Can control theory save the economy from going down the tubes?

Brian Hayes in American Scientist:

In 1949, faculty and students at the London School of Economics gathered to observe a demonstration. At the front of the room was a seven-foot-tall contraption assembled out of plastic pipes, tanks, valves and other plumbing hardware. The device, later dubbed the MONIAC, was a hydraulic analog computer for modeling the flow of money through a national economy. When the machine was powered up, colored water gurgled through the transparent tubes and sloshed into reservoirs. Various streams represented consumption, investment, taxes, savings, imports and exports. Crank-wheels and adjustable cams allowed the water levels and flows to be regulated—the hydraulic equivalent of setting interest rates or tax policies. This was real trickle-down economics!

The MONIAC attracted much attention, and it lives on in folklore. Later generations of students called it the “pink lemonade national income machine.” Punch magazine tried to satirize the device, but their cartoon was really no more outlandish than the construction drawings for the machine itself. There are tales of leaks; according to one source, the machine couldn’t cope with inflation, which caused red fluid to squirt out through a hole in one of the cylinders. And then there’s the story about the Chancellor of the Exchequer and the Governor of the Bank of England; when they were given a turn at the controls, the results showed “why the U.K. economy was in the state it was.”

This is all good fun, but the MONIAC was not just a toy or a joke. It embodied a style of thinking about economic problems that may still be worth revisiting, especially at a time when real economies are leaking liquid assets at an alarming rate.

More here.