This post discusses how the major industrialized nation-states organized to manage the transition from fixed exchange rates to the global, floating, digital trading environments that emerged in the 1970s and shaped the modern world.

President Franklin Delano Roosevelt (FDR) created Fort Knox in 1935 during the New Deal after outlawing the use of gold for private wealth holdings and as common currency. The Public Works Administration began construction of the giant vault in 1935 as fears of spreading fascism in Europe convinced him to move US-held gold from mints and treasuries along the Eastern seaboard and store them far inland and next to Fort Knox, a US military training facility that had pioneered the use of tank tactics during World War I.

As the Nazis began to conquer neighboring countries to steal their gold, much of the durable metal escaped and flowed into Fort Knox. Britain bought US military equipment and supplies, and other countries sought refuge for their metallic wealth. By the end of the war, most of the world’s gold was tucked away at Fort Knox and formed the basis for a new international currency arrangement.

As the war was coming to an end, the Allies met in Bretton Woods, New Hampshire, to iron out a new international framework for currency control and trade. The resulting 1944 agreement created the International Monetary Fund (IMF), the World Bank, and a precursor to the World Trade Organization (WTO), and the International Trade Organization (ITO). The ITO was defeated by the US Congress at the time, but the main result of the conference was an agreement to stabilize world currencies by tying the US dollar to gold at $35 an ounce and requiring trading partners to keep the value of their currencies connected to the dollar by 1-3 percent in value. This arrangement was successful but started to fall apart due to spread of dollars around the world that were circulating back to the US as a claim to the gold at Fort Knox.

When Richard Nixon shocked the world of the Bretton Wood’s gold-dollar standard in 1971, he initiated what would become a new global economy based on flexible currency exchange rates with the US dollar as the principal currency. The USD became “fiat” money, no longer tied to the promise of gold convertibility. His New Economic Policy (NEP) was partially responsible for the transition to digital currency trading as commercial financial institutions intensified their interest in the F/X markets. As the international financial system became more electronically-based and transactions escalated in scale and scope, a new regime of power emerged. However, the process was a long and often painful one.

The announcement that Nixon merely “closed the gold window,” made to a national television audience on August 15th of that year, was a rhetorical understatement meant to lessen the startlingly dramatic changes he was imposing on the world economy. Nixon was stating that the US was not going to intervene in the foreign exchange markets to manage the price of the dollar or continue to deplete US gold reserves. To give him a bargaining chip in future international negotiations, he also added a 10 percent surcharge to imports in his NEP. The move destabilized the world of fixed currency rates and ended the Bretton Woods control over international finance. It concluded what had in effect beena gold standard.[1]

The Nixon moves were strongly opposed by Japan and Western Europe, fast becoming major economic competitors due to automobiles and other cheap and attractive imports. The “Nixon Shokku” drove the value of the US dollar down and made exports into the US more expensive, increasing price inflation. He responded with charges that his economic counterparts were trading unfairly with mercantile tactics, and freeloaded off the US by failing to contribute to the NATO defense effort. The US dollar lost nearly a third of its value during the first six years after the dollar had its link to gold severed.

Nixon was also working with the OPEC countries to raise oil prices and cripple his economic foes, who were much more reliant on external petroleum production than the US. OPEC was essentially a cartel designed to managed the price of oil, which were priced the US dollar. The floating exchange rates were leading to a dramatic fall in the value of the US dollar and nations had to buy dollars first to purchase OPEC crude. Consequently, OPEC countries started to increase the price of oil.

Nixon had strong allies in the banking community who were intrigued by the profit possibilities in arbitrage, consulting, and hedging. The policy signaled a significant shift away from government control to a new, free yielding environment where US banks could break out of their highly regulated and geographically limited reins. Walter Wriston, who would later coin the term “information standard,” argued that in this new environment, his Citicorp enterprise, “ought to have a price-to-earnings (P/E) ratio of 15 to 20, typical of growth stocks, rather than a ratio of 5 to 6, which was typical of public utility companies.” In the next few years, Citicorp stock reached a P/E ratio of 25. The stock moves invigorated the banking industry as they began to move into international activities such as Eurodollar lending.[3]

To buy time to sort out the implications of the broken Bretton Woods system, the US initiated a conference via the IMF on world monetary reform. The IMF was organized around its Articles of Agreement consented to by its participating countries, although the US held a privileged place due to its overall power and dollar’s strength. The IMF set up the Committee of 20 (C-20) in 1972 to prepare proposals for a new financial regime in the wake of Nixon’s closing the gold window. The committee was made up of representatives of the twenty countries most involved in non-communist international trading and finance.

