The Golden Constant: 75 Years of Free Thinking on the Free Market
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THE GOLDEN CONSTANT AMERICAN INSTITUTE FOR ECONOMIC RESEARCH: 75 YEARS OF FREE THINKING ON THE FREE MARKET (1933-2008) 75th Anniversary EDITED BY FREDERICK C. HARWOOD AND CHARLES MURRAY THE GOLDEN CONSTANT THE GOLDEN CONSTANT AMERICAN INSTITUTE FOR ECONOMIC RESEARCH: 75 YEARS OF FREE THINKING ON THE FREE MARKET (1933-2008) EDITED BY FREDERICK C. HARWOOD AND CHARLES MURRAY © 2008 American Institute for Economic Research All rights reserved. No part of this book may be reproduced or utilized in any form or by any means, except in the case of brief quotations embodied in critical articles or reviews, without permission in writing from the editors. American Institute for Economic Research, P.O. Box 1000, Great Barrington, MA 01230 www.aier.org Library of Congress Control No.: 2008933661 ISBN: 978-0-913610-62-6 Executive editor: Frederick C. Harwood, Trustee, AIER Coeditor: Charles Murray, President and CEO, AIER Writer: Michael Sion, [email protected] Page designer: Milan Sperka, www.meshcreative.com Printer: Sheridan Books, Chelsea, Michigan First edition Published in the United States of America TABLE OF CONTENTS Acknowledgments ................................................................IX Introduction — AIER Reaches 75: Carrying Forth the Vision of Its Founder .................XI Chapter One — The 1930s: In the Depths of the Depression, AIER Is Born ...................1 Chapter Two — The 1940s: After War’s Interruption, AIER Finds a Perfect Campus ..........15 Chapter Three — The 1950s: Postwar Expansion and Cold War Politics ....................33 Chapter Four — The 1960s: A Decade of Turbulence; the Colonel vs. Uncle Sam ..............41 Chapter Five — The 1970s: Stagflation and Inflation; AIER Outlasts the SEC ...............53 Chapter Six — The 1980s: Reaganomics, Market Crash; Life without the Colonel ............75 Chapter Seven — The 1990s: Bull Market and High-tech Bubble; AIER Nurtures Sound Scholars ..85 Chapter Eight — The 2000s: New Millennium with Old Problems; AIER Reaches New Markets ...103 Conclusion — Toward the Next 75 Years .............................................129 Appendix A — A Leading Publisher of Economic Education ..............................133 Appendix B — Charitable Giving Sustains AIER ......................................137 Appendix C — The Free-flowing Pen of E.C. Harwood: Three Essays ......................143 Appendix D — How to Contact AIER ................................................157 Photo Index ....................................................................159 Subject Index ...................................................................163 To the cumulative millions of book buyers, members, and contributors, the Institute’s lifeblood since 1933. ACKNOWLEDGMENTS he editors thank the many people who participated in the research and production of this 75th anniversary book for the American Institute for Economic Research. These include Tindividuals who gave their time to relate their experiences with the Institute: William Ford, Maureen Foulke, Bruce Gore, Christa Jensen, Kerry Lynch, Lawrence Pratt, Elaine Tan, Walker Todd, Robert C. Weems, and Jean White. Many other Institute staffers and associates also contributed to the production of this book. Among them were Ryan Goodenough, who provided input on the cover design, and Marcia Stamell, who proofread the manuscript. Katy Delay and Michelle Harwood read an early draft of the manuscript. Michael Sion researched, organized and wrote the text. Milan Sperka designed the pages and covers. Last but not least, the Institute’s Board of Trustees provided invaluable support and encouragement, without which this book would not have been possible. INTRODUCTION AIER Reaches 75: Carrying Forth the Vision of Its Founder he year 2008 marks the 75th anniversary of the founding of the TAmerican Institute for Economic Research — an organization standing peerless among think tanks and public-interest research groups. AIER’s journey has proved to be as remarkable as it has been improbable. From modest beginnings, in the depths of the Great Depression in borrowed office space on a college campus, funded by $200 scraped together by a young founder who squeezed in time to write the Institute’s books and newsletters and court subscribers while fulfilling a full-time Army position, AIER has defied conventional wisdom E.C. Harwood, yearbook photo, U.S. Military both in its uncompromisingly objective research Academy, West Point, New York, 1920. — and in its very survival. “Any economist will say that what we’re large corporate donations, or gifts from special trying to do will not work,” noted Charles interests with strings attached. Similarly, the Murray, AIER president