Alban William Housego ‘Bill’ Phillips created a computer to simulate changes to the economy caused by changes in monetary policy.

Fair enough, you say.

But this computer was not a digital, electronic computer as we know them today. It was an analogue hydro-mechanical computer.

Hydraulic? That’s right, it was based on the dynamics of WATER.

Called MONIAC (Monetary National Income Analogue Computer), it looked like a cross between a computer and a shower alcove but was a highly effective way of showing the ‘flow’ of money. Only about 12 were ever made and there are still a couple of working examples today.

Of course, modern computer macroeconomic simulations can be much more accurate and complex – but the MONIAC did a great job of showing how these economic levers affect different parts of the economy.

Check out the video for a short demonstration of the MONIAC- it’s probably one of the best illustrations/explanations of macroeconomics you’ll ever see.

Nowadays, economic information, such as that found in economy.id, is generated by using complex computer enabled microsimulation models. It is recognised that local economies are influenced by numerous different individual factors which means that macroeconomic trends will influence no two regions in the same way. In fact, the National Economics (NIEIR) models used for economy.id contain over 400,000 variables at the local level to provide the best estimates possible.

The MONIAC was a breakthrough for economists looking at how macroeconomic changes would affect the national economy. But if you’d like to take a closer look at your own local economy – we recommend economy.id, which uses the microsimulation model developed by National Economics (NIEIR).

By the way – there’s still a MONIAC on display in Melbourne if you would like to see it – it’s at the University of Melbourne, in the lobby of the Giblin Eunson Library (1st Floor, Business and Economics Building, 111 Barry St, Carlton. Read more here.

.id is an eclectic bunch of demographers, economists, spatial analysts, and data experts who take an evidence-based approach to understanding places using demographic and economic informatio