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ols59711_fm.qxd 10/28/05 5:34 PM Page i

Introduction
to Business
Data Mining
ols59711_fm.qxd 10/28/05 5:34 PM Page viii

Preface
The intent of this book is to serve advanced undergraduate and graduate classes
presenting data mining. Data mining is a very useful topic, applying quantitative
analysis to large-scale data made available through recently developed informa-
tion technology. Each of us has taught such material, and we both have extensive
experience in quantitative analysis in business. Yong Shi also has extensive real
experience in commercial data mining analysis. We want to take this opportunity
to acknowledge the graduate students at the University of Nebraska at Omaha,
Gang Kou, Nian Yan, and Wei Zhuang, who helped us prepare the data mining
reports by using computer software for this book.

Book Concept
Our intent is to cover the fundamental concepts of data mining, to demonstrate the
potential of gathering large sets of data and analyzing these data sets to gain use-
ful business understanding. We have organized the material into four parts. Part I
introduces concepts. Part II describes and demonstrates basic data mining algo-
rithms. Part III focuses on business applications of data mining. Part IV presents
developing areas, including web mining, text mining, and ethical aspects of data
mining. Part I is overview material. Part II contains chapters on a number of dif-
ferent techniques often used in data mining. Not all of these chapters need to be
covered, and their sequence can be varied according to instructor need. Part III cov-
ers applications, and while we feel that these chapters contain the most interesting
and important material, instructors who wish to focus on techniques might not
wish to cover these chapters. Conversely, instructors more interested in business
applications can cover Part III before reviewing content as needed in Part II. This
approach would work especially well if data mining software is available to do the
modeling. Part IV contains material we feel is important now and is growing in
importance. However, again, coverage and sequence is up to the instructor.
The book includes short vignettes of how specific concepts have been applied
in real business. A series of representative data sets are generated to demonstrate
specific methods and concepts. References to data mining software and sites such
as www.kdnuggets.com are provided.
Supplements accompanying this text include (1) an instructor’s CD-ROM,
containing a solutions guide, PowerPoint slides, and the data set; (2) a student’s
CD-ROM, containing PowerPoint slides and the data set; and (3) an online
learning center.

Part I: Introduction
Chapter 1 gives an overview of data mining and provides a description of the data
mining process. An overview of useful business applications is provided. Chapter 2
presents the data mining process in more detail. It demonstrates this process with a
typical set of data. Visualization of data through data mining software is addressed.
Chapter 3 presents database support to data mining. Different software tools are
described, from data warehouse products through data marts to online analytic
viii
ols59711_fm.qxd 10/28/05 5:34 PM Page ix

Preface ix

processing. Data quality is addressed. Again, different concepts are demonstrated

through prototypical data.

Part II: Data Mining Methods as Tools

Chapter 4 provides an overview of data mining techniques and functions. Chapter
5 describes and demonstrates clustering algorithms. Software product support
available is reviewed. Chapter 6 reviews various forms of regression tools to identi-
fy the best fit over given data sets. Chapter 7 discusses neural networks, a popular
application of artificial intelligence suitable for many data mining applications.
Chapter 8 reviews decision tree algorithms. The basic algorithm is described, along
with descriptions of tree structure, machine learning, and fuzzy set aspects of deci-
sion trees. Software products are reviewed, and See5 is demonstrated. Chapter 9
presents linear programming-based methods of fitting data. Real data mining appli-
cations are described and demonstrated.

Part III: Business Applications

Chapter 10 reviews the major applications of data mining in business, focusing on
the value of these analyses to business decision making. This includes the impor-
tant topics of customer relationship management. The concept of lift is described.
The development of market segmentation by Fingerhut Inc. is reviewed. Chapter
11 describes market-basket analysis, a more qualitative data mining technique.
This methodology is described through an example reported in the practitioner
literature, and the fundamental data mining concepts of actionability, affinity
positioning, and cross-selling are described.

Part IV: Developing Issues

Chapter 12 presents text and web mining. Chapter 13 discusses ethical issues
related to data mining.
David L. Olson, University of Nebraska–Lincoln
Yong Shi, University of Nebraska–Omaha
ols59711_fm.qxd 10/28/05 5:34 PM Page x

Brief Table
PART ONE 8 Decision Tree Algorithms 135
Introduction 1 9 Linear Programming–Based
1 Initial Description of Data Mining in Methods 164
Business 3
2 Data Mining Processes and Knowledge PART THREE
Discovery 19 Business Applications 187
3 Database Support to Data Mining 34 10 Business Data Mining
Applications 189
11 Market-Basket Analysis 211
PART TWO
Data Mining Methods as Tools 51
PART FOUR
4 Overview of Data Mining Developing Issues 223
Techniques 53
12 Text and Web Mining 225
5 Cluster Analysis 73
13 Ethical Aspects of Data Mining 250
6 Regression Algorithms in Data
Mining 99
GLOSSARY 261
7 Neural Networks in Data
Mining 122 INDEX 265

x
ols59711_fm.qxd 11/3/05 4:33 PM Page xi

Contents
PART ONE Data Warehouse 41
Data Mart 42
INTRODUCTION 1
OLAP 42
Data Quality 44
Chapter 1
Software Products 45
Initial Description of Data Mining in Real Examples 46
Business 3 Wal-Mart’s Data Warehouse System 46
Introduction 4 Summers Rubber Company Data Storage Design 46
What Is Needed to Do Data Mining 5 Summary 48
Data Mining 5
Focused Marketing 7 PART TWO
Business Data Mining 8 DATA MINING METHODS
Retailing 8 AS TOOLS 51
Banking 9
Credit Card Management 9 Chapter 4
Insurance 10 Overview of Data Mining Techniques 53
Telecommunications 11
Telemarketing 12 Data Mining Models 54
Human Resource Management 13 Data Mining Perspectives 55
Data Mining Tools 13 Data Mining Functions 56
Summary 14 Demonstration Data Sets 57
Loan Application Data 58
Chapter 2 Job Application Data 59
Insurance Fraud Data 60
Data Mining Processes and Knowledge Expenditure Data 62
Discovery 19 Appendix: Enterprise Miner Demonstration
CRISP-DM 20 on Expenditure Data Set 63
Business Understanding 21 Data Partitioning 63
Data Understanding 21 Regression Modeling 64
Data Preparation 22 Decision Tree Modeling 68
Modeling 24 Neural Network Modeling 69
Evaluation 26 Summary 70
Deployment 27
Knowledge Discovery Process 27 Chapter 5
Summary 31 Cluster Analysis 73
Cluster Analysis 74
Chapter 3 Description of Cluster Analysis 74
A Clustering Algorithm 75
Database Support to Data Mining 34
Insurance Fraud Data 75
Data Warehousing 35 Weighted Distance Cluster Model 79
Data Marts 36 Varying the Number of Clusters 79
Online Analytic Processing 37 The Three-Cluster Model 83
Data Warehouse Implementation 38 Applications of Cluster Analysis 83
Metadata 40 Monitoring Credit Card Accounts 84
System Demonstrations 41 Data Mining of Insurance Claims 84
xi
ols59711_fm.qxd 11/3/05 4:33 PM Page xii

xii Contents

Clustering Methods Used in Software 85 Machine Learning 138

Application of Methods to Larger Data Sets 86 Decision Tree Applications 143
Loan Application Data 86 Inventory Prediction 143
Insurance Fraud Data 87 The Mining of Clinical Databases 144
Expenditure Data 89 Software Development Quality 144
Software Products 91 Evaluation 146
Appendix: Clementine 91 Application of Methods to Larger Data Sets 147
Web Plot 92 Loan Application Data 147
Summary 96 Insurance Fraud Data 151
Job Application Data 152
Chapter 6 Decision Tree Software Products 153
Regression Algorithms in Data Mining 99 Appendix: Demonstration of See5 Decision
Tree Analysis 154
Regression Models 100 Data Cleaning 154
Classical Tests of the Regression Model 103 Data Mining Process 155
Multiple Regression 104 Summary 160
Logistic Regression 107
Linear Discriminant Analysis 109
Discriminant Function for Loan Data 109
Chapter 9
Job Applicant Data 110 Linear Programming–Based
Real Applications of Regression in Data Methods 164
Mining 113 Linear Discriminant Analysis 165
Stepwise Regression in Bankruptcy Prediction Multiple Criteria Linear Programming
Models 113 Classification 168
Application of Models to Larger Data Sets 114 Fuzzy Linear Programming Classification 172
Insurance Fraud Data 114 Credit Card Portfolio Management:
Job Applicant Data 117 A Real-Life Application 176
Loan Applicant Data 118 Linear Programming–Based Software
Summary 119 Support 182
Appendix: Data Mining Linear Programming
Chapter 7 Formulations 182
Neural Networks in Data Mining 122 Multiple-Class Separation 182
Neural Networks 123 Multiple Criteria Linear Programming Separation 183
An Example Neural Network Application 124 Fuzzy Linear Programming Separation 184
Neural Networks in Data Mining 126 Summary 184
Business Applications of Neural Networks 126
Neural Network Models for Bankruptcy Prediction 126
Data Mining to Target Customers 127 PART THREE
Application of Neural Networks to Larger BUSINESS APPLICATIONS 187
Data Sets 128
Insurance Fraud Data 128 Chapter 10
Job Applicant Data 129 Business Data Mining Applications 189
Loan Applicant Data 130
Applications 190
Neural Network Products 130
Mailstream Optimization at Fingerhut 191
Summary 131
Customer Relationship Management (CRM) 194
Chapter 8 Credit Scoring 196
Investment Risk Analysis 200
Decision Tree Algorithms 135
Data Mining Applications in Insurance 202
Decision Tree Operation 136 Comparisons of Data Mining Methods 206
Rule Interestingness 137 Summary 208
ols59711_fm.qxd 11/3/05 4:33 PM Page xiii