and CEO, as the 75th Institute has no commercial connection with anniversary approached. “But we’ve got the any outside enterprise. Its publications do not contrapositive. We’re here, and we’re thriving. carry advertising of any sort. Its bylaws prohibit That’s so characteristic of AIER. The evidence is seeking and maintaining a large endowment; contrary to what the theory would tell you.” the funds the Institute receives must be expended What distinguishes AIER from other solely for Institute purposes, and within a economic research groups is its absolute reasonable time after receipt. devotion to purely objective financial research From its organization in 1933 by its uncompromised by governmental grants, iconoclastic, self-educated founder, E.C. THE GOLDEN CONSTANT Harwood, as a private and independent, scientific and educational charitable organization, AIER’s two-fold mission has never wavered — to produce fact-based research to help individual Americans protect their personal financial interests; and to indirectly influence federal policy, through dissemination of the Institute’s unbiased research, to fight inflation and maintain price stability and the dollar’s strength. Fittingly, the Institute lives or dies by the market; that is, the Institute’s existence depends upon the merits of its work. If the research and 1926: The cover of Life showing a flapper doing analysis prove faulty, or the financial advice of no the Charleston with an older man of means. avail, its readers and subscribers will vanish. Thus, wisdom” by months or even years. In summer the Institute naturally avoids the “ivory tower” 2007, AIER researchers explained the nation syndrome of producing research for research’s was close to a recession — a full half-year sake, never mind the results. AIER produces useful, before popular media reported this reality. More low-cost information about financial matters of significantly, AIER warned of the impending genuine importance to individuals. crises in Social Security and Medicare before What’s more, the scientific research methods these programs became law. AIER’s sustaining AIER has refined over the decades — including members, however, were apprised of such its development of primary leading, coincident information long before the masses, via the and lagging statistical indicators — often has Institute’s twice-monthly Research Reports and yielded findings that anticipated “popular monthly Economic Education Bulletins. Along the way to its diamond anniversary, AIER has withstood many challenges and battles — from growing pains characteristic of any organization, to investigations by the Internal Revenue Service, to legal attacks by the Securities and Exchange Commission alleging infractions of investment law. Lean years and an Automobiles symbolized both uncertain future plagued newfound wealth the Institute’s stalwarts, and Americans’ increasing mobility. XII AIER Reaches 75: Carrying Forth the Vision of Its Founder but the storms inevitably passed. And today across the Atlantic. The burgeoning electric- — in the first decade of a new century — AIER power industry transformed everyday living, continues to grow in membership and reserves, to with power lines and telephone lines reaching expand its conferences and fellowship programs the countryside. Factory assembly lines mass- for established and budding economists, and produced radios, household appliances and to chart new markets and methods by which to Model T Fords for a nation rapidly urbanizing INTRODUCTION disseminate its research and educational tools in and expanding its spidering network of roads. the diverse, fast-paced society of today’s America. The heady spirit of optimism fueled AIER’s history is inextricably tied to the life consumer consumption. Department stores of its inimitable founder, Col. Edward Crosby and oil companies offered credit cards for the Harwood. Therefore, the story of the Institute first time. Stock-market investment caught the properly follows, to a large degree, Harwood’s fancy not only of wealthy Americans but also of own story, up to the time of his passing in 1980. those in the middle class, who came to regard His unwavering vision and his steadfast efforts retail brokerages, and securities affiliates of in building and preserving AIER created a commercial banks, as safe places through which legacy that is very real: the thriving Institute we to invest. Speculative euphoria fueled an historic know today. expansion of the stock market. Corporations We turn now to the decade leading up to introduced new security issues, particularly in that of the Great Depression of the 1930s —“The preferred and common stock. Banks offered not Roaring Twenties.” It was during this period only mortgages and installment loans, but also when a young E.C. Harwood entered adulthood, loans