The C-20 met between 1972 and 1974 to develop a new international system that would subordinate currencies to Special Drawing Rights (SDRs), a global reserve asset created in 1969. Although SDRs allocations provided some liquidity and supplemented member countries’ official reserves, it proved inadequate to stabilize the monetary system. The C-20 broke down in 1974 over concerns about countries being forced to inflate their currencies to buy up excessive US dollars.

Concerns were raised by the Group of Ten (G-10). They had created the infamous Interim Committee that had been responsible for the ill-fated Smithsonian Agreement in December 1971. Those accords had established a new dollar-gold standard, where the currencies of many industrialized nations were again pegged to the US dollar, but at an inflated $38 an oz. A crisis ensued, and the US dollar continued to drop in value.[3]

The committee reconvened on March 25, 1973, at the White House to discuss the international monetary crisis at the invitation of US Secretary of the Treasury, George Schultz and his undersecretary Paul Volcker (later appointed as Federal Reserve Chairman). Their list included finance ministers from England, France, and Germany. Although they resolved to address the issue of destabilized currency rates, late that year, overwhelmed by the first Middle East “Oil Crisis,” the Group of Ten decided by default that exchange rates would float.[4]

The Oil Crisis, sparked by OPEC’s embargo of petroleum to the US for its support of Israel, increased widespread volatility in the foreign exchange markets. A beneficiary was a startup project by Reuters called Money Monitor Rates. A well-established news agency, Reuters created a two-sided electronic market for currency markets. It charged selling banks to list currency prices on computer monitors, while also charged buying banks to access the currency prices. The crisis helped the Reuters endeavor become profitable as currency traders valued the electronic information.

Schultz and Volcker next agreed to invite the Japanese, and the news media labeled the group the “G-5” and began to refer to the “Group of Five” meetings. The next year, two of the finance ministers became the head of government. When Valery Giscard d’Estaing from France and Helmut Schmidt from Germany became leaders of their respective countries, they attempted to elevate the meetings to include not only the ministerial, but heads of government as well.

The new group met for the first time during November 15-17, 1975 at the Chateau de Rambouillet, France.[5] At that meeting the heads of state and the finance ministers of France, Germany, Japan, the United States, and Great Britain, the G-5 prepared (some reluctantly) the Declaration of Rambouillet. They forsook a system of stable monetary rates for a “stable system of exchange rates.”[6] Instead of governments agreeing to peg currencies according to political agreements, they instead would manage the macro-environment in which foreign exchange rates would be set by market forces.

The Second Amendment to the IMF’s Articles of Agreement officially eliminated the unique role of gold and legitimized floating exchange rates in 1978. The governments of the major currencies decided to let the “markets” decide the proper exchange rates for its currencies. In the future, it would be infeasible for sovereign governments, except maybe the US, to be able to dictate the value of their money.

The next year Canada attended, and after the fall of the USSR, Russia began to participate. In the wake of Bretton Woods demise, the G-# summits played an important role in providing overall stability for the foreign exchange markets and world economy as a whole. Although America clearly led the group, and volatility was rampant, the group produced global coordination and symbolic power.[7] One of its most important roles is to solidify the notion of national sovereignty. In the age of the transnational money markets, the individual nation-state needed to be reified. That is, propped up in part to maintain the system of different currencies. Notable examples were the debt crises of the 1980s and the Asian currency crisis in 1997.

Susan Strange:

The Group of Ten developed countries, by contributing to rescue funds for troubled Asian economies, reiterated more forcefully than ever the conviction that in the modern international financial system, bankruptcy was not an option, at least, not bankruptcy in the sense that a failed business closes down, gets sold off to the best bidder or taken over lock, stock, and barrel. The appearance of an immortal, sovereign state was to be preserved—not for its own sake, but for the greater security of the world system.

The financial disruptions of the 1990s, particularly in Asia and the USSR, led to the formation of the G-20 in 1999 at the G-7 Cologne Summit. They saw the need include “systemically important countries” in the discussions about the global economy. Initially, it was the finance ministers who met every year, until George W. Bush invited the G-20 leaders to Washington DC to discuss the unfolding economic crisis.