Contents xiii

Chapter 11 Web Mining Systems 236

Market-Basket Analysis 211 Web Usage Mining Demonstration 2236
Appendix: Semantic Text Analysis 237
Definitions 212 Semantic Text Analysis 238
Demonstration 214 Quantitative Models 240
Market-Basket Limitations 216 Unstructured Text Analysis 242
Market-Basket Analysis Software 217 Taxonomy Classification 242
Appendix: Market-Basket Procedure 217 OLAP Charts 246
Summary 219 Summary 246
Summary 247
PART FOUR
DEVELOPING ISSUES 223 Chapter 13
Ethical Aspects of Data Mining 250
Chapter 12
The Hazards of Data Access 251
Text and Web Mining 225 Web Data Mining Issues 253
Text Mining 226 The Problem 254
Identification of Key Terms 226 Web Ethics 254
Text Mining Demonstration 227 Privacy Issues 255
Link Analysis 228 Discrimination 256
Text Mining Applied to Legal Databases 230 Methods of Control 256
Text Mining Products 231 Summary 257
Web Mining 232
Web Mining Taxonomy 233 Glossary 261
Web User Behavior 234
Web Mining Examples 235 Index 265
ols59711_fm.qxd 10/28/05 5:34 PM Page xiv
 Olson−Shi: Introduction to Front Matter Preface © The McGraw−Hill
Business Data Mining Companies, 2007

Preface
The intent of this book is to serve advanced undergraduate and graduate classes
presenting data mining. Data mining is a very useful topic, applying quantitative
analysis to large-scale data made available through recently developed informa-
tion technology. Each of us has taught such material, and we both have extensive
experience in quantitative analysis in business. Yong Shi also has extensive real
experience in commercial data mining analysis. We want to take this opportunity
to acknowledge the graduate students at the University of Nebraska at Omaha,
Gang Kou, Nian Yan, and Wei Zhuang, who helped us prepare the data mining
reports by using computer software for this book.

Book Concept
Our intent is to cover the fundamental concepts of data mining, to demonstrate the
potential of gathering large sets of data and analyzing these data sets to gain use-
ful business understanding. We have organized the material into four parts. Part I
introduces concepts. Part II describes and demonstrates basic data mining algo-
rithms. Part III focuses on business applications of data mining. Part IV presents
developing areas, including web mining, text mining, and ethical aspects of data
mining. Part I is overview material. Part II contains chapters on a number of dif-
ferent techniques often used in data mining. Not all of these chapters need to be
covered, and their sequence can be varied according to instructor need. Part III cov-
ers applications, and while we feel that these chapters contain the most interesting
and important material, instructors who wish to focus on techniques might not
wish to cover these chapters. Conversely, instructors more interested in business
applications can cover Part III before reviewing content as needed in Part II. This
approach would work especially well if data mining software is available to do the
modeling. Part IV contains material we feel is important now and is growing in
importance. However, again, coverage and sequence is up to the instructor.
The book includes short vignettes of how specific concepts have been applied
in real business. A series of representative data sets are generated to demonstrate
specific methods and concepts. References to data mining software and sites such
as www.kdnuggets.com are provided.
Supplements accompanying this text include (1) an instructor’s CD-ROM,
containing a solutions guide, PowerPoint slides, and the data set; (2) a student’s
CD-ROM, containing PowerPoint slides and the data set; and (3) an online
learning center.

Part I: Introduction
Chapter 1 gives an overview of data mining and provides a description of the data
mining process. An overview of useful business applications is provided. Chapter 2
presents the data mining process in more detail. It demonstrates this process with a
typical set of data. Visualization of data through data mining software is addressed.
Chapter 3 presents database support to data mining. Different software tools are
described, from data warehouse products through data marts to online analytic
viii
Olson−Shi: Introduction to Front Matter Preface © The McGraw−Hill
Business Data Mining Companies, 2007

Preface ix

processing. Data quality is addressed. Again, different concepts are demonstrated

through prototypical data.

Part II: Data Mining Methods as Tools

Chapter 4 provides an overview of data mining techniques and functions. Chapter
5 describes and demonstrates clustering algorithms. Software product support
available is reviewed. Chapter 6 reviews various forms of regression tools to identi-
fy the best fit over given data sets. Chapter 7 discusses neural networks, a popular
application of artificial intelligence suitable for many data mining applications.
Chapter 8 reviews decision tree algorithms. The basic algorithm is described, along
with descriptions of tree structure, machine learning, and fuzzy set aspects of deci-
sion trees. Software products are reviewed, and See5 is demonstrated. Chapter 9
presents linear programming-based methods of fitting data. Real data mining appli-
cations are described and demonstrated.

Part III: Business Applications

Chapter 10 reviews the major applications of data mining in business, focusing on
the value of these analyses to business decision making. This includes the impor-
tant topics of customer relationship management. The concept of lift is described.
The development of market segmentation by Fingerhut Inc. is reviewed. Chapter
11 describes market-basket analysis, a more qualitative data mining technique.
This methodology is described through an example reported in the practitioner
literature, and the fundamental data mining concepts of actionability, affinity
positioning, and cross-selling are described.

Part IV: Developing Issues

Chapter 12 presents text and web mining. Chapter 13 discusses ethical issues
related to data mining.
David L. Olson, University of Nebraska–Lincoln
Yong Shi, University of Nebraska–Omaha
Olson−Shi: Introduction to I. Introduction Introduction © The McGraw−Hill
Business Data Mining Companies, 2007

P A R T O N E

Introduction
Olson−Shi: Introduction to I. Introduction 1. Initial Description of © The McGraw−Hill
Business Data Mining Data Mining in Business Companies, 2007

C H A P T E R O N E

Initial Description
of Data Mining
in Business
This chapter:

• Introduces data mining concepts

• Presents typical business data mining applications
• Explains the meaning of key concepts
• Gives a brief overview of data mining tools
• Outlines the remaining chapters of the book

Our culture has developed the ability to generate masses of data. Computer
systems expand much faster than the human ability to absorb. Furthermore,
Internet connections make it possible to share data in real time on a global basis.
Recent political events emphasize the existence of data to predict. Some
blame the system when terrorist strikes are not prevented, because if you dig
deep enough, you can always find some data or a memo that pointed to the
coming occurrence of these events. However, you would also find a great deal
more data predicting things that didn’t happen. Obviously, there’s a clear need
for many organizations to be able to process data faster and more reliably. Data
mining involves the use of analysis to detect patterns and allow predictions.
Though it’s not a perfect science, the intent of data mining is to gain small
advantages, because perfect predictions are impossible. These small advan-
tages can be extremely profitable to business. For instance, retail sales organi-
zations have developed sophisticated customer segmentation models to save
them from sending sales materials to consumers who likely won’t purchase
their products, focusing instead on those segments with a higher probability of
sales. Banks and other organizations have developed sophisticated customer
relationship management programs (supported by data mining) that can pre-
dict the value of specific types of customers to that organization, and predict
repayment of loans as well. Insurance companies have long applied statistical
analysis, which has been extended by data mining tools to aid in the prediction
of fraudulent claims. These are only three of many important data mining
applications to business.
This book seeks to describe some business applications of data mining. It also
will describe the general process of data mining, those database tools needed to
support data mining, and the techniques available for data mining.

