Phillips, A. W. H.
Phillips, A. W. H. 1914-1975
Alban William Housego (“Bill”) Phillips was born in New Zealand in 1914. Reflecting a boyhood interest in electronics, he became an electrical engineering apprentice and then wandered through Australia and Russia during the Great Depression years. He continued to study for the Institution of Electrical Engineers examinations by correspondence, and passed the examinations in 1938. During World War II (1939–1945) he served in the Royal Air Force in Asia, where he was captured and imprisoned. His experiences in the prison camp led him to study sociology at the London School of Economics after the war. One of the required units was economics, which led to an interest in macroeconomics.
Keynesian economics, which required the study of a complete system, was then coming to the fore. Phillips recognized that there were similarities between the systems studied by engineers and those by economists. Because economists were unfamiliar with systems, he recognized the utility of having a visual demonstration of the response of a miniature economic system after it was disturbed by a shock, and of how this response might be modified. Consequently, he built a hydraulic model of an idealized economy—the “Phillips machine.” This was initially done for Leeds University, but improved models were later constructed for a number of universities around the globe. The machine was a great success, influencing many researchers, including Nobel Laureate James Meade (1907–1995). Today, simulations on digital computers have replaced the Phillips machine, but the ideas underlying it appeared in a number of Phillips’s classic papers. These emphasized the difficulties that could arise when attempts were made to control an economic system, since economic policy actions often take a long time to have an effect upon targets. In these papers, Phillips studied the performance of an economic system when policy was envisaged as being set in a (then) novel way—according to a set of rules.
After this early work, Phillips’s research focused upon examining relationships in the economic system and propounding methods for estimating the parameters that characterize them. His best-known paper determined a relation between inflation and the rate of unemployment that became known as the Phillips curve. The original curve linked the rate of wage inflation with the unemployment rate. It was transmuted into a relationship between price inflation and unemployment, particularly by Solow and Samuelson in the 1960s.
Phillips was appointed lecturer to the London School of Economics in the 1950s and rapidly rose to the position of Tooke Professor. In 1967 he moved to the Australian National University in Canberra but within a few years he suffered a stroke. Retiring to Auckland, New Zealand, he died in 1975. That Phillips’s ideas have had an enduring legacy is apparent from the structure of a very popular model used for policy discussion in central banks—the new Keynesian policy model. Two of the three equations in its closed-economy variant are a Phillips curve and an interest-rate rule for describing how interest rates are set in response to inflation and excess demand.
SEE ALSO Economics, Keynesian; Phillips Curve
BIBLIOGRAPHY
Leeson, Robert. 2000. A. W. H. Phillips: Collected Works in Contemporary Perspective. Cambridge, U.K.: Cambridge University Press.
Phillips, A. W. H. 1954. Stabilisation Policy in a Closed Economy. Economic Journal 64: 290–323.
Phillips, A. W. H. 1958. The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957. Economica 25: 283–299.
Adrian Pagan