After its inaugural meeting of the national leader’s summit in 2008, the G-20 announced in September 2009 that it would replace the G-8 as the main economic council of wealthy nations. The Obama administration pushed for the change in the midst of the Great Recession in recognition of the influence of many other countries on the global economy and the need to coordinate policy among the major countries.

The G-# summits have been held annually since that time to address a number of macroeconomic issues affecting the global political economy as well as crime, drugs, the environment, and human rights. During the 1990s, they synchronized the “global information infrastructure” and its transition to the global Internet.

Meanwhile, the financial system’s “information standard” has solidified its power as the replacement for the gold with the extraordinary increase in digital money and flows of currency. In junction with the G-#’s political power, a modicum of systemic stability and coordination keeps the world turning, as James Bond would have it.

Citation APA (7th Edition)

Pennings, A.J. (2018, Nov 11). From Gold to G-20: Flexible Currency Rates and Global Power. apennings.com https://apennings.com/how-it-came-to-rule-the-world/digital-monetarism/from-gold-to-g-5-flexible-currency-rates-and-global-power/

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Notes

[1] Greider, W. (1987) Secrets of the Temple. How the Federal Reserve Runs the Country. New York: Simon and Schuster. pp. 337-338. A very extensive treatise on the economic conditions of the 1970s.
[2] Smith, R. (1989) The Global Bankers. New York: Truman Talley Books/ Plume. p. 34.
[3] The G-10 consisted of governments of eight International Monetary Fund (IMF) members—Belgium, Canada, France, Italy, Japan, the Netherlands, the United Kingdom, and the United States—and the central banks Germany and Sweden. This group was, by default, in charge of maintaining the economic growth and stability of international currencies. Although in effect, its powers are limited, it still presented an important image of national sovereignty.
[4] Gowan, P. Global Gamble: Washington’s Faustian Bid for World Dominance. London: Verso. p. 20-21.
[5] G-7/G-8 Summits: History and Purpose. Fact sheet released by the Bureau of European and Canadian Affairs, U.S. Department of State, April 30, 1998 accessed on May 01, 2001 from: http://www.state.gov/www/issues/economic/summit/fs_980430_g8_sumhistory.html.
[6] Eichengreen, B. (1996) Globalizing Capital: A History of the International Monetary System. Princeton, NJ: Princeton University Press. I am indebted to his fifth chapter, “From Floating to Monetary Unification,” which contains a good overview of this process. Pages 136-141 were particularly useful.
[7] Peter Gowan (1999) makes a strong case for the dominance of the US in the G-7 oligarchy in his book The Global Gamble: Washington’s Faustian Bid for World Dominance. London: Verso.
[8] Strange, S. (1997) Mad Money: When Markets Outgrow Governments. Ann Arbor: University of Michigan Press. p. 9.

© ALL RIGHTS RESERVED

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Anthony J. Pennings, PhD is Professor and Associate Chair of the Department of Technology and Society, State University of New York, Korea. Before joining SUNY, he taught at Hannam University in South Korea and from 2002-2012 was on the faculty of New York University. Previously, he taught at St. Edwards University in Austin, Texas, Marist College in New York, and Victoria University in New Zealand. He has also spent time as a Fellow at the East-West Center in Honolulu, Hawaii.

Category: digital monetarism, electric money, political economy of media

Apple’s GUI and the Creation of the Microsoft’s Excel Spreadsheet Application

Posted on | October 19, 2018 | No Comments

Microsoft’s famous spreadsheet application, Excel, was originally designed for Apple’s Macintosh personal computer. This post explores the beginning years of the personal computer and its transition to its more modern interface pioneered by Apple and its Macintosh computer. This transition opened the way for new software innovations, particularly the development of the Excel spreadsheet application by Microsoft. Excel has since become the mainstay spreadsheet application in organizations around the world.

