Modest achieverby Brian Easton
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Real economist have (Phillips) curves.
Economists from all over the world are meeting in Wellington over the next couple of weeks to celebrate New Zealander Bill Phillips and the paper he published 50 years ago. This paper introduced what is universally known as the Phillips Curve.
It can be hard for one profession to get across the significance of its giants, except by comparison. So, yes, there are parallels between Phillips and Sir Ed Hillary, including the modest "aw shucks, someone else would have done it anyway" attitude.
What I admired most about Hillary was that he did not stop after his summit of Everest or the rush to the South Pole. He used the leverage of his success to improve the welfare of the Sherpas in Nepal. Hillary probably didn't even think of it this way. It was simply something he could do to make the world a better place.
Phillips was so modest that only his intimates could judge his achievement at the time. He said another economist would have discovered the Phillips Curve - but did not mention he had posited its existence more than four years earlier or that there is a very subtle bit of theory required to identify it.
The Phillips Curve relates the rate of inflation to the amount of activity in the economy. It connects the changes in wages or prices with the level of under-used productive capacity (such as unemployment).
Aw shucks, that is so obvious. But it wasn't; not until he sorted it out. In fact, as a student, he sorted out the conceptual issue for his teachers. There was only a seven-year gap between his first degree and his taking up the prestigious Tooke Chair at the London School of Economics.
To get his notions across, Phillips- built a computer. There were no electronic computers then, so the MONIAC (Monetary National Income Analogue Computer) was a physical representation of an economy whose money flows were represented by water. You can see the very first one (of about a dozen he built) at the Reserve Bank Museum in Wellington, across from Parliament. An exhibition (which I curated) is currently on show there and covers all Phillips' achievements.
Building such machines involved not just careful thought but dextrous manual skills - and Phillips had them. He made gadgets as a boy, redesigned aircraft guns during World War II, mounted a gun on his troopship to stave off strafing planes, and secretly built radio receivers in his Japanese prisoner-of-war camp from whatever he could acquire.
It's the No 8 fencing wire skill that was (and, in some ways, remains) so integral to the New Zealand character. Hillary had it, too; so did Ernest Rutherford.
In this day of billion-dollar atom crackers, we forget both the sheer simplicity of Rutherford's experiments and their extraordinary theoretical depth. Rutherford famously said, "We don't have the money so we have to think." Phillips would have understood.
The Rutherford-Bohr atom is perhaps Rutherford's greatest achievement, but he knew right from the beginning that though it resolved some problems, there were others, and his model would be replaced by an improved version.
Phillips knew that about his theory, too. Apparently, he set out the problem that a decade later led to the "inflation-augmented Phillips Curve" for which Edmund Phelps was awarded the Nobel Prize in Economics in 2006.
Unlike Rutherford and Phelps, Phillips did not become a Nobel laureate; he died too early (in 1975 at age 60) to receive one. But like other very important economists, he will be remembered long after some laureates are forgotten. Most central banks today (including ours) that are concerned with inflation still use an -analysis based on his original insights.
Rutherford is on the $100 note and Hillary on the $5 one.
Phillips should be on one, too. Perhaps on the $200 note - although if we learn from the economic modelling he taught us, it may be very many years before we need it.
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