Great napkins of history: Laffer and Zandman's sketches of breakthrough ideas
Every museum curator searches for that incredible iconic object, a fabulous artifact that is both physically interesting and represents a great moment in American history. Sadly, such artifacts rarely materialize, and some of the best stories turn out to be apocryphal. However, sometimes you strike gold. It was my luck to beat the odds and collect an incredible story about American business history, a story of political change, economic revolution, and social impact—it was the real deal.
The object? The Laffer curve napkin. A seemingly simple cloth napkin with some writing on it, this object was so much more. Most people in business and economic history know the often-told story of four men coming together in 1974, having a meal, and charting a new direction for the Republican Party and U.S. tax policy. Displeased with President Gerald Ford's decision to raise taxes to control inflation and with the Republicans' loss in the midterm elections, economic professor Art Laffer, Wall Street Journal associate editor Jude Wanniski, and politicians Donald Rumsfeld and Dick Cheney met to discuss new strategies at the swanky Two Continents Restaurant in Washington, D.C., a block from the White House.
Laffer argued that lowering taxes would increase economic activity and raise total government revenue. In the excitement of the moment, he pulled out a pen and sketched a graph on one of the restaurant's napkins to illustrate his point. That napkin became a touchstone in the rise of supply-side economics. Also called Reaganomics, supply-side economics is a theory that argues lowering taxes and decreasing regulation will stimulate economic growth.
Collecting is a curatorial black art. It is difficult to find great objects and harder yet to get people to part with their priceless possessions. Even at great institutions like the Smithsonian, you'll discover that many artifacts come into collections through curatorial relationships.
In my career, I have had the opportunity to collect two napkins. One is from the entrepreneur and inventor Felix Zandman, who mentioned it during an oral history interview. The opportunity to collect the other famous napkin arose because of a behind-the-scenes tour. We were developing our business history exhibition, American Enterprise, and were giving countless tours to subject-matter specialists and prospective supporters. In mid-November 2012 I gave a tour to Steve Fink, a California venture capitalist.
Fink enjoyed seeing Milton Friedman's briefcase but told me what we really needed was the Laffer curve napkin. I laughed and said, "If you can find it, we would love to collect it." Of course, like many other business historians, I had heard the story of the power lunch that changed politics, but I assumed the napkin was apocryphal.
I believed the meeting had happened, but that the napkin did not really exist—it was too good to be true. I was pretty confident in my version of the story because I had recently read Art Laffer's article in which he recalled the gathering, but qualified Wanniski's popular account of the meeting, saying "the restaurant used cloth napkins and my mother had raised me not to desecrate nice things." Imagine my surprise when I got a call from Fink saying he found the napkin and here is who I needed to call.
It turned out that the napkin did exist and was carefully preserved in a safe deposit box owned by Patricia Koyce Wanniski (Jude's widow). I made a plea to Patricia and she said she had to think about it. After all, the napkin was a prized family possession iconic of a seminal event. Eventually she decided that giving the napkin to the nation would solve the family problem of which child might eventually inherit the artifact. Today the napkin is displayed in the American Enterprise exhibition in a section of the show called Power of Finance.
What happened between the meeting in 1974 and the napkin joining the museum's collections? For such an extraordinary napkin, this part of the story is pretty ordinary. Jude brought it home from the 1974 meeting and put it on his desk. His second wife, Christine Bobal, found the napkin and put it in a drawer. No one thought much about it. In 2005 Patricia was cleaning Jude's things out after he died and was sorting through clothes for donation. She rediscovered the napkin at the bottom and back of a handkerchief and underwear drawer. Realizing the importance of the napkin, she moved it to the safety of a bank vault.
While the napkin sat in a drawer and then a bank, the idea sketched on it—the Laffer curve—has taken on symbolic importance critical to the birth of supply-side economics. Some people vilify what became known as Reaganomics; some (like presidential candidate Ross Perot) ran against tax cuts (or fears of increases in national debt), while others held it up as the nation's economic solution.
Interestingly, the Laffer curve's path to fame was slow. Art Laffer, a young professor at the University of Southern California (USC), had preached 14th-century historian and philosopher Ibn Khaldun's theory to his USC economic students. The concept did not have a specific name–it was just wonkish economic philosophy. Things took off four years later when Wanniski published an article, "Taxes, revenues, and the 'Laffer curve'" in the journal National Affairs in the winter of 1978. The catchy "Laffer curve" name and the great story of the meeting helped Laffer's theory take off. In 1978 Wanniski was fired from the Wall Street Journal for political activity and he became an economic consultant to politicians. Wanniski advised President Ronald Reagan, helping him develop the Reagan tax cut and implement supply-side economics.
But back to the artifact itself. One might ask, is this the only napkin on which Art Laffer drew? Probably not. Any good speaker develops techniques and replicates successes. Other Laffer curve napkins may exist, but the Smithsonian object is special. Curators love to look at objects, and this object says a lot. Laffer notes the location (Two Continents Restaurant), memorializes the main participant (Donald Rumsfeld), and signs and dates the piece. And for me that date is so important. The meeting took place on September 13, 1974, almost two months before the midterm elections. It may be that Wanniski, like many other great journalists, embellished the story just a tad.
Peter Liebhold is a co-curator of the American Enterprise exhibition.