3
 Olson−Shi: Introduction to I. Introduction 1. Initial Description of © The McGraw−Hill
Business Data Mining Data Mining in Business Companies, 2007

4 Part One Introduction

Introduction
Data mining refers to the analysis of the large quantities of data that are stored in
computers. For example, grocery stores have large amounts of data generated by
our purchases. Bar coding has made checking out very convenient for us, and pro-
vides retail establishments with masses of data. Grocery stores and other retail
stores are able to quickly process our purchases, and use computers to accurately
determine product prices. These same computers can help the stores with their
inventory management, by instantaneously determining the quantity of items of
each product on hand. They are also able to apply computer technology to contact
their vendors so they don’t run out of the things that we want to purchase.
Computers allow the store’s accounting system to more accurately measure costs,
and determine the profit that store stockholders are concerned about. All of this
information is available based upon the bar code information attached to each
product. Along with many other sources of information, data gathered through
bar coding can be used for data mining analysis.
Data mining is not limited to business. Both major parties in the 2004 U.S. elec-
tion utilized data mining of potential voters.1 Data mining has been heavily used
in the medical field, to include patient diagnosis records to help identify best prac-
tices.2 The Mayo Clinic worked with IBM to develop an online computer system
to identify how that last 100 Mayo patients with the same gender, age, and med-
ical history responded to particular treatments.3
Business use of data mining is also impressive. Toyota used the data mining of
its data warehouse to determine more efficient transportation routes, reducing
the time to deliver cars to customers by an average of 19 days. Data warehouses
(to be discussed in Chapter 3) are enormous database systems capable of sys-
tematically storing all transactional data generated by a business organization,
such as WalMart. Toyota also was able to identify sales trends faster, and identify
the best locations for new dealerships. Benefits were estimated to be $30 million
per year in North America.4
Data mining is widely used by banking firms in soliciting credit card cus-
tomers,5 by insurance and telecommunication companies in detecting fraud,6 by
manufacturing firms in quality control,7 and many other applications. Data min-
ing is being applied to improve food product safety,8 criminal detection,9 and
tourism.10 Fingerhut has become very successful in micromarketing, targeting
small groups of highly responsive customers. Media companies such as R. R.
Donnelly & Sons provide consumer and life-style data, as well as customized indi-
vidual publications to firms that use data mining for catalog marketing.
Data mining involves statistical and/or artificial intelligence analysis, usually
applied to large-scale data sets. Traditional statistical analysis involves an
approach that is usually directed, in that a specific set of expected outcomes exists.
This approach is referred to as supervised. However, there is more to data mining
than the technical tools used. Data mining involves a spirit of knowledge discov-
ery (learning new and useful things), which is referred to as unsupervised. Much
of this can be accomplished through automatic means, as we will see in decision
tree analysis, for example. But data mining is not limited to automated analysis.
Knowledge discovery by humans can be enhanced by graphical tools and the
identification of unexpected patterns through a combination of human and com-
puter interaction.
Olson−Shi: Introduction to I. Introduction 1. Initial Description of © The McGraw−Hill
Business Data Mining Data Mining in Business Companies, 2007

Chapter One: Initial Description of Data Mining in Business 5

Data mining can be used by businesses in many ways. Three examples are
• Customer profiling Identifying those subsets of customers that are most
profitable to the business
• Targeting Determining the characteristics of profitable customers who have
been captured by competitors
• Market-basket analysis Determining product purchases by consumers,
which can be used for product positioning and for cross-selling.
These are not the only applications of data mining, but they are three of the most
important to businesses. Customer profiling is a key part of customer relationship
management (CRM), which will be elaborated upon in Chapter 10. Targeting is a
key concept in managing churn, or customer turnover, also discussed in Chapter 10.
Market-basket analysis is an interesting use of data mining that we discuss in
Chapter 11.

What Is Needed to Do Data Mining?

Data mining requires the identification of a problem, along with collection of
data that can lead to a better understanding of the market, and computer models
to provide statistical or other means of analysis. There are two general types of
data mining studies. Hypothesis testing involves expressing a theory about the
relationship between actions and outcomes. In a simple form, it can be hypothe-
sized that advertising will yield greater profit. This relationship has long been
studied by retailing firms in the context of their specific operations. Data mining
is applied to identifying relationships based on large quantities of data, which
could include testing the response rates to various types of advertising on the
sales and profitability of specific product lines. The second form of data mining
study is knowledge discovery. In this form of analysis, a preconceived notion
may not be present, but rather relationships can be identified by looking at the
data. This may be supported by visualization tools that display data, or through
fundamental statistical analysis, such as correlation analysis.
A variety of analytic computer models have been used in data mining.
Chapters 5 through 9 of this book will discuss various types of these models. Also
required is access to data. Quite often, systems including data warehouses and
data marts are used to manage large quantities of data (see Chapter 3). Other data
mining analyses are done with smaller sets of data, such as can be organized in
online analytic processing systems.

Data Mining
Data mining has been called exploratory data analysis, among other things. Masses
of data generated from cash registers, from scanning, and from topic-specific data-
bases throughout the company are explored, analyzed, reduced, and reused.
Searches are performed across different models proposed for predicting sales, mar-
keting response, and profit. Classical statistical approaches are fundamental to data
mining. Automated AI methods are also used. However, systematic exploration
through classical statistical methods is still the basis of data mining. Some of the
tools developed by the field of statistical analysis are harnessed through automatic
control (with some key human guidance) in dealing with data.
 Olson−Shi: Introduction to I. Introduction 1. Initial Description of © The McGraw−Hill
Business Data Mining Data Mining in Business Companies, 2007

6 Part One Introduction

Data mining tools need to be versatile, scalable, capable of accurately predict-

ing responses between actions and results, and capable of automatic implementa-
tion. Versatile refers to the ability of the tool to apply a wide variety of models.
Scalable tools imply that if the tools work on a small data set, they should also
work on larger data sets. Automation is useful, but its application is relative. Some
analytic functions are often automated, but human setup prior to implementing
procedures is required. In fact, analyst judgment is critical to successful imple-
mentation of data mining. Proper selection of data to include in searches is criti-
cal. Data transformation also is often required. Too many variables produce too
much output, while too few can overlook key relationships in the data. Herb
Edelstein of Two Crows Corporation was quoted: “To think you can do data min-
ing without a statistical or mining background is mind-boggling.”11
Data mining is expanding rapidly, with many benefits to business. Two of the
most profitable application areas have been the use of customer segmentation by
marketing organizations to identify those with marginally greater probabilities of
responding to different forms of marketing media, and banks using data mining
to more accurately predict the likelihood of people to respond to offers of differ-
ent services offered. Many companies are using this technology to identify their
blue-chip customers so they can provide them the service needed to retain them.
First National Bank of North Dakota found that only 10 percent of its customers
were providing almost all of the bank’s profitability.12 Bank of America in San
Francisco also found that a small portion of its customers, 20 percent, determined
bank profitability. Bank of America develops profiles of its top accounts to target
services. They also are able to assess the likelihood that particular customers are
likely to take their business to a competitor, or churn, in telephone business
terminology.
The casino business has also adopted data warehousing and data mining.
Historically, casinos have wanted to know everything about their customers.13
Harrah’s Entertainment Inc. is one of many casino organizations who use incen-
tive programs.14 About 8 million customers hold Total Gold cards, which are used
whenever the customer plays at the casino, or eats, or stays, or spends money in
other ways. Points accumulated can be used for complementary meals and lodg-
ing. More points are awarded for activities which provide Harrah’s with more
profit. The information obtained is sent to the firm’s corporate database, where it’s
retained for several years. Trump’s Taj Card is used in a similar fashion. Recently,
high competition has led to the use of data mining. Instead of advertising the loos-
est slots in town, Bellagio and Mandelay Bay have developed the strategy of pro-
moting luxury visits. Data mining is used to identify high rollers so that these
valued customers can be cultivated. Data warehouses enable casinos to estimate
the lifetime value of players. Incentive travel programs, in-house promotions, cor-
porate business, and customer follow-up are tools used to maintain the most prof-
itable customers. Casino gaming is one of the richest data sets available. Very
specific individual profiles can be developed. Some customers are identified as
those who should be encouraged to play longer. Other customers are identified
as those who are discouraged from playing. Harrah’s found that 26 percent of its
gamblers generated 82 percent of its revenues. They also found that their best cus-
tomers were not high rollers, but rather middle-aged and senior adults who were
former professionals. Harrah’s developed a quantitative model to predict indi-
vidual spending over the long run, and set up a program to invite back $1,000-per-
month customers who had not visited in three months. If a customer lost in a prior
visit, she/he would be invited back to a special event.15
Olson−Shi: Introduction to I. Introduction 1. Initial Description of © The McGraw−Hill
Business Data Mining Data Mining in Business Companies, 2007

Chapter One: Initial Description of Data Mining in Business 7

Data mining has even been applied in the business of delivering the arts.16
Applications include identification of potential consumers for particular shows.
Software programs to manage shows are available that operate much as airline
seating chart software. Moving to computerized box offices has led to the genera-
tion of high volumes of data, which can be imported into data warehouses.