The Apple Macintosh or “Mac” was based on the Graphical User Interface (GUI, pronounced “gooey”), that was primarily developed at Xerox Parc in Palo Alto, CA. It was sometimes called WIMP for its Windows, Icons, Mouse, and Pull-down menus technology. The Apple II and IBM PC were still based on something called a command line interface, a “black hole” next to a > prompt that required code to entered and executed on. For example, to find a word or other string of characters, you would type find /V “any string” FileName at the prompt C:\>

This command line system required extensive prior knowledge and/or access to readily available technical documentation. The user needed to know the codes or copy them from a manual. The GUI on the other hand, allowed you to point to information already on the screen or categories that contained subsets of commands. Eventually, menu categories such as File, Edit, View, Tools, Help were standardized on the top of GUI screens.

A crucial issue for the Mac was good third-party software that could work in its GUI environment, especially a spreadsheet. Representatives from Jobs’ Macintosh team visited the fledgling companies that had previously supplied microcomputer software. Good software came from companies like Telos Software that produced the picture-oriented FileVision database and Living Videotext’s ThinkTank used “dynamic outlines” to capture levels of thought and promote creative thinking. By April 1985, they had sold 30,000 copies, or to about 10% of all Mac owners. However, that number was still small compared to the potential of the business world.

For the Mac to be useful for a business, Apple needed a new VisiCalc. Jobs’ longstanding relationship with VisiCorp was strained because the VisiCalc distributor was trying to develop its own “PARC-like system” for IBM PCs called Visi-On.[1] Lotus was the up-and-coming software producer and signed on with Apple to produce an ambitious spreadsheet application called “Jazz,” but the software soon ran into trouble. Steven Levy wrote:

Apple was desperate for the Macintosh equivalent to VisiCalc, something so valuable that people would buy the computer solely to run it. It had high expectations for Lotus’s product—after all, Lotus 1-2-3 had been the IBM PC’s VisiCalc—but Lotus’s Jazz turned out to be a dud. Mitch Kapor’s charges had clumsily missed the point of Macintosh. In the Lotus view, Mac was a computer for beginners, for electronic dilettantes who still clung to a terror of technology. Jazz was the equivalent of a grade school primer, an ensemble of crippled little applications that worked well together but were minimally useful. No one bought it.[2]

Other companies had partial success in creating a spreadsheet for the Mac, but part of the problem of getting a good spreadsheet for the Mac was that its screen was small and not conducive to spreadsheet work. Microsoft’s Multiplan for the Mac was an early offering. Ashton Tate produced a spreadsheet for the Mac called Full Impact that contained much of the software used in an Apple in-house spreadsheet called Mystery House. Unlike its Apple II predecessor, the Macintosh was failing to make significant inroads into a business world that was enamored with the PC and Lotus 1-2-3.

Apple’s innovative Macintosh technology did not go unnoticed by Microsoft. Microsoft was shown the embryonic Mac near the end of 1981. Apple authorized Microsoft to develop software languages and apps for the Mac GUI-based system. Gates and company had gone public in March of 1985 netting the co-founder’s 45 percent share in the company some $311 million in net worth. The young company was working secretly on their own GUI interface while continuing to develop software for the Mac. Meanwhile, Microsoft pressured Apple to give them a license for the GUI interface and threatened to stop work on the software they were producing for Apple.[3] In October 1985, Apple CEO John Scully gave in and offered them a license for the Mac GUI. But much to the ire of Apple, Gates’ company had developed their own GUI that it layered on top of its DOS operating system. In November 1985, Microsoft began to ship Windows 1.0, a DOS operating system with an awkward but much friendlier face.

The Macintosh’s initial “killer app” turned out desktop publishing that helped them develop their WYSYWIG (what you see is what you get) technology. In mid-July 1985, a company called Aldus released a final version of PageMaker. For the producers of corporate newsletters and other small publishers, the Macintosh began to show great promise. For the first time, documents could be manipulated and shown on the screen exactly as it would be published. But the WYSYWIG appearance on the screen was only minimally effective without the capacity to print what was shown. The printing solution came from another computer scientist from Xerox PARC. John Warnock had created technology called Postscript that allowed a laser printer to print exactly what was on the screen. In 1982 he created a company called Adobe that caught the attention of Apple. Jobs canceled work on other projects and bought nearly 20% of Adobe while carefully integrating their technology into the design of a new Laser printer.

Combined with applications like Pagemaker and Macpaint, the new software-print combination inspired thousands of graphic artists and painters to try the Macintosh. While Apple lost market share in the financial sphere, it became the darling of graphic designers and publishers. One casualty, however, was Steve Jobs who was ousted by CEO John Scully and the Apple board in May 1985 after Apple recorded its first-ever quarterly loss. In September, Jobs sold his shares of Apple.

