15 - The optimal control articles

Summary

Chapters 16, 17, 18 and 19 summarise Bill Phillips' early thoughts on the problems of regulating an economy. There can be little doubt that the ideas were sourced from his background and interest in electrical engineering and were essentially a transcription of the methods of ‘classical ’ control to the economic system. Concepts such as the multiplier, accelerator, real balance (Pigou) effects, etc. were used to describe the system in terms whereby the engineering concepts might be applied. These essays are still cited forty years after their publication. It is worth exploring why this is so, as few essays written in that era would have such longevity. To do so, it is useful to spell out what I perceive of as the innovations in the essays.

First, policy should not be thought of in a static but dynamic mode. This idea may seem trite but the accepted analysis of the time was largely one of comparative statics. ‘Policy’ consisted of shifting the aggregate demand curve up and down the ‘45° line’. The theoretical foundation of policy laid out in Tinbergen's (1952) classic work was also static. Where the past was recognised it was simply taken as predetermined. The objective of policy was either to manipulate instruments to hit a specified target value or to get as close as possible to this value in the event that some trade-off between targets was needed due to a lack of instruments.