Focused Marketing
Fingerhut Companies, founded in 1948, has been a leader in the field of focused
marketing. In recent years, it has sent out about 130 different catalogs to over
65 million customers, and the firm currently has a 6-terabyte data warehouse.
Data mining analysis focuses on 3,000 variables related to their 12 million most
active customers, with over 300 predictive models reportedly in use at this time.17
Federated Department Stores purchased Fingerhut Companies for $1.7 billion in
February 1999 to acquire their database.18 Fingerhut had a $1.6 to $2 billion busi-
ness per year, targeting lower-income households.19 At its peak, it could mail
340 million catalogs per year to 7 million active customers.20 Fingerhut operated
through specialty catalogs (400 million per year)21 sent to data-mined customers
expected to be interested in one of the many types of products that Fingerhut
markets. Each product line had its own catalog. Target customers were identified
as the small subset of people with a marginally higher probability of purchasing
(the concept of lift in marketing terminology—see Chapter 10). Federated
Department Stores was expected to transfer Fingerhut’s technology to their Macy’s
and Bloomingdale’s stores.
Fingerhut used segmentation, decision tree, regression analysis, and neural
modeling tools from SAS for regression analysis tools and SPSS Inc. for neural net-
work tools. When one of Fingerhut’s 7 million active customers ordered a product
(toys, games, household items, many others), transaction, demographic, and psy-
chographic data were stored in the firm’s relational database. There were up to
3,000 potential data items per customer. The firm had a staff dedicated to the data
warehouse.22 One of their roles was training other Fingerhut personnel in the use
of the warehouse.
The segmentation model combined order and basic demographic data with
Fingerhut’s product offerings. This enabled Fingerhut to create new mailings
targeted at customers with the greatest potential payoff. Fingerhut analysts deter-
mined that customers who recently had moved tripled their purchasing in the
12 weeks after the move.23 Fingerhut therefore created a catalog containing prod-
ucts that those who were moving would likely be interested in, such as furniture,
telephones, and decorations, while deleting products such as jewelry or home
electronics.
A second application was mailstream optimization. This model showed which
customers were most likely to respond to existing catalog mailings. Fingerhut esti-
mated savings of nearly $3 million per year through mailstream optimizing.24 This
system enabled Fingerhut to go against the trend of the catalog sales industry in
1998 and reduce mailings by 20 percent while increasing net earnings to over
$37 million.25
Neural network models, a common type of data mining tool (covered in
Chapter 7), have been used to identify overlaps in mailing patterns and order-
filling telephone call orders. This enabled Fingerhut to more efficiently staff their
telephones and enabled them to handle heavy order loads.
 Olson−Shi: Introduction to I. Introduction 1. Initial Description of © The McGraw−Hill
Business Data Mining Data Mining in Business Companies, 2007

8 Part One Introduction

Business Data Mining

Data mining has been very effective in many business venues. The key is to find
actionable information, or information that can be utilized in a concrete way to
improve profitability. Some of the earliest applications were in retailing, especially
in the form of market-basket analysis. Table 1.1 shows the general application
areas we will be discussing. Note that they are meant to be representative rather
than comprehensive.

Retailing
Data mining offers retailers (in general) and grocery stores (specifically) valuable
predictive information from mountains of data. Affinity positioning is based
upon the identification of products that the same customer is likely to want. For
instance, if you are interested in cold medicine, you probably are interested in tis-
sues. Thus, it would make marketing sense to locate both items within easy reach
of the other. Cross-selling is a related concept. The knowledge of products that go
together can be used by marketing the complementary product. Grocery stores do
that through position product shelf location. Retail stores relying upon advertis-
ing can send ads for sales on shirts and ties to those who have recently purchased
suits. These strategies have long been employed by wise retailers. However, data
mining provides the ability to identify less expected product affinities and cross-
selling opportunities.
Grocery stores generate mountains of cash register data that require automated
tools for analysis. Software is marketed to service a spectrum of users. In the past,
it was assumed that cash register data was so massive that it couldn’t be quickly
analyzed. However, current technology enables grocers to look at customers who
have defected from a store, their purchase history, and characteristics of other
potential defectors. Tom Rubel of Price Waterhouse Management Consulting
viewed the greatest data mining potential to come from retailers and manufactur-
ers sharing data.26 Targeted marketing programs are beginning to be successfully
used by grocers. Single store operations may be able to operate with PC software
for as little as $4,000. Free Internet software is emerging as well. Most larger chain
operations have to spend up to $750,000 for data mining operations.

TABLE 1.1 Data Mining Application Areas

Application Area Applications Specifics
Retailing Affinity positioning Position products effectively
Cross-selling Find more products for customers
Banking Customer relationship management Identify customer value, develop
programs to maximize revenue
Credit Card Management Lift Identify effective market segments
Churn Identify likely customer turnover
Insurance Fraud detection Identify claims meriting investigation
Telecommunications Churn Identify likely customer turnover
Telemarketing Online information Aid telemarketers with easy data access
Human Resource Management Churn Identify potential employee turnover
Olson−Shi: Introduction to I. Introduction 1. Initial Description of © The McGraw−Hill
Business Data Mining Data Mining in Business Companies, 2007

Chapter One: Initial Description of Data Mining in Business 9

Banking
The banking industry was one of the first users of data mining.27 Banks have
turned to technology to find out what motivates their customers, and what will
keep their business (customer relationship management—CRM).28 CRM involves
the application of technology to monitor customer service, a function that’s
enhanced through data mining support. Understanding the value a customer pro-
vides the firm makes it possible to rationally evaluate whether extra expenditure is
appropriate in order to keep the customer. There are many opportunities for data
mining in banking. Deloitte Consulting found that only 31 percent of senior bank
executives were confident that their current distribution mix anticipated customer
needs. Kathleen Khirallah, an analyst at The Tower Group, predicted that spend-
ing by U.S. banks on CRM would grow at 11 percent per year.
Dhar dismissed the view that data mining is an undirected data dredging
expedition where machine learning algorithms automatically produce interesting
patterns.29 Rather, the exercise is an iterative updating of an existing framework
of knowledge. Data mining applications in finance include predicting the prices
of equities involving a dynamic environment with surprise information, some of
which might be inaccurate and some of which might be too complex to compre-
hend and reconcile with intuition. Some customers are more profitable to banks
than others. Only 3 percent of the customers at Norwest (who recently merged
with Wells Fargo) provided 44 percent of their profits.30 Bank of America utilized
a program to cultivate ties to the top 10 percent of their customers. CRM prod-
ucts enable banks to define and identify customer and household relationships.
This is the first step of the process, which must then be disseminated throughout
the banking organization so that it can be taken advantage of through better
product design and greater attention to key customers.
Fleet Financial Group has blended product- and customer-based approaches.
Information is being used to provide customer focus within a product-based
organization rather than reorganizing around customer groups, as other financial
institutions have done. Fleet has invested about $30 million in a data warehouse
to support the entire organization. They also hired about 60 database marketers
and statistical/quantitative analysts, as well as specialists in decision support and
other areas. They expect to add an extra $100 million in profit.
First Union has concentrated on the contact-point end of CRM. The bank pre-
viously had very focused product groups with little coordination. It created mar-
keting customer information files, which integrated information across products
through an enterprisewide data warehouse and marketing-based data mart. Their
CRM structure uses SAS tools to develop offers for customers, and for modeling
and statistical analysis.
Data mining provides a way for banks to identify patterns. This is valuable in
assessing loan applications, as well as in target marketing. Credit unions use
data mining to track member profitability, as well as to monitor the effectiveness
of marketing programs and sales representatives. They also are used for mem-
ber care, seeking to identify what credit union customers want in the way of
services.

Credit Card Management

The credit card industry has proven very profitable. It has attracted many card
issuers, and many customers carry four or five cards. Balance surfing is a common
practice, where the card user pays an old balance with a new card. These are not
 Olson−Shi: Introduction to I. Introduction 1. Initial Description of © The McGraw−Hill
Business Data Mining Data Mining in Business Companies, 2007

10 Part One Introduction

considered attractive customers, and one of the uses of data warehousing and
data mining is to identify balance surfers. The profitability of the industry has also
attracted those who wish to push the edge of credit risk, both from the customer
and the card issuer perspective. Michael Eichorst, vice president of analytics for
Chase Manhattan Bank, claims that card issuers have no choice but to maintain
database marketing as a core competency.31 Whether this is true or not, database
marketing provides credit card issuers with a valuable tool to give them a clearer
picture of their operations. Bank credit card marketing promotions typically gen-
erate 1,000 responses to mailed solicitations—a response rate of about 1 percent.
This rate is improved significantly through data mining analysis.32
Data mining tools used by banks include credit scoring,33 which is a quantified
analysis of credit applicants with respect to predictions of on-time loan repay-
ment. The key is a consolidated data warehouse, covering all products, including
demand deposits, savings, loans, credit cards, insurance, annuities, retirement
programs, securities underwriting, and every other product banks provide. Credit
scoring provides a number for each applicant by multiplying a set of weighted
numbers determined by the data mining analysis multiplied by the ratings for
that applicant. These credit scores can be used to accept/reject recommendations,
as well as to establish the size of a credit line. Credit scoring used to be conducted
by bank loan officers, who considered a few tested variables, such as employment,
income, age, assets, debt, and loan history. Data mining makes it possible to
include many more variables, with greater accuracy.
Data mining provides a means to predict what customers might use. Once this
information is obtained, it can be implemented to improve operations. New meth-
ods of reaching customers are developed every day. ATM machines could be
rigged up with electronic sales pitches for products that a particular customer is
likely to be interested in. If a database indicates a new address for a customer with
high credit scores, this customer may have traded up to a new, larger house, and
may be a prime target for an increased credit line, a higher-end credit card, or a
home improvement loan, which could be offered in a card statement mailing.
Databases can also be used to support telephone representatives when customers
call. The representative’s computer screen can indicate the customer’s character-
istics as well as products the customer may be interested in.
The new wave of technology is broadening the application of database use and
targeted marketing strategies. In the early 1990s, nearly all credit card issuers were
mass-marketing to expand their cardholder bases.34 However, with so many cards
available, broad-based marketing campaigns have not been as effective as they
initially were. Card issuers are more carefully examining the expected net present
value of each customer. Data warehouses provide the information giving issuers
the ability to try to more accurately predict what the customer is interested in, as
well as their potential value to the issuer. Desktop campaign management soft-
ware is used by the more advanced credit card issuers, utilizing data mining tools
such as neural networks to recognize customer behavior patterns in order to pre-
dict their future relationship with the bank.

