The analog water computer MONIAC, a rare macroeconomic demonstration model from 1949, still helps to explain how an entire economy functions. This is according to Philip Hans Franses, Professor of Applied Econometrics at Erasmus School of Economics, in an article recently published by the popular science magazine Quest.
According to Franses, the MONIAC (Monetary National Income Analogue Computer) is in fact ‘a three-dimensional representation of a macroeconomic model’, where water stands for money and the machine shows what happens when you intervene somewhere in the system. The model, developed in 1949 by New Zealand economist Bill Phillips, visualises so-called differential equations: how one quantity changes when you adjust another, for example, what happens to interest rates if the government decides to borrow more money.
He points out that such models are used throughout the economic policy world, from the Bureau for Economic Policy Analysis (CPB) to the Dutch Central Bank and the European Central Bank. The MONIAC shows only a limited number of comparisons; modern computer models contain thousands. Precisely because the device is so simple and physical, Franses argues that it makes the complex interconnections in the economy understandable to students and policymakers.
Franses compares the economy to a waterbed: removing or adding pressure in one place causes movement elsewhere. The MONIAC shows this immediately because water flows shift when “policy knobs” (sliders and taps) are adjusted. In doing so, the machine makes it clear that you can describe and steer the economy using principles from physics, he states.
However, Franses is outspoken about the limitations: the results are ‘absolutely not accurate’ and the machine is a highly stylised representation of reality. According to him, the strength of the MONIAC lies not in exact predictions, but in showing how parts of the economy are connected to one another and what effects policy choices can have in broad strokes.
Of the 14 machines built by Bill Phillips, one ended up at the Netherlands School of Economics, the predecessor of Erasmus School of Economics and Erasmus University Rotterdam. It is an absolute showpiece in the university's heritage collection and stands in the hall of Theil Building, near lecture room CB-01. The Municipality of Rotterdam donated this machine in 1953, on the occasion of the fortieth anniversary of the Netherlands School of Economics, for educational purposes.
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For additional information, please contact Ronald de Groot, Media & Public Relations Officer at Erasmus School of Economics: rdegroot@ese.eur.nl, +31 6 53 641 846.