The new GUI-enhanced machines presented a major challenge for the software industry. The original company that created the famous VisiCalc spreadsheet was sued by its distributor VisiCorp, formerly Personal Software, in September 1983 for failing to keep the software current. A counter-suit was filed and the legal hassles distracted software development. Consequently, the spreadsheet application never made an adequate jump to a GUI environment. Lotus Development bought out Software Arts after a chance meeting between Bricklin and Kapor on an airline flight. Soon after, Lotus discontinued VisiCalc. But Lotus also took a nosedive as its failure with Jazz was a fateful mistake, providing a crucial opening for Microsoft. Gates and company released Excel 2 for the “fat Mac” in 1985. Although it was the first version, it was numbered to correspond with the new Mac. Soon Excel became a popular spreadsheet for the Macintosh, especially after the release of Excel 2.2 for the Macintosh in 1989 that was nearly twice as fast as the original.

Microsoft went on to develop several versions of Windows, its new GUI operating system and as they got better, the Excel spreadsheet became more popular. Windows 2.0 was released in 1987 and Microsoft offered versions of Excel for Windows and for DOS that year. But both applications were awkward and did not become very popular. Apple sued Microsoft in 1988 after the release of Windows 2.01, claiming its interface design had been copied, but to no avail.

Lotus 1-2-3 had been the top-selling software product of 1989 but that was also the year the GUI gained popular acceptance within the DOS world with the introduction of Windows 3.0. The DOS-based Quattro Pro by Borland had been on the rise against the dominance of Lotus 1-2-3, but neither could resist the power of the user-friendly Excel 3.0 and the even better Excel 4.0 released in 1992. Meanwhile, Excel remained the only spreadsheet available for Windows until 1992 when Lotus countered with its Lotus 1-2-3 4.0 for Windows. But Excel 5.0 signaled Microsoft’s rise to dominance, partially because of the inclusion of the Visual Basic Programming System. Windows soon monopolized the PC desktop and Excel became its flagship business tool.[5]

Notes

[1] Visi-On information from Steven Levy’s Insanely Great. The Life and Times of Macintosh, The Computer that Changed Everything. NY: Penguin Books. p. 160.
[2] Quote on the Jazz failure from Steven Levy’s (1995) Insanely Great. The Life and Times of Macintosh, The Computer that Changed Everything. NY: Penguin Books. p. 219-20.
[3] Information on John Warnock and Postscript from (2002) Computing Encyclopedia. Volume 5: People. Smart Computing Reference Series. p. 38. Also see Levy (1995) p. 212-213.
[4] Apple vs Microsoft in Freiberger, P. and Swaine, M. (2000) Fire in the Valley: The Making of the Personal Computer. Second Edition. NY: McGraw-Hill. p. 361.
[5] Information on spreadsheet competition from Rob Clarke’s “A Formula for Success,” PC WORLD, August 1993, pp. 15-16.

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Anthony J. Pennings, PhD is Professor and Associate Chair of the Department of Technology and Society, State University of New York, Korea. Before joining SUNY, he taught at Hannam University in South Korea and from 2002-2012 was on the faculty of New York University. Previously, he taught at St. Edwards University in Austin, Texas, Marist College in New York, and Victoria University in New Zealand. He has also spent time as a Fellow at the East-West Center in Honolulu, Hawaii.

Category: digital spreadsheets, electric money, technologies of meaning
Tags: Excel > Excel 5.0 > GUI > Lotus 1-2-3 > Microsoft Excel > Mystery House > VisiCalc > VisiCorp > WIMP > WYSIWYG

Potential Bill on Net Neutrality and Deep Packet Inspection

Posted on | October 17, 2018 | No Comments

Just got this discussion draft by Eliot Lance Engel (D-NY) from one of my former colleagues at New York University and a former Verizon executive, Thomas Dargan. Eliot Lance Engel (D-NY) is the U.S. Representative for New York’s 16th congressional district that contains parts of the Bronx and Westchester County.[1] US telecommunications policy is based on the Communications Act of 1934 that created the Federal Communications Commission and established the importance of common carriage, a concept that is included in current understandings of net neutrality. Deep Packet Inspection (DPI) is the capability of Internet services providers (ISPs) to inspect and potentially discriminate against content, devices, companies, or countries.