Insurance
The insurance industry utilizes data mining for marketing, just as retailing and
banking organizations do.35 But they also have specialty applications. Farmers
Insurance Group has developed a system for underwriting that generates millions
of dollars in higher revenues and lower claims. The system allows the firm to bet-
ter understand narrow market niches, and to predict losses for specific lines of
Another Random Scribd Document
with Unrelated Content
seeking wives and mothers of Rome in his own day. The German
tribes might be uncouth, their armies without discipline, even their
nobles ignorant of culture, but they were brave, hospitable, and
loyal. Above all they held a distinction between right and wrong:
they did not ‘laugh at vice’.
It is probable that in the days of Tacitus his views were received
throughout the Roman Empire with an amused shrug of the
shoulders, for to many the Germans were merely good fighters,
whose giant build added considerably to the glory of a triumphal
procession, when they walked sullenly in their shackles behind the
Victor’s car. With the passing of the years into centuries, however,
intercourse changed this attitude, and much of the contempt on
one side and hatred on the other vanished.
Germans captured in childhood were brought up in Roman
households and grew invaluable to their masters: numbers were
freed and remained as citizens in the land of their captivity. The
tribes along the borders became more civilized: they exchanged
raw produce or furs in the nearest Roman markets for luxuries and
comforts, and as their hatred of Rome disappeared admiration took
its place. Something of the greatness of the Empire touched their
imagination: they realized for the first time the possibilities of
peace under an ordered government; and whole tribes offered their
allegiance to a power that knew not only how to conquer but to
rule.
Emperors, nothing loath, gathered these new forces under their
standards as auxiliaries or allies (foederati), and Franks from
Flanders, at the imperial bidding, drove back fellow barbarians from
the left bank of the Rhine; while fair-haired Alemanni and Saxons
fell in Caesar’s service on the plains of Mesopotamia or on the arid
sands of Africa. From auxiliary forces to the ranks of the regular
army was an easy stage, the more so as the Roman legions were
every year in greater need of recruits as the boundaries of the
Empire spread.
 It is at first sight surprising to find that the military profession
was unpopular when we recall that it rested in the hands of the
legions to make or dispossess their rulers; but such opportunities of
acquiring bribes and plunder did not often fall to the lot of the
ordinary soldier, while the disadvantages of his career were many.
A very small proportion of the army was kept in the large towns
of the south, save in Rome that had its own Praetorian Guards: the
majority of the legions defended the Rhine and Danube frontiers,
or still worse were quartered in cold and foggy Britain, shut up in
fortress outposts like York or Chester. English regiments to-day
think little of service in far-distant countries like Egypt or India,
indeed men are often glad to have the experience of seeing other
lands; but the Roman soldier as he said farewell to his Italian
village knew in his heart that it had practically passed out of his
life. The shortest period of military service was sixteen years, the
longest twenty-five; and when we remember that, owing to the
slow and difficult means of transport, leave was impossible we see
the Roman legionary was little more than the serf of his
government, bound to spend all the best years of his life defending
less warlike countrymen.
Moving with his family from outpost to outpost, the memories of
his old home would grow blurred, and the legion to which he
belonged would occupy the chief place in his thoughts. As he grew
older his sons, bred in the atmosphere of war, would enlist in their
turn, and so the military profession would tend to become a caste,
handed down from father to son.
The soldier could have little sympathy with fellow citizens whose
interests he did not share, but would despise them because they
did not know how to use arms. The civilians, on their side, would
think the soldier rough and ignorant, and forget how much they
were dependent on his protection for their trade and pleasure.
Instead of trying to bridge this gulf, the government, in their terror
of losing taxpayers, widened it by refusing to let curiales enlist. At
the same time they filled up the gaps in the legions with corps of
Franks, Germans, or Goths; because they were good fighting
material, and others of their tribe had proved brave and loyal.
In the same way, when land in Italy fell out of cultivation, the
Emperor would send numbers of barbarians as coloni or settlers to
till the fields and build themselves homes. At first they might be
looked on with suspicion by their neighbours, but gradually they
would intermarry and their sons adopt Roman habits, until in time
their descendants would sit in municipal councils, and even rise to
become Praetors or Consuls.
Barbarian When it is said that the Roman Empire fell because
Invasions of the inroads of barbarians, the impression
sometimes left on people’s minds is that hordes of
uncivilized tribes, filled with contempt for Rome’s luxury and
corruption, suddenly swept across the Alps in the fifth century,
laying waste the whole of North Italy. This is far from the truth. The
peaceful invasion of the Empire by barbarians, whether as slaves,
traders, soldiers, or colonists, was a continuous movement from
early imperial days. There is no doubt that, as it increased, it
weakened the Roman power of resistance to the actually hostile
raids along the frontiers that began in the second and third
centuries and culminated in the collapse of the imperial
government in the West in the fifth. An army partly composed of
half-civilized barbarian troops could not prove so trustworthy as the
well-disciplined and seasoned Romans of an earlier age; for the
foreign element was liable in some gust of passion to join forces
with those of its own blood against its oath of allegiance.
As to the main cause of the raids, it was rather love of Rome’s
wealth than a sturdy contempt of luxury that led these barbarians
to assault the dreaded legions. Had it been mere love of fighting,
the Alemanni would as soon have slain their Saxon neighbours as
the imperial troops; but nowhere save in Spain, or southern Gaul,
or on the plains of Italy could they hope to find opulent cities or
herds of cattle. Plunder was their earliest rallying cry; but in the
third century the pressure of other tribes on their flank forced them
to redouble in self-defence efforts begun for very different reasons.
This movement of the barbarians has been called ‘the
Wandering of the Nations’. Gradually but surely, like a stream
released from some mountain cavern, Goths from the North and
Huns and Vandals from the East descended in irresistible numbers
on southern Germany, driving the tribes who were already in
possession there up against the barriers, first of the Danube and
then of the Alps and Rhine.
Italy and Gaul ceased to be merely a paradise for looters, but
were sought by barbarians, who had learned something of Rome’s
civilization, as a refuge from other barbarians who trod women and
children underfoot, leaving a track wherever their cruel hordes
passed red with blood and fire. With their coming, Europe passed
from the brightness of Rome into the ‘Dark Ages’.
 III

