President George W. Bush speaks at AEI's Annual Dinner, while Attorney General John Ashcroft and Irving Kristol Award recipient Allan H. Meltzer look on

Bush addressed the audience of 1,400 by focusing on the administration's commitment to advancing liberty and peace in the Middle East and to rebuilding Iraq in particular. Excerpts of his speech can be found inside this Newsletter. Following Bush, Meltzer outlined many of America's accomplishments in world leadership over the past sixty years and addressed the future of the Pax Americana and that of organizations such as the International Monetary Fund and the World Bank.

AEI president Christopher DeMuth introduced Meltzer, the Allan H. Meltzer Professor of Political Economy and Public Policy at Carnegie Mellon University and most recently the author of A History of the Federal Reserve, Vol. I: 1913-1951, and read the inscription of the award:

To Allan H. Meltzer/ Pioneer of political economy and policy reform/ Teacher to students, scholars, and statesmen/ Intellectual leader in the causes of liberty and progress

Meltzer discussed the past and future of the Pax Americana, which he dated to the end of World War II and described as "a great experiment to reshape the world's institutional structure, to prevent reoccurrence of major wars and economic depression, and to extend liberty to places and people where it had never been known."

A full analysis of this period, Meltzer argued, would find that "more people in more countries increased their living standards by larger amounts than in any period in recorded history. Progress was not limited to incomes. Standards of health, education, and life expectancy improved. Infant mortality declined. Popularly elected governments took root in countries that had never experienced popular sovereignty. Freedom and liberty expanded as never before."

Meltzer identified two institutional changes as primarily responsible for the different postwar climate: first, the dual impact of capitalism and the market system and second, the Pax Americana.

"Postwar experience offers many comparisons between countries that adopted capitalism and the market system and those that did not," Meltzer said. "We can hold constant the history, culture, and traditions and observe the outcome after thirty, forty, or fifty years of capitalism or socialism in the two Germanys, the two Koreas, and in China and the Chinese diaspora in Taiwan, Hong Kong, and Singapore. . . . The countries with capitalist institutions and the market system grew richer; the others faltered or went backward."

The other major factor, the Pax Americana, "offered global political stability, the defense of common interests, rules for trade and payments, and a general disposition to rely on markets and market processes to allocate resources and to establish a system of human rights and liberty."

The rules for trade and finance, Meltzer argued, must continue to evolve. "A major challenge is to find a new role for the International Monetary Fund and the World Bank that provides net social benefits. . . . A long history of reduced living standards in client countries and a high failure rate of World Bank programs in poor countries suggest that the World Bank has failed the test."

Meltzer concluded that for continued success, "a new Pax Americana, like the old, requires military strength, new rules for trade, and arrangements to maintain financial stability and economic well-being. Success would continue the remarkable progress of the last sixty years. Failure would likely slow this long period of global growth, increased liberty, and human progress. Developing these new arrangements is the major challenge to U.S. leadership as the engine of world progress in the new century."