On this day in economic and business history ...
"At some point in the early 21st century, all of mankind was united in celebration. We marveled at our own magnificence as we gave birth to AI." -- Morpheus, from The Matrix, written by Larry and Andy Wachowski.
It wasn't marked with quite the same display of celebratory unity Morpheus envisioned, and it arrived a few years early, but a major turning point in the development of artificial intelligence occurred on May 11, 1997. That day, an IBM (NYSE:IBM) purpose-built supercomputer named Deep Blue became the first machine to ever defeat a reigning chess world champion in a tournament series. Deep Blue had previously taken two game wins in a 4-2 loss, but after heavy upgrades to hardware and programming, the new Deep Blue (Deeper Blue?) defeated Garry Kasparov 3.5 to 2.5, with two wins and three draws -- draws counting as half a point.
The upgraded Deep Blue was so narrowly focused that it's hard to call it anything other than single-use AI, as Wired recounts:
Deep Blue, reprogrammed using the input of several grandmasters and a detailed analysis of Kasparov's previous games, was tailored specifically to defeat the Russian champion. The 1997 version of Deep Blue was capable of making any one of 200 million moves per second, although Kasparov said afterward that he caught the computer making a humanlike mistake in move 44 of the second game. ...
The dethroned champ demanded a rematch, but IBM -- having reaped the desired publicity -- declined, and Deep Blue was retired.
Years later, one of Deep Blue's designers admitted that the most notable move of the whole match, one that Kasparov thought showed evidence of human response, was the result of a bug. More recently, IBM has moved on to better AI, most notably the Watson computer best known for a dominating Jeopardy! victory over two of that game's best players. Chess programs have also continued to advance. In 2006, a chess program known as Deep Fritz beat then-reigning champion Vladimir Kramnik while running on a dual-processor consumer PC. Will we, as dethroned Jeopardy! champ Ken Jennings put it in his futile (but humorous) final answer, "welcome our new robot overlords"? Or will the next generation of AI come to be seen as something far more sinister -- like 2001's HAL-9000, itself connected to IBM through the filmmaker's design cues?
Lovely Spam, wonderful Spam
Hormel (NYSE:HRL) first registered the trademark for Spam (a spiced ham in a can, if you've been living under a rock these past few decades) on May 11, 1937. The product has been a big hit for Hormel, particularly on the Pacific Rim -- Hawaiians eat 7 million cans per year, Southeast Asians give Spam gift packs as wedding presents, and a restaurant called the Spam Jam (serving nothing but spam, of course) emerged in the Philippines to capitalize on the national taste. I wonder if the menu at the Spam Jam reads like the dialogue to that Monty Python sketch that launched the term into the cultural zeitgeist. "I'll have Spam, Spam, Spam, Spam, Spam, baked beans, Spam, Spam, and Spam."
Hormel has diversified in more recent years, so Spam now accounts for only about 6% of its revenue, but its value as cultural shorthand for "mass-emailed message of dubious provenance" is invaluable. Did you know that the first example of Internet spam occurred in 1994? Clean out your inbox and celebrate a brief respite from email spam with a can of Spam.
From depression to Great Depression
The great Austrian bank Credit-Anstalt, or CA, collapsed on May 11, 1931. A last-minute injection of $23 million by the Austrian government couldn't save the bank. When it failed, it pulled a struggling global economy beneath the waves with it, leading to repercussions that would have deadly consequence for millions around the world.
Peter Coy writes in Businessweek:
Founded by the famous Rothschild banking family in 1855, Credit-Anstalt was one of the most important financial institutions of the Austro-Hungarian Empire, and its failure came as a shock because it was considered impregnable. The bank not only made loans; it acquired ownership stakes in all kinds of companies throughout the sprawling empire, from sugar producers to the new automobile makers. Its headquarters city, Vienna, was a place of wealth and splendor, famous for its opera, balls, chocolate, psychoanalysis, and the extravagant architecture of the Ringstrasse. The fall of Credit-Anstalt -- and the dominoes it helped topple across Continental Europe and the confidence it shredded as far away as the U.S. -- wasn't just the failure of a bank: It was a failure of civilization.
The Economist's Buttonwood column has more detail on the collapse:
Acting as lender of last resort, the Austrian central bank increased the money supply by 20% virtually overnight. However, far from restoring confidence, this caused a run on other Austrian banks and on the currency; the national bank lost more than a third of its gold reserves. An international rescue effort was able to lend Austria just $15 million, less than half the gold lost.
A grinding bear market in the United States had already shaved 60% off the value of the Dow Jones Industrial Average (DJINDICES:^DJI) by the time CA collapsed. From then on, incredibly, the Dow would plunge another 72%, bottoming out in 1932 at a depth that had not been plumbed in three decades. The period after CA's collapse roiled financial markets both in Europe and in the United States. An enormous amount of deleveraging followed -- by the end of 1931, American and European banks held 36% less gross debt than they'd carried at the end of 1930. Total bank deposits shriveled for years, after a brutal international bank run en masse that saw double-digit percentage declines in the reserves of banks in the U.S., Germany, Hungary, Italy, and Spain (among others). Germany and the U.S. did not reverse the outflow of deposits until 1934, a year after earth-shaking elections in both nations.