THE DAWN OF CHRISTIANITY

When Augustus became Emperor of Rome, Jesus Christ was not

yet born. With the exception of the Jews, who believed in the one
Almighty ‘Jehovah’, most of the races within the boundaries of the
Empire worshipped a number of gods; and these, according to
popular tales, were no better than the men and women who
burned incense at their altars, but differed from them only in being
immortal, and because they could yield to their passions and
desires with greater success.
The Roman god ‘Juppiter’, who was the same as the Greek
‘Zeus’, was often described as ‘King of gods and men’; but far from
proving himself an impartial judge and ruler, the legends in which
he appears show him cruel, faithless, and revengeful. ‘Juno’, the
Greek ‘Hera’, ‘Queen of Heaven’, was jealous and implacable in her
wrath, as the ‘much-enduring’ hero, Ulysses, found when time after
time her spite drove him from his homeward course from Troy.
‘Mercury’, the messenger of the gods, was merely a cunning thief.
Most of the thoughtful Greeks and Romans, it is true, came to
regard the old mythology as a series of tales invented by their
primitive ancestors to explain mysterious facts of nature like fire,
thunder, earthquakes. Because, however, this form of worship had
played so great a part in national history, patriotism dictated that it
should not be forgotten entirely; and therefore emperors were
raised to the number of the gods; and citizens of Rome, whether
they believed in their hearts or no, continued to burn incense
before the altars of Juppiter, Juno, or Augustus in token of their
loyalty to the Empire.
The human race has found it almost impossible to believe in
nothing, for man is always seeking theories to explain his higher
nature and why it is he recognizes so early the difference between
right and wrong. Far back in the third and fourth centuries before
Christ, Greek philosophers had discussed the problem of the human
soul, and some of them had laid down rules for leading the best life
possible.
Epicurus taught that since our present life is the only one, man
must make it his object to gain the greatest amount of pleasure
that he can. Of course this doctrine gave an opening to people who
wished to live only for themselves; but Epicurus himself had been
simple, almost ascetic in his habits, and had clearly stated that
although pleasure was his object, yet ‘we can not live pleasantly
without living wisely, nobly, and righteously’. The self-indulgent
man will defeat his own ends by ruining his health and character
until he closes his days not in pleasure but in misery.
Another Greek philosopher was Zeno, whose followers were
called ‘Stoics’ from the stoa or porch of the house in Athens in
which he taught his first disciples. Zeno believed that man’s fortune
was settled by destiny, and that he could only find true happiness
by hardening himself until he grew indifferent to his fate. Death,
pain, loss of friends, defeated ambitions, all these the Stoic must
face without yielding to fear, grief, or passion. Brutus, the leader of
the conspirators who slew Julius Caesar, was a Stoic, and
Shakespeare in his tragedy shows the self-control that Brutus
exerted when he learned that his wife Portia whom he loved had
killed herself.
The teaching of Epicurus and Zeno did something during the
Roman Empire to provide ideals after which men could strive, but
neither could hold out hopes of a happiness without end or
blemish. The ‘Hades’ of the old mythology was no heaven but a
world of shades beyond the river Styx, gloomy alike for good and
bad. At the gates stood the three-headed monster Cerberus, ready
to prevent souls from escaping once more to light and sunshine.
Paganism was thus a sad religion for all who thought of the
future: and this is one of the reasons why the tidings of Christianity
were received so joyfully. When St. Paul went to Athens he found
an altar set up to ‘the unknown God’, showing that men and
women were out of sympathy with their old beliefs and seeking an
answer to their doubts and questions. He tried to tell the Greeks
that the Christ he preached was the God they sought; but those
who heard him ridiculed the idea that a Jewish peasant who had
suffered the shameful death of the cross could possibly be divine.
Early The earliest followers of Christianity were not as a
Christianity rule cultured people like the Athenians, but those
who were poor and ignorant. To them Christ’s
message was one of brotherhood and love overriding all differences
between classes and nations. Yet it did not merely attract because
it promised immortality and happiness; it also set up a definite
standard of right and wrong. The Jewish religion had laid down the
Ten Commandments as the rule of life, but the Jews had never
tried to persuade other nations to obey them—rather they had
jealously guarded their beliefs from the Gentiles. The Christians on
the other hand had received the direct command ‘to go into all the
world and preach the Gospel to every creature’; and even the
slave, when he felt within himself the certainty of his new faith,
would be sure to talk about it to others in his household. In time
the strange story would reach the ears of his master and mistress,
and they would begin to wonder if what this fellow believed so
earnestly could possibly be true.
In a brutal age, when the world was largely ruled by physical
force, Christianity made a special appeal to women and to the
higher type of men who hated violence. One argument in its favour
amongst the observant was the life led by the early Christians—
their gentleness, their meekness, and their constancy. It is one
thing to suffer an insult through cowardice, quite another to bear it
patiently and yet be brave enough to face torture and death rather
than surrender convictions. Christian martyrs taught the world that
their faith had nothing in it mean or spiritless.
Perhaps it may seem strange that men and women whose
conduct was so quiet and inoffensive should meet with persecution
at all. Christ had told His disciples to ‘render unto Caesar the things
that are Caesar’s’, and the strength of Christianity lay not in
rebellion to the civil government but in submission. This is true, yet
the Christian who paid his taxes and took care to avoid breaking
the laws of his province would find it hard all the same to live at
peace with pagan fellow citizens. Like the Jew he could not pretend
to worship gods whom he considered idols: he could not offer
incense at the altars of Juppiter and Augustus: he could not go to a
pagan feast and pour out a libation of wine to some deity, nor hang
laurel branches sacred to the nymph Daphne over his door on
occasions of public rejoicing.
Such neglect of ordinary customs made him an object of
suspicion and dislike amongst neighbours who did not share his
faith. A hint was given here and there by mischief makers, and
confirmed with nods and whisperings, that his quietness was only a
cloak for evil practices in secret; and this grew into a rumour
throughout the Empire that the murder of newborn babies was part
of the Christian rites.
Had the Christians proved more pliant the imperial government
might have cleared their name from such imputations and given
them protection, but it also distrusted their refusal to share in
public worship. Lax themselves, the emperors were ready to permit
the god of the Jews or Christians a place amongst their own
deities; and they could not understand the attitude of mind that
objected to a like toleration of Juppiter or Juno. The commandment
‘Thou shalt have none other gods but me’ found no place in their
faith, and they therefore accused the Christians and Jews of want
of patriotism, and used them as scapegoats for the popular fury
when occasion required.
 In the reign of Nero a tremendous fire broke out in Rome that
reduced more than half the city to ruins. The Emperor, who was
already unpopular because of his cruelty and extravagance, fearing
that he would be held responsible for the calamity, declared hastily
that he had evidence that the fire was planned by Christians; and
so the first serious persecution of the new faith began.

Persecution of
Here is part of an account given by Tacitus, whose
the Christians history of the German tribes we have already
noticed:
‘He, Nero, inflicted the most exquisite tortures on those men
who under the vulgar appellation of Christians were already
branded with deserved infamy.... They died in torments, and their
torments were embittered by insult and derision. Some were nailed
on crosses; others sewn up in the skins of wild beasts and exposed
to the fury of dogs; others again, smeared over with combustible
materials, were used as torches to illuminate the darkness of the
night. The gardens of Nero were destined for this melancholy
spectacle, which was accompanied with a horse race and honoured
with the presence of the Emperor.’
Tacitus was himself a pagan and hostile to the Christians, yet he
admits that this cruelty aroused sympathy. Nevertheless the
persecutions continued under different emperors, some of them,
unlike Nero, wise rulers and good men.
‘These people’, wrote the Spanish Emperor Trajan (98–117),
referring to the Christians, ‘should not be searched for, but if they
are informed against and convicted they should be punished.’
Marcus Aurelius (161–180) declared that those who
acknowledged that they were Christians should be beaten to death;
and during his reign men and women were tortured and killed on
account of their faith in every part of the Empire. The test required
by the magistrates was nearly always the same, that the accused
must offer wine and incense before the statue of the Emperor and
revile the name of Christ.
 The motive that inspired these later emperors was not Nero’s
innate love of cruelty or desire of finding a scapegoat, but genuine
fear of a sect that grew steadily in numbers and wealth, and that
threatened to interfere with the ordinary worship of the temples, so
bound up with the national life.
In the reign of Trajan the Governor of Bithynia wrote to the
Emperor complaining that on account of the spread of Christian
teaching little money was now spent in buying sacrificial beasts.
‘Nor’, he added, ‘are cities alone permeated by the contagion of this
superstition, but villages and country parts as well.’
Emperors and magistrates were at first confident that, if only
they were severe enough in their punishments, the new religion
could be crushed out of existence. Instead it was the imperial
government that collapsed while Christianity conquered Europe.
Very early in the history of Christianity the Apostles had found it
necessary to introduce some form of government into the Church;
and later, as the faith spread from country to country, there arose
in each province men who from their goodness, influence, or
learning, were chosen by their fellow Christians to control the
religious affairs of the neighbourhood. These were called ‘Episcopi’,
or bishops, from the Latin word Episcopus, ‘an overseer’. Tradition
claims that Peter was the first bishop of the Church in Rome, and
that during the reign of Nero he was crucified for loyalty to the
Christ he had formerly denied.
To help the bishops a number of ‘presbyters’ or ‘priests’ were
appointed, and below these again ‘deacons’ who should undertake
the less responsible work. The first deacons had been employed in
distributing the alms of the wealthier members of the congregation
amongst the poor; and though in early days the sums received
were not large, yet as men of every rank accepted Christianity
regardless of scorn or danger and made offerings of their goods,
the revenues of the Church began to grow. The bishops also
became persons of importance in the world around them.
 In time emperors and magistrates whose predecessors had
believed in persecution came to recognize that it was not an
advantage to the government, even a danger, and instead they
began to consult and honour the men who were so much trusted
by their fellow citizens. At last, in the fourth century, there
succeeded to the throne an emperor who looked on Christianity not
with hatred or dread, but with friendly eyes as a more valuable ally
than the paganism of his fathers. This was the Emperor
Constantine the Great.
 IV

CONSTANTINE THE GREAT

Constantine the Great was born at a time when the Empire was
divided up between different emperors. His father, Constantius
Chlorus, ruled over Spain, Gaul, and Britain; and when he died at
York in A.D. 306, Constantine his eldest son succeeded to the
government of these provinces. The new Emperor, who was thirty-
two years old, had been bred in the school of war. He was
handsome, brave, and capable, and knew how to make himself
popular with the legions under his command without losing his
dignity or letting them become undisciplined.
When he had reigned a few years he quarrelled with his
brother-in-law Maxentius who was Emperor at Rome, and
determined to cross the Alps and drive him from his throne. The
task was difficult; for the Roman army, consisting of picked
Praetorian Guards, and regiments of Sicilians, Moors, and
Carthaginians, was quite four times as large as the invading forces.
Yet Constantine, once he had made his decision, did not hesitate.
He knew his rival had little military experience, and that the
corruption and luxury of the Roman court had not increased either
his energy or valour.
It is said also that Constantine believed that the God of the
Christians was on his side, for as he prepared for a battle on the
plains of Italy against vastly superior forces, he saw before him in
the sky a shining cross and underneath the words ‘By this conquer!’
At once he gave orders that his legions should place on their
shields the sign of the cross, and with this same sign as his banner
he advanced to the attack. It was completely successful, the
Roman army fled in confusion, Maxentius was slain, and
Constantine entered the capital almost unopposed. The arch in
Rome that bears his name celebrates this triumph.
Constantine was now Emperor of the whole of Western Europe,
and some years later, after a furious struggle with Licinius the
Emperor of the East, he succeeded in uniting all the provinces of
the Empire under his rule.

