In 1949 Walter Newlyn returned to London on a visit to LSE, and met Bill there. The latter was very excited to talk: he had just written his first economics paper, and he was keen to show it to Newlyn. It was plainly entitled: Savings and Investment, Rate of Interest and Level of Income. Newlyn’s wife Doreen writes: ‘That seminal paper of Bill’s, typed by him on an old manual typewriter, five pages of flimsy foolscap wartime paper, yellowed by age and Bill’s cigarettes, given by him to Walter, still exists’.

This paper showed that Bill was thinking as an economist about how to represent an economy, and as an engineer his focus was on the stocks and flows of both commodities and money. He worried that a trad- itional diagram could not show this properly as stocks and rates of flow are not as easily compared as, for example, distance and speed. ‘The process can however, be illustrated by a hydraulic analogy, as in K. Boulding, Economic Analysis’.

This is Bill’s first reference to a hydraulic mechanism. He illustrated the idea with a flow diagram which suggests that he may have had a working model in mind, although there is no mention of building a machine at this stage. The last part of the paper is about the rate of interest and level of income. Applying the hydraulic analogy to classical theory, Bill demonstrated that the preference for liquidity is entirely determined by flows, while applying it to Keynesian theory he could show it would be entirely determined by stocks.

One of Walter Newlyn’s contributions was to help Bill think of this system not simply as a market-equilibrating mechanism (as in Irving Fisher’s model), but as a complete macroeconomic system.

Newlyn recognized immediately from the diagram in the paper that Bill had in mind a mechanical model, using water flows as a way of demonstrating the effects of changes via a set of simultaneous equations. Newlyn was interested in this. He asked whether it might be possible to build a machine that could be used as a teaching aid. Bill replied that he probably could construct such a machine.

Newlyn thought it surprising that Bill had not used the synthesis by Oxford economist John Hicks, known as the IS-LM framework, and he concluded that Bill’s subsidiary courses in economics had not yet covered this. The Hicks framework could show how to interconnect demand and supply for money and goods. Once he had heard about this approach, Bill Phillips realized it would be an obvious way to organize his model. Newlyn was now rather excited: might it be possible to extend this to a full model of the economy? Bill’s insights on savings and investment could be taken further to include government and external sectors making up a full macroeconomy.