A. W. H. Phillips: 1914-1975

Listener 18 November, 1978.

Keywords: History of Ideas, Methodology & Philosophy;

Bill Phillips was born near Dannevirke, 64 years ago this week. The beginnings of New Zealand’s most distinguished economic theorist were academically inauspicious, if picaresque, He left school at 15, became an apprentice engineer for the Public Works Department. and in the following 14 years had a variety of jobs (including crocodile hunting) in New Zealand, Australia and Britain, where he qualified as an engineer.

During World War II Phillips was an armaments officer in Singapore and was awarded an MBE for ‘outstanding courage’ while under attack. Following his capture he spent a debilitating three years in prisoner of war camps in Indonesia.

After his demob, he used his ex-serviceman’s grant to study Chinese and then graduated in sociology at London University. By a happy chance he also took some economics, with the result that his practical and theoretical skills and engineering training became available to that discipline.

Initially, he became known for the “Phillips Machine”, which was a hydraulic representation of an economy, built out of perspex. As befits his New Zealand and engineering background, he built the first in the garage of a Surrey friend. A number of the machines were sold to various learned institutions throughout the world. but there is not one in New Zealand. If one ever comes up, for sale, one of our museums ought to buy it.

But while today the Phillips Machines are museum pieces, their Heath Robinson status should not obscure the basic theoretical issues which Phillips grasped. In the three major fields of economics his contribution has been outstanding, and lasting.

One area, the econometric estimation of macrodynamic systems, is as formidable, and important, as it sounds. However, it is an unsuitable topic for a family journal such as the Listener, except to report it is an area where expatriate New Zealand econometricians continue the Phillips tradition of world leadership.

In a second area, Phillips almost became a household name. The “Phillips Curve”, which he discovered in 1958, has been described as the most influential and productive macroeconomic idea in the post-war era. (“Macroeconomic” is the economist’s term for the economy as a whole.) What Phillips observed was a relationship between the level of unemployment and the rate of wage inflation. Its implication seemed to be, that inflation could be controlled by setting an appropriate level of unemployment.

However, experience has shown that the Phillips Curve phenomenon is much more complex that that. Many Ministers of Finance have found this out the hard way. with high unemployment and high inflation – we call this “stagflation”. Today there would be few professional economists who would accept the simple Phillips Curve hypothesis, although it remains popular among some businessmen and politicians. The real contribution of the Phillips Curve has been the rich economic theory which has developed out of it.

Such is its importance, that had he lived Phillips may well have been nominated for a Nobel prize on the strength of it alone. It may seem contrary that something which is wrong is considered so important but, after all, we do not condemn Columbus for failing to find India.

Phillips’s third great contribution was in the area of economic modelling, particularly in terms of controlling the economy. The simple lesson of his pioneering work was that not only is it crucial to have the right policies but also that they have to be implemented at the right time. The right policy implemented at the wrong time can make the economy worse.

Alas, it is a lesson that toomany politicians have not understood. If I were limited to two words to assess almost every economic package introduced in New Zealand over the last decade, the two words would be “too late”. Political inertia and indecisiveness has been a major economic fault of our – and many other countries’ – economic management.

Bill Phillips did not become an academic until 1950, when he was 36, He was appointed to the prestigious Tooke Professorship in Economics at the London School of Economics in 1958 and to a research professorship at the Australian National University in 1967, Following a stroke. he retired to New Zealand in 1970, and devoted more time to his scholarly interest in China. including teaching a course in Chinese economic history at Auckland University. In March 1975 he suffered a fatal stroke, His wife, Valda Phillips. still lives in Auckland.

His death produced many warm tributes. Not least came from the four editors of his Festschrift a collection of essays by his academic colleagues to honour Phillips’s contribution to economics. They wrote:

New Zealanders are, however, proud of him not only because of his achievements but also because he was very much the kind of man they most admire. He was unpretentious and on the surface seemed to be an ordinary man; yet, he led no ordinary life. He was a modest man, but his modesty was based on innate self-confidence. He achieved greatness but without flamboyance, and his reputation rested on what he did, not on any gift for self-advertisement. He was an eclectic, skilled with his hands as well as his brain, enjoyed intellectual effort for its own sake and also enjoyed the finest in both Eastern and Western cultures. Finally, and most important for it is in line with the New Zealand worship of improvisation, he was an innovator who used techniques designed for one purpose to fulfil another and who, almost intuitively, seemed to reach solutions which others would have reached only by applying other men’s ideas.”