The ROMAN EMPIRE

in the time of
Constantine the Great
 This was a joyful day for Christians, for though Constantine was
not actually baptized until just before his death, yet, throughout his
reign, he showed his sympathy with the Christian religion and did
all in his power to help those who professed it. He used his
influence to prevent gladiatorial shows, abolished the horrible
punishment of crucifixion, and made it easier than ever before for
slaves to free themselves. When he could, he avoided pagan rites,
though as Emperor he still retained the office of Pontifex Maximus,
or ‘High Priest’, and attended services in the temples.
His mother, the Empress Helena, to whom he was devoted, was
a Christian; and one of the old legends describes her pilgrimage to
the Holy Land, and how she found and brought back with her some
wood from the cross on which Christ had been crucified.
Growth of Soon after Constantine conquered Rome he
Christianity published the famous ‘Edict of Milan’ that allowed
liberty of worship to all inhabitants of the Empire,
whether pagans, Jews, or Christians. The latter were no longer to
be treated as criminals but as citizens with full civil rights, while the
places of worship and lands that had been taken from them were
to be restored.
Later, as Constantine’s interest in the Christians deepened, he
departed from this impartial attitude and showed them special
favours, confiscating some of the treasures of the temples and
giving them to the Church, as well as handing over to it sums of
money out of the public revenues. He also tried to free the clergy
from taxation, and allowed bishops to interfere with the civil law
courts.
Many of these measures were unwise. For one thing,
Christianity when it was persecuted or placed on a level with other
religions only attracted those who really believed in Christ’s
teaching. When it received material advantages, on the other hand,
the ambitious at once saw a way to royal favour and their own
success by professing the new beliefs. A false element was thus
introduced into the Church.
 For another thing, few even of the sincere Christians could be
trusted not to abuse their privileges. The fourth century did not
understand toleration; and those who had suffered persecution
were quite ready as a rule to use compulsion in their turn towards
men and women who disagreed with them, whether pagans or
those of their own faith. Quite early in its history the Church was
torn by disputes, since much of its teaching had been handed down
by ‘tradition’, or word of mouth, and this led to disagreement as to
what Christ had really said or meant by many of his words. At
length the Church decided that it would gather the principal
doctrines of the ‘Catholic’ or ‘universal’ faith into a form of belief
that men could learn and recite. Thus the ‘Apostles’ Creed’ came
into existence.
In spite of this definition of the faith controversy continued. At
the beginning of the fourth century a dispute as to the exact
relationship of God the Father to God the Son in the doctrine of the
Trinity broke out between Arius, a presbyter of the Church in Egypt,
and the Bishop of Alexandria, the latter declaring that Arius had
denied the divinity of Christ. Partisans defended either side, and the
quarrel grew so embittered that an appeal was made to the
Emperor to give his decision.
Constantine was reluctant to interfere. ‘They demand my
judgement,’ he said, ‘who myself expect the judgement of Christ.
What audacity of madness!’ When he found, however, that some
steps must be taken if there was to be any order in the Church at
all, he summoned a Council to meet at Nicea and consider the
question, and thither came bishops and clergy from all parts of the
Christian world. The meetings were prolonged and stormy; but the
eloquence of a young Egyptian deacon called Athanasius decided
the case against Arius; and the latter, refusing to submit to the
decrees of the Council, was proclaimed a heretic, or outlaw. The
orthodox Catholics, that is, the majority of bishops who were
present, then drew up a new creed to express their exact views,
and this took its name from the Council, and was called the ‘Nicene
Creed’. In a revised form it is still recited in all the Catholic churches
of Christendom.
Arius, though defeated at the Council, succeeded in winning the
Emperor over to his views, and Constantine tried to persuade the
Catholics to receive him back into the Church. When this
suggestion met with refusal the Emperor, who now believed that he
had a right to settle ecclesiastical matters, was so angry that he
tried to install Arius in one of the churches of his new city of
Constantinople by force of arms. The orthodox bishop promptly
closed and barred the gates, and riots ensued that were only ended
by the death of Arius himself.
The schism, however, continued, and it may be claimed that its
bitterness had a considerable influence in deciding the future of
Europe by raising barriers between races that might otherwise have
become friends. Arianism, like orthodox Catholicism, was full of the
missionary spirit, and from its priests the half-civilized tribes of
Goths and Vandals learned the new faith. A Gothic bishop was
present at the Council of Nicea, while another, Ulfilas, who had
studied Latin, Greek, and Hebrew at Constantinople, afterwards
translated a great part of the Bible into his own tongue. This is the
first-known missionary Bible; and, though the original has
disappeared, a copy made about a century later is in a museum at
Upsala, written in Gothic characters in silver and gold on purple
vellum.
The Goths regarded their Bible with deep awe, and carried it
with them on their wanderings, consulting it before they went into
battle. Like the Vandals, who had also been converted by the
Arians, they considered themselves true Christians; but the
orthodox Catholics disliked them as heretics almost more than the
pagans.
Early Constantine himself imbibed the spirit of fanaticism;
Monasticism and when he became the champion of Arius,
persecuted Athanasius, who had been made Bishop
of Alexandria, and compelled him to go into exile. Athanasius went
to Rome, where it is said that he was at first ridiculed because he
was accompanied by two Egyptian monks in hoods and cowls.
Western Europe had heard little as yet of monasticism, though the
Eastern Church had adopted it for some time.
To the early Christians with their high ideals the world around
them seemed a wicked place, in which it was difficult for them to
lead a Christ-like life. They thought that by withdrawing from an
atmosphere of brutality and material pleasure, and by giving
themselves up to fasting and prayer, they would be able more
easily to fix their minds on God and so fit themselves for Heaven.
Sometimes they would go to desert places and live as hermits in
caves, perhaps without talking to a living person for months or
even years. Others who could not face such loneliness would join a
community of monks, dwelling together under special rules of
discipline. At fixed hours of the day and night they would recite the
services of the Church, and in between whiles they would work or
pray and study the Scriptures.
Many of the austerities they practised sound to us absurd, for it
is hard to feel in sympathy with a Simon Stylites who spent the
best days of his manhood crouched on a high pillar at the mercy of
sun, wind, and rain, until his limbs stiffened and withered away. Yet
the hermits and monks were an arresting witness to Christianity in
an age that had not fully realized what Christ’s teaching meant. ‘He
that will serve me let him take up his cross and follow me.’ This
ideal of sacrifice was brought home for the first time to hundreds of
thoughtless men and women when they saw some one whom they
knew give up his worldly prospects and the joy of a home and
children in order to lead a life of perpetual discomfort until death
should come to him as a blessing not a curse. The majority of the
leading clergy in the early Church, the ‘Fathers of the Church’, as
they are usually called, were monks.
The Fathers of Two of them, St. Gregory and St. Basil, studied
the Church together at the University of Athens in the fourth
century. St. Basil founded a community of monks in
Asia Minor, where his reputation for holiness soon drew together a
large number of disciples. He did not try to win them by fair words
or the promise of ease and comfort, for his monks were allowed
little to eat and spent their days in prayer and manual labour of the
hardest kind. The Arians, who hated St. Basil as an orthodox
Catholic, once threatened that they would confiscate his
belongings, torture him, and put him to death. ‘My sole wealth is a
ragged cloak and some books,’ replied the hermit calmly. ‘My days
on earth are but a pilgrimage, and my body is so feeble that it will
expire at the first torment. Death will be a relief.’ It came when he
was only fifty, but not at the hands of his enemies, for he died
exhausted by the penances and privations of his customary life. He
left many letters and theological works that throw light on the
religious questions of his day.
St. Gregory had lived for a time with St. Basil and his monks in
Asia Minor but was not strong enough to submit to the same harsh
discipline. Indeed he declared that but for the kindness of St. Basil’s
mother he would have died of starvation. Afterwards he returned
home and was ordained a priest. He was a gentler type of man
than St. Basil, a poet of no little merit and an eloquent preacher.
Yet another of the Catholic ‘Fathers of the Church’ was St.
Ambrose, Bishop of Milan. He was elected to this see against his
own will by the people of the town, who respected him because he
was strong and fearless. St. Ambrose did not hesitate to use the
wealth of the Church, even melting down some of the altar-vessels,
to ransom Christians who had been carried away captive during
one of the barbarian invasions. ‘The Church,’ he declared,
‘possesses gold and silver not to hoard, but to spend on the welfare
and happiness of men.’
The impetuosity and vigour that made him a born leader he also
employed to express his intolerance of those who disagreed with
him. When some Christians in Milan burned a Jewish synagogue
and the Emperor Theodosius ordered them to rebuild it, St.
Ambrose advised them not to do so. ‘I myself,’ he said, ‘would have
burned the synagogue.... What has been done is but a trifling
retaliation for acts of plunder and destruction committed by Jews
and heretics against the Catholics.’ This was not the spirit of the
Founder of Christianity: it was too often the spirit of the mediaeval
Church.
A man of even greater influence than St. Ambrose of Milan was
St. Jerome, a monk of the fifth century, who is chiefly remembered
to-day because of his Latin translation of the Bible, ‘the Vulgate’ as
it is called, that is still the recognized edition of the Roman Catholic
Church.
St. Jerome was born in Italy, but in his extreme asceticism he
followed the practices of the Eastern rather than the Western
Church. As a youth he had led a wild life, but, suddenly repenting,
he disappeared to live as a hermit in the desert, starving and
mortifying himself. So strongly did he believe that this was the only
road to Heaven that when he went to Rome he preached
continually in favour of celibacy, urging men and women not to
marry, as if marriage had been a sin. He was afraid that if they
became happy and contented in their home life they would forget
God.
Many of the leading families, and especially their women, came
under St. Jerome’s influence, but such exaggerated views could
never be really popular and, instead of being chosen Bishop of
Rome as he had expected, he was forced, by the many enemies he
had aroused, to leave the town, and returned once more to the
desert. Of his sincerity there can be little doubt, but his outlook on
life was warped because, like so many good and earnest
contemporary Christians, he believed that human nature and this
earth were entirely bad and that only by the suppression of any
enjoyment in them could the soul obtain salvation.
Several centuries were to pass before St. Francis of Assisi
taught his fellow men the beauty and value of what is human.