115TH CONGRESS 2D SESSION

[DISCUSSION DRAFT]

H. R. __

To amend the Communications Act of 1934 to prohibit broadband internet access service providers from engaging in deep packet inspection.

IN THE HOUSE OF REPRESENTATIVES
—— introduced the following bill; which was referred to the Committee on ______________

A BILL

To amend the Communications Act of 1934 to prohibit broadband internet access service providers from engaging in deep packet inspection.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.
This Act may be cited as the “Deep Packet Privacy Protection Act of 2018”.

SEC. 2. PROHIBITION ON DEEP PACKET INSPECTION.

(a) IN GENERAL.—Title VII of the Communications Act of 1934 (47 U.S.C. 601 et seq.) is amended by adding at the end the following:

“SEC. 722. PROHIBITION ON DEEP PACKET INSPECTION.

“(a) IN GENERAL.—A broadband internet access service provider may not engage in deep packet inspection, except in conducting a reasonable network management practice.

“(b) RULE OF CONSTRUCTION.—Nothing in this section shall be construed to prohibit a broadband internet access service provider from engaging in deep packet inspection as required by law, including for purposes of criminal law enforcement, cybersecurity, or fraud prevention.

“(c) DEFINITIONS.—In this section:
“(1) BROADBAND INTERNET ACCESS SERVICE.—

“(A) IN GENERAL.—The term ‘broadband internet access service’ means a mass-market retail service by wire or radio that provides the capability to transmit data to and receive data from all or substantially all internet endpoints, including any capabilities that are incidental to and enable the operation of the communications service, but excluding dial-up internet access service.

“(B) FUNCTIONAL EQUIVALENT; EVASION.—The term ‘broadband internet access service’ also includes any service that—

“(i) the Commission finds to be providing a functional equivalent of the service described in subparagraph (A); or

“(ii) is used to evade the prohibitions set forth in this section.

“(2) DEEP PACKET INSPECTION.—The term ‘deep packet inspection’ means the practice by which a broadband internet access service provider reads, records, or tabulates information or filters traffic based on the inspection of the content of packets as they are transmitted across their network in the provision of broadband internet access service.

“(3) NETWORK MANAGEMENT PRACTICE.—The term ‘network management practice’ means a practice that has a primarily technical network management justification, but does not include other business practices.

“(4) REASONABLE NETWORK MANAGEMENT PRACTICE.—The term ‘reasonable network management practice’ means a network management practice that is primarily used for and tailored to achieving a legitimate network management purpose, taking into account the particular network architecture and technology of the broadband internet access service, including—

“(A) delivering packets to their intended destination;

“(B) detecting or preventing transmission of malicious software, including viruses and malware; and

“(C) complying with data protection laws and laws designed to prohibit unsolicited commercial electronic messages, including the CAN-SPAM Act of 2003 (15 U.S.C. 7701 et seq.) and section 1037 of title 18, United States Code.”.

(b) DEADLINE FOR RULEMAKING.—Not later than 180 days after the date of the enactment of this Act, the Federal Communications Commission shall issue a rule to implement the amendment made by subsection (a).

(c) EFFECTIVE DATE.—The amendment made by this section shall apply beginning on the date that is 270 days after the date of the enactment of this Act.

Notes

[1] Tom Dargan can be reached at US 914-582-8995
[2] Eliot Lance Engel (D-NY) official website.

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Anthony J. Pennings, PhD is Professor at the Department of Technology and Society, State University of New York, Korea and Research Professor at Stony Brook University. Before joining SUNY, he taught at New York University. Previously, he taught at St. Edwards University in Austin, Texas, Marist College in New York, and Victoria University in New Zealand. He has also spent time as a Fellow at the East-West Center in Honolulu, Hawaii.

