Ladies and gentlemen, as you've just been told, I'm not dressed for the occasion, because I came by way of Indianapolis. [Laughter] And I'm delighted to be able to stop by here, however. And I thank you for that warm reception. It's an honor to be back with members of the AEI family.

On the way in, I did a little Christmas shopping. I'm giving Tip O'Neill a copy of Bill Simon's book on tax reform. [Laughter]

In 1980 I had the privilege of joining you at this dinner when all of us mourned the death of Bill Baroody, Sr. Tonight it's a great pleasure to return here on a happier occasion -- to give a salute to Bill, Jr., and to all the rest of you who have carried on so nobly and so well. As President Ford -- if he hadn't been here on his way someplace else -- would have borne witness, you richly deserve this 40th birthday celebration.

In the 40 years since its founding, the American Enterprise Institute has prospered by combining careful analysis with straightforward talk. You've demonstrated the crucial importance of limited government, a strong defense, and private initiative. Your driving concern has been the everyday citizen. And you've done everything that you could to help American families earn their livings and raise their children in prosperity and peace.

All along, distinguished AEI economists, such as the late Dr. William Fellner, argued that overtaxing, spending, and regulating would lead us to ruin. And by 1980 it nearly had. Inflation and interest rates had reached record levels, and investment had started to decline. As one economist wrote, ``When we looked at the American economy, we saw an enormous, vigorous, and innovative giant being entangled in a net, and gradually nibbled away by minnows.''

Well, today, thanks in large measure to your efforts and to that of others, America has cut the growth of Federal spending, pruned needless regulations, reduced personal income tax rates, passed tax indexing, and begun to rebuild her defenses.

I know tonight is called a public policy dinner. I can't help thinking it's more like Thanksgiving. Despite AEI's good work over all these years, a few in this town still haven't gotten the message. They have a knee-jerk solution to every problem from A to Z: spend more and raise taxes. Well, forgive me, but I disagree. Let me follow the AEI example and present a few facts.

Given the rate of inflation in the midseventies, the effective tax rate on real capital gains, in many cases, amounted to over 100 percent. Investment money dried up. Even one of the most brilliant minds in computers, Gene Amdahl -- one of the leading inventors of the IBM - 360 -- had to go to Japan for capital when he decided to start his own company.

Then, in 1978, we had a capital gains tax reduction, over the strong objections of the last administration. And in June -- or in 1981, I should say, we passed our own tax reduction package, which reduced capital gains tax rates even more.

Today investment money, so crucial to driving the whole economy and creating more jobs, is becoming available again. During the first 9 months of 1983 the venture capital industry raised some $2\1/2\ billion, nearly three times as much as in all of 1980. Together with our personal income tax cuts these capital gains tax cuts helped rescue the economy and start the recovery. And economic recovery not only helps the American people; it helps bring down government deficits.

So, let me repeat something I've said before. We don't face large deficits because Americans aren't taxed enough; we face large deficits because government spends too much. And I welcome the help of the Congress to restrain spending, not to raise taxes.

I can't overstate the debt of this administration to you at AEI. You did so much of the intellectual groundwork for our policies. And to help put those policies in place you've given us over two dozen outstanding men and women to work in this administration -- our Ambassador to the United Nations, Jeane Kirkpatrick, our Ambassador to West Germany, Arthur Burns, our Chairman for the Federal Trade Commission, Jim Miller, my Assistant for Management and Administration at the White House, John Rogers, and many, many more.

Tonight I should tell you that with great reluctance I have accepted the resignation of one of your alumni, my Assistant for Communications, David Gergen. For 3 years he has served me with exceptional creativity, loyalty, and dedication. President Ford would have shaken his head yes in agreement, because he would have known from his own days at the White House, Dave is devoted to honest, open, and decent government. And we shall miss him. Happily I can also tell you that he's leaving to rejoin the AEI family and to join the Institute of Politics at Harvard.

The -- in the years ahead -- [applause]. Thank you. I really wasn't waiting for that, I just paused. [Laughter] But in the years ahead, the vigorous research into public policy that AEI stands for must go on. As your theme states, competition of ideas is fundamental to a free society. I'm confident that AEI will carry on this vital work another four decades and beyond. You, the members of the AEI family, are true intellectuals, men and women thoroughly dedicated to the life of the mind. But you're also true patriots, completely dedicated to the life of this country. And on behalf of the American people, may I thank you. And God bless you all.

Thank you.

Note: The President spoke at 8:15 p.m. in the International Ballroom at the Washington Hilton Hotel. He was introduced by William J. Baroody, Jr., president of the institute.