* * * * *
Foundation of
Constantinople (the Polis or city of Constantine) had
Constantinople been a Greek colony under the name of Byzantium
long before Rome existed. Built on the headland of
the Golden Horn, its walls were lapped by an inland sea whose
depth and smoothness made a splendid harbour from the rougher
waters of the Mediterranean. Almost impregnable in its
fortifications, it frowned on Asia across the narrow straits of the
Hellespont and completely commanded the entrance to the Black
Sea, with its rich ports, markets then as now for the corn and grain
of southern Russia.
Constantine, when he decided that Byzantium should be his
capital, was well aware of these advantages. He had been born in
the Balkans, had spent a great part of his life as a soldier in Asia,
had assumed the imperial crown in Britain, and ruled Gaul for his
first kingdom. This medley of experience left little place in his heart
for Italy, and the name of Rome had no power to stir his blood.
Rome to him was a corrupt town in one of the outlying limbs of his
Empire: it had no harbour nor special military value on land, while
the Alps were a barrier preventing news from passing quickly to
and fro. Byzantium, on the other hand, near the mouth of the
Danube, was easy of access and yet could be rendered almost
impregnable to his foes. It had the great military advantage also of
serving as an admirable head-quarters for keeping watch over the
northern frontier and an outlook towards the East.
The walls of the original town could not embrace the Emperor’s
ambitions, and he himself, wand in hand, designed the boundaries.
His court, following him, gasped with dismay. ‘It is enough,’ they
urged; ‘no imperial city was ever so great before.’ ‘I shall go on,’
replied Constantine, ‘until he, the invisible guide who marches
before me, thinks fit to stop.’
Not until the seven hills outside Byzantium were enclosed within
his circuit was the Emperor satisfied; and then the great work of
building began, and the white marble of Forum and Baths, of
Palaces and Colonnades, arose to adorn the Constantinople that
has ever since this time played so large a part in the history of
Europe. In the new market-place, just beyond the original walls,
was placed the ‘Golden Milestone’, a marble column within a small
temple, bearing the proud inscription that here was the ‘central
point of the world’. Inside were statues of Constantine and Queen
Helena his mother, while Rome herself and the cities of Greece
were robbed of their masterpieces of sculpture to embellish the
buildings of the new capital.
In May A.D. 330 Constantinople was solemnly consecrated, and
the Empire kept high festival in honour of an event that few of the
revellers recognized would alter the whole course of her destiny.
The new capital, through her splendid strategic position, was to
preserve the imperial throne with one short lapse for more than a
thousand years, but this advantage was obtained at the expense of
Rome, and the complete severance of the interests of the Empire in
the East and West.
The Romans had never loved the Greeks, even when they most
admired their art and subtle intellect, and now in the fourth century
this persistent distrust was intensified when Greece usurped the
glory that had been her conqueror’s. In the absence of an Emperor
and of the many high officials who had gone to swell the triumph of
his new court, Rome set up another idol. The symbols of material
glory might vanish, but the Christian faith had supplied men with
fresh ideals through the teaching of the Apostles and their
representatives, the Bishops.
Roman bishops claimed that the gift of grace they received at
their consecration had been passed down to them by the
successive laying-on of hands from St. Peter himself. ‘Thou art
Peter, and on this rock I will build my Church ... and whatsoever
thou shalt bind on earth shall be bound in heaven: and whatsoever
thou shalt loose on earth shall be loosed in heaven.’ These words of
Christ seemed to grant to his apostle complete authority over the
souls of men; and Christians at Rome began to ask if the power of
St. Peter to ‘bind and loose’ had not been handed down to his
successors? If so Il Papa, that is, ‘their father’, the Pope, was
undoubtedly the first bishop in Christendom, for on no other
apostle had Christ bestowed a like authority.
It must not be imagined that this reasoning came like a flash of
inspiration or was willingly received by all Christians. Many
generations of Popes, from the days of St. Peter onwards, were
regarded merely as Bishops of Rome, that is, as ‘overseers’ of the
Church in the chief city of the Empire. They were loved and
esteemed by their flock not on account of special divine authority
but because they stood neither for self-interest nor for faction, but
for principles of justice, mercy, and brotherhood.
Had a Roman been robbed by a fellow citizen, were there a
plague or famine, was the city threatened by enemies without her
walls, it was to her bishop Rome turned, demanding help and
protection. Afterwards it was only natural that the one power that
could and did afford these things when Emperors and Senators
were far away should in time take the Emperor’s place, and that
the Pope should appear to Rome, and gradually as we shall see to
Western Europe, God’s very viceroy on earth.
To the Church in Greece, Egypt, and Asia Minor he never
assumed this halo of glory. Byzantium, the great Constantinople,
was the pivot on which the eastern world turned, and the Bishop of
Rome with his tradition of St. Peter made no authoritative appeal.
Thus far back in the fourth century the cleft had already opened
between the Churches of the East and West that was to widen into
a veritable chasm.
Constantine ‘the Great’ died in 337, and if greatness be
measured by achievement he well deserves his title. Where men of
higher genius and originality had failed he had succeeded, beating
down with calm perseverance every object that threatened his
ambitions, until at last the Christian ruler of a united empire, feared
and respected by subjects and enemies alike, he passed to his rest.
 V

THE INVASIONS OF THE BARBARIANS

Instead of endeavouring to maintain a united empire,

Constantine in his will divided up his dominions between three sons
and two nephews. Before thirty years were over, however, a series
of murders and civil wars had exterminated his family; and two
brothers, Valentian and Valens, men of humble birth but capable
soldiers, were elected as joint emperors. Valens ruled at
Constantinople, his brother at Milan; and it was during this reign
that the Empire received one of the worst blows that had ever
befallen her.
We have already mentioned the Goths, a race of barbarians
half-civilized by Roman influence and converted to Christianity by
followers of Arius. One of their tribes, the Visigoths, had settled in
large numbers in the country to the north of the Danube. On the
whole their relations with the Empire were friendly, and it was
hardly their fault that the peace was finally broken, but rather of a
strange Tartar race the Huns, that, massing in the plains of Asia,
had suddenly swept over Europe. Here is a description given of the
Huns by a Gothic writer: ‘Men with faces that can scarcely be called
faces, rather shapeless black collops of flesh with tiny points
instead of eyes: little in stature but lithe and active, skilful in riding,
broad-shouldered, hiding under a barely human form the ferocity of
a wild beast.’
Tradition says that these monsters, mounted on their shaggy
ponies, rode women and children under foot and feasted on human
flesh. Whether this be true or no, their name became a terror to
the civilized world, and after a few encounters with them the
Visigoths crowded on the edge of the Danube and implored the
Emperor to allow them to shelter behind the line of Roman forts.
Valens, to whom the petition was made, hesitated. There was
obvious danger to his dominions in this sudden influx of a whole
tribe; but on the other hand fear might madden the Visigoths into
trying to cross even if he refused, and if so could he withstand
them?
‘All the multitude that had escaped from the murderous
savagery of the Huns,’ says a writer of the day, ‘no less than
200,000 fighting men besides women and old men and children,
were there on the river bank, stretching out their hands with loud
lamentations ... and promising that they would ever faithfully
adhere to the imperial alliance, if only the boon was granted them.’
Reluctantly Valens yielded; and soon the province of Dacia was
crowded with refugees; but here the real trouble began. Food must
be found for this multitude, and it was evident that the local crops
would not suffice. In vain the Emperor commanded that corn
should be imported: the greed of officials who were responsible for
carrying out this order led them to hold up large consignments, and
to sell what little they allowed to pass at wholly extortionate rates.
Their unwelcome guests, half-starved and fleeced of the small
savings they had been able to bring with them, complained,
plotted, and broke at last into open rebellion.
This treatment of the Visigoths in Dacia is one of the worst
pages in the history of the Roman Empire, but it brought its own
speedy punishment. The suspicion and hatred engendered by
misery spread like a flame, and the barbarian forces were joined by
deserters of their own race from the imperial legions and by
runaway slaves until they had grown into a formidable army.
Valens, forced to take steps to preserve his throne, met them on
the battle-field of Adrianople, but only to suffer crushing defeat. He