Category: telecom policy and net neutrality
Tags: common carriage > Deep Packet Privacy Protection Act of 2018 > deep packets > Net Neutrality

TIME Magazine’s “Machine of the Year”

Posted on | October 10, 2018 | No Comments

The Apple II was quite a success when it was introduced in 1977 with sales of US$770,000 in its first year. Its growth over the next few years, however, was tremendous. Revenues hit $7.9 million in its second year of operation and $49 million in 1979. Its founders, Steve Jobs and Steve Wozniak, were soon multimillionaires despite still being in their early 20s. Apple’s sales were initially concentrated in the hobbyist market with recreational software such as games dominating. Another important market was education, with simulation games for teaching mathematics, music, and science, etc. Most of these programs were poor in quality though, and in both of these areas, the software industries failed to develop significantly. It was not until the business market for microcomputer software matured that demand for the smaller machines solidified and ultimately ensured Apple’s success, but not without a challenge from a similar machine – the IBM Personal Computer (PC).

Although it was not apparent at first, three software packages: databases, spreadsheets, and word processing created significant demand for the PC in the business world. In 1983, dBase emerged as the database leader with 150,000 units sold, WordStar sold 700,000 packages to take the lead among word processing software, while VisiCalc led the spreadsheet market with 800,000 units sold.[1] It was the spreadsheet though that had the most significant allure. When VisiCalc was created for the Apple II in late 1979, sales of both increased rapidly. Software Arts, who marketed and priced its VisiCalc for around $100, had sales of $11 million its first year while Apple’s sales also continued to grow, reaching to $600 million in 1982.[2] With the success of these three software areas, microcomputers were proving to be more than toys.

Until the electronic spreadsheet, the Apple II was largely considered primarily a hobby toy for “men with big beards” to control things like model train sets.[3] But VisiCalc combined the microcomputer and money in extraordinary new ways. It was the “killer app” which launched the PC revolution, but it also brought powerful new techniques of numerical analysis to the individual. Countering the prevailing notion that accounting calculations were the domain of meekish accountants and subordinate secretaries, electronic spreadsheets reached a whole new range of entrepreneurs, executives, traders, students, etc. Competition was growing though, and in 1982 it was a small company called Microsoft whose new spreadsheet called Multiplan received acclaim. The software continued to advance however, especially when a former employee of Personal Arts (a company hired to market VisiCalc) took his earnings from rights to software he developed to start his own company and create a new spreadsheet program that would dominate sales for the rest of the decade. The new software package was called Lotus 1-2-3.

Lotus 1-2-3 was a product of a new company started by Mitch Kapor. Like Steve Jobs and Wozniak, Kapor came from a bastion of military investment in computer technology, but in this case, it was Boston, not Silicon Valley. In the 1960s, he actually had the chance to learn computer programming in his high school and had built a small computer/adding machine using a telephone rotary dialer for inputting data. But also like Jobs, he was highly influenced by the counter-cultural movement, primarily a reaction to the Vietnam War. After exploring a wide variety of life experiences including teaching meditation for awhile and getting a masters degree in counseling psychology, Kapor returned to his computer roots. He went to work for Personal Arts and designed a program called VisiPlot/VisiTrend in order to increase the readability of the spreadsheet.

But after a management change he left the company. Before he left though, he received $1.2 million for the rights to his software program. Despite his counter-big business sensibilities, he took the money and started his own company called Micro Finance Systems. Their first product was called the Executive Briefing System. But before he released it, he changed the name of the company to Lotus Development Corporation in honor of a mediation practice. Soon he got venture capitalist Ben Rosen to invest in a new product that would integrate a spreadsheet and a word processor into his graphics program. After an unsuccessful attempt to produce the word processor, they added a database program and began to market Lotus 1-2-3.[4]

The success of this new spreadsheet software was tied intimately to the success of another new microcomputer, the IBM Personal Computer or the “PC.” On August 12, 1981, Big Blue introduced its personal computer based on a 4.77 MHz 8088 Intel chip with 16K (expandable to 256K) of RAM and an operating system, PC-DOS, licensed from an upstart company called Microsoft. The IBM PC came with a 5.25-inch floppy disk and room for another. Working secretly as “Project Acorn” in Boca Raton, Florida, the renegade IBM group also created expansion cards, monochrome monitors, and printers for new machine as well as a host of new software programs. The IBM PC was attractive to traditional businesses and to mainstream computer users who had previously considered the small computer little more than a toy. The availability of the spreadsheet however, turned the IBM PC into a practical business tool.

