The American Enterprise Association (AEA) arrived in Washington in 1943, in the thick of World War II. In Congress there was talk of making wartime price and production controls permanent to prevent another Depression when peace finally arrived. The tiny AEA, a business group formed in New York City in 1938, was horrified; it resolved to open a Washington office to advocate rapid postwar economic demobilization and, more generally, to improve Congress's understanding of the economic consequences of its actions. The new AEA office, which eventually became headquarters and graduated from "association" to "institute," was the avant-garde of two momentous developments of the decades to come, both responding to the growing size and power of the federal government: the migration of business and trade associations from commercial centers to the nation's capital and the emergence of the policy "think tank."
AEA was a partnership of top executives of leading business and financial firms (Bristol-Myers, General Mills, Chemical Bank) and prominent policy intellectuals (Roscoe Pound of the Harvard Law School, economic journalist Henry Hazlitt, and disillusioned New Dealer Raymond Moley). From the beginning, however, the Association's spirit was libertarian and conservative rather than simply "probusiness." Its founding mission statement would still serve well: to promote "greater public knowledge and understanding of the social and economic advantages accruing to the American people through the maintenance of the system of free, competitive enterprise." So, too, its academic and empirical commitments: AEA was to be "nonpartisan and nonpolitical," was to "express no opinion of its own," and was to produce "accurate, impartial, and objective" research.
Following the highly successful dismantling of wartime economic controls, the AEA Washington office began preparing analyses of legislative proposals and publishing studies on subjects that remain AEI staples today--Social Security reform, government health insurance, the effects of trade on domestic employment, and the effects of productivity growth on wages and income. In 1950, a fan letter from freshman congressman Gerald R. Ford began a long and happy relationship with the late president. AEA also produced philosophic tracts portraying private enterprise as a form of voluntary social cooperation undergirding strong communities and democratic self-government--intellectual sprouts that would later blossom in such landmark works as Michael Novak's The Spirit of Democratic Capitalism and Irving Kristol's Two Cheers for Capitalism.
The arrival in 1954 of William J. Baroody marked the beginning of the modern AEI. The son of a Lebanese immigrant stonecutter, Mr. Baroody gave up a secure job at the U.S. Chamber of Commerce for the chance to lead a small, financially strapped organization. He was an entrepreneur and risk-taker, a strong political conservative, and a widely read intellectual convinced of the potential for ideas to move practical politics. During his twenty-six years at AEI, he demonstrated singular gifts for spotting important academic talent and for promoting dense--and often contrarian--policy-reform ideas for busy public officials, business executives, and journalists. Mr. Baroody expanded the legislative analyses, commissioned original research by leading scholars, and raised the money to pay the bills. Within a year of his arrival, reviews and excerpts of AEA publications began appearing in the Wall Street Journal and Barron's. By the early 1960s, economists Milton Friedman, Paul McCracken, and Gottfried Haberler had joined his academic advisory board. Mr. Baroody conceived for AEI a brilliant slogan that combined the Institute's commitment to freedom and competition with a forthright challenge to the liberal orthodoxy of 1960s Washington: "Competition of ideas is fundamental to a free society."
Mr. Baroody's leadership produced a period of astounding growth in the quantity and quality of the Institute's output, making it one of the busiest and most productive centers of policy research in the nation and heralding the sea change in American politics to come. In 1972, Gottfried Haberler was appointed AEI's first "resident scholar," to be joined the following year by Yale's William Fellner; the arrival of such renowned scholars signaled the Institute's intention to become a first-rate research institution in fact and name. When the voters prematurely retired President Gerald R. Ford in 1976, he became AEI's "distinguished fellow" and brought with him a dozen colleagues to pursue work begun in his administration; among those who would subsequently return to public service were Arthur Burns, Robert Bork, Laurence Silberman, Antonin Scalia, James C. Miller III, John Snow, Rudolph Penner, and David Gergen. As AEI achieved critical institutional mass, it was able to attract several of America's most influential thinkers, including neoconservative godfather Irving Kristol; economists Herbert Stein and Marvin Kosters; sociologist Robert Nisbet; political scientists Robert Goldwin, Jeane Kirkpatrick, and Walter Berns; theologian Michael Novak; and author Ben Wattenberg.
Having begun the 1970s with a budget of $1 million and a staff of ten, AEI at decade's end had a budget of $8 million and a staff of 125. AEI had become a hotbed of innovative ideas--on deregulation, tax reform, trade policy, social welfare problems, and revitalization of defense and foreign policy--that were about to debut on the political stage.
The 1980s were great years for AEI's ideas but troubled years for the institution itself. President Ronald Reagan appointed several dozen AEI scholars and fellows to his administration and to federal judgeships, where they helped him to achieve monumental improvements in economic, regulatory, and legal policy and to deploy the more assertive foreign policy that dispatched Soviet Communism by decade's end. But Mr. Baroody died just months before Reagan's election, and his successor, son William Baroody Jr., struggled to maintain his father's legacy in a transformed political environment. With so many prominent AEIers in government, and with the emergence of several energetic new think tanks such as the Heritage Foundation and the Cato Institute, AEI's reputation and finances suffered. Still, many exceptional scholars remained busy and productive at AEI and began work on audacious new projects--such as producing a new liberal-conservative consensus on welfare reform that eventually produced the Welfare Reform Act of 1996.
AEI's trustees appointed a new president in 1986--Christopher DeMuth, a lawyer and economist who had served in the Nixon and Reagan administrations and taught at Harvard's Kennedy School of Government. Mr. DeMuth revamped the Institute's program of foreign and defense policy studies and focused its domestic research agenda on traditional strengths: public finance and tax policy; government regulation; U.S. politics and political institutions; and cultural, philosophical, and social welfare issues. He also instituted major managerial and financial reforms and a new and variegated publications program.
Donors responded with alacrity; by the early 1990s, AEI had paid off its debts and was growing mightily in financial resources, in the size of research staff, and in the quality and influence of its output. Soon, the Institute's eminent senior scholars were joined by a new generation of economists, social scientists, foreign policy and trade experts, and students of social and cultural problems. To name only two recent accomplishments, Institute scholars, and particularly Peter J. Wallison, provided prescient warnings about the problems of the government-sponsored enterprises Fannie Mae and Freddie Mac. In foreign policy, Frederick W. Kagan is credited with providing the intellectual and practical rationale for a change in strategy in Iraq in 2007, which came to be known as the surge.
Today, the Institute has a staff of 185, including seventy scholars and fellows. It also has a new president. In 2008, after twenty-two years at the helm, Mr. DeMuth stepped down as president and moved down the hall to do research. His successor, Arthur C. Brooks is a classical musician by training. He came late to the world of public policy, influenced by the innovative and daring social science research of Charles Murray.
After seven decades, AEI continues to serve a vital role in the intellectual life of the nation. The Institute furnishes policymakers with ideas to meet the pressing challenges of today based on the resilient principles of private liberty, individual opportunity, and free enterprise.