Just as VisiCalc helped the Apple II take off, Lotus 1-2-3 contributed greatly to the IBM’s success and vice-versa. The new spreadsheet package actually integrated its calculative abilities with graphics and database capabilities thus the numerical suffix on its name. For the user, it meant that not only could they do sophisticated types of calculating, they could also print the results out for business meetings, and store it as data in an organized manner. Within a year of its software release, the Lotus Corporation was worth over a $150 million. The relationship with the IBM PC was symbiotic, as Big Blue’s new little computer sold over 670,000 units were sold in its first year.[5] Lotus Corp meanwhile became the number one supplier of software as its sales revenues grew to $258 million in its third year.[6]

Lotus 1-2-3 also benefited greatly from what was arguably the deal of the century, Microsoft’s ability to license its operating system to IBM without granting it exclusive rights. Microsoft’s 1980 deal with IBM, which allowed it to sell its DOS software to other PC manufacturers meant that Lotus 1-2-3 could be used on any “IBM-compatible” microcomputer, including the semi-portable Compaq machine. Compaq was started in 1982 and set out immediately to reverse engineer IBM’s BIOS (Basic Input/Output System) in order to produce its own IBM “clone”. Soon it had developed its own microcomputer that would run the same software as the IBM PC. Compaq achieved remarkable sales of $111 million in its first year and went on to become a Fortune 500 Company.[7] Meanwhile, Lotus 1-2-3 became the most popular PC software program sold throughout the 1980s. Not unrelated, Bill Gates was on his way to becoming the richest man in the world as he made money off both the OS for the IBM PC but also each of the clones that used Microsoft’s operating system.

The personal computer was fast becoming a popular icon. By 1982 the sales of the Apple II were strong and the IBM PC was quickly gaining a piece of the rapidly growing market share. Furthermore, other companies were looking to compete and by the end of the year over 5.5 million personal computers were being used as Atari, Commodore, Compaq, Osborne, Sinclair, Tandy Radio Shack, and Texas Instruments each offered their own models for sale.[8] Another important factor for the personal computer’s popularity was its new data communication capability. Hayes successfully marketed a 1200bps modem, allowing computer users to access information services like Compuserve, Lockheed, and The Well.

The new PCs were so successful that TIME magazine decided to honor them. Originally it planned to name Steve Jobs as its “Man of the Year”. But because sales of other PCs were rising so dramatically, they changed their mind. Instead, in a January 1983 issue, TIME decided to name the “Personal Computer” its “Machine of the Year”. Although the magazine’s yearly acknowledgement generally goes to real people and was originally scheduled to go to Apple’s Steve Jobs, the dramatic sales of the IBM PC at the end of the year convinced them to change their minds.

Notes

[1] Computer: A History of the Information Machine. p. 260.
[2] Apple statistics from Rose, Frank (1989) East of Eden: The End of Innocence at Apple Computer. NY: Viking Penguin Group. p.47. VisiCalc information from Jones Telecommunications & Multimedia Encyclopedia at http://www.digitalcentury.com/encyclo/update/bricklin.html, accessed on October 24, 2001.
[3] This is a term from the documentary, Triumph of the Nerds that played on PBS during 1996.
[4] Freiberger, P. and Swaine, M. (2000) Fire in the Valley: The Making of the Personal Computer. Second Edition. NY: McGraw-Hill. p. 338-344. This section contained biographical information on Mitch Kapor and the beginnings of Lotus 1-2-3
[5] Information on IBM PC release from Michael J. Miller’s editorial in the September 4, 2001 issue of PC MAGAZINE dedicated to the PC 20th anniversary.
[6] Information on Kapor and Lotus from the (2002) Computing Encyclopedia. Volume 5: People. Smart Computing Reference Series. p. 128.
[7] Information on Compaq from (2002) Computing Encyclopedia. Volume 5: People. Smart Computing Reference Series. p. 38.
[8] Number of PCs in 1982 was accessed on December 10, 2001 from: http://www.digitalcentury.com/encyclo/update/comp_hd.html.

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Anthony J. Pennings, PhD is Professor and Associate Chair of the Department of Technology and Society, State University of New York, Korea. Before joining SUNY, he taught at Hannam University in South Korea and from 2002-2012 was on the faculty of New York University. Previously, he taught at St. Edwards University in Austin, Texas, Marist College in New York, and Victoria University in New Zealand. He has also spent time as a Fellow at the East-West Center in Honolulu, Hawaii.

Category: digital spreadsheets
Tags: Lotus 1-2-3 > Mitch Kapor > Multiplan > VisiCalc

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