Hostname: page-component-cd9895bd7-dzt6s Total loading time: 0 Render date: 2024-12-28T17:10:01.217Z Has data issue: false hasContentIssue false
  • English
  • Français

Capitalizing patriotism: the Liberty loans of World War I

Published online by Cambridge University Press:  20 May 2015

Sung Won Kang  and
Hugh Rockoff
Sung Won Kang
Affiliation:
Korean Economic Research Institute
Hugh Rockoff*
Affiliation:
Rutgers University
*
H. Rockoff (corresponding author), Department of Economics, Rutgers University, New Brunswick, NJ 08901, USA; and NBER; rockoff@econ.rutgers.edu
Get access Rights & Permissions [Opens in a new window]

Abstract

Although taxes were raised substantially in the United States during World War I, recourse was had to five bond issues, the famous Liberty loans, to finance the bulk of war expenditures. The Secretary of the Treasury, William Gibbs McAdoo, hoped to create a broad market for the Liberty bonds and to limit their yields by following an aggressive policy of ‘capitalizing patriotism’. He called on everyone from Wall Street bankers to the Boy Scouts to volunteer for campaigns to sell the bonds. The campaigns have become legendary. Some of the nation's best-known artists were recruited to draw posters depicting the contribution to the war effort to be made by buying bonds, and giant bond rallies featuring Hollywood stars were organized. These efforts, however, enjoyed limited success. The yields on the Liberty bonds were kept low mainly by making the bonds tax exempt and by making sure that a large proportion of them were purchased directly or indirectly by the Federal Reserve, turning the Federal Reserve into an engine of inflation. Patriotism proved to be a weak, although not powerless, offset to normal market forces.

Keywords

Liberty bondswar financeWorld War I

JEL classification

N22: U.S. • Canada: 1913–
Type
Articles
Information
Financial History Review , Volume 22 , Issue 1 , April 2015 , pp. 45 - 78
Check for updates
Copyright
Copyright © European Association for Banking and Financial History e.V. 2015 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Adams, H. C. (1886). American war-financiering. Political Science Quarterly, 1(3), pp. 349–85.CrossRefGoogle Scholar
Adams, H. C. (1918). Borrowing as a phase of war financiering. Annals of the American Academy of Political and Social Science, 75, pp. 23–30.CrossRefGoogle Scholar
Barro, R. J. (1987). Interest rates, prices and budget deficits in the United Kingdom. Journal of Monetary Economics, 20, pp. 221–48.CrossRefGoogle Scholar
Barro, R. J. (1989). The neoclassical approach to fiscal policy. In Barro, R. J. (ed.), Modern Business Cycle Theory. Cambridge: Cambridge University Press, pp. 178–235.Google Scholar
Balke, N. S. and Gordon, R. J. (1989). The estimation of prewar gross national product: methodology and new evidence. Journal of Political Economy, 97, pp. 38–92.CrossRefGoogle Scholar
Bogart, E. L., Bullock, C. J., Fairchild, F. R., Gardner, H. B., Haig, R. M., Hollander, J. H. and Kemmerer, E. W. et al. (1919). Report of the Committee on War Finance. American Economic Review, 9 (1), supplement, no. 2: Report of the Committee on War Finance of the American Economic Association, pp. 1–127.Google Scholar
Butkiewicz, J. L. and Solcan, M. (2012). The original operation twist: the War Finance Corporation's war bond purchases, 1918-1920. Department of Economics. University of Delaware Working Paper no. 2012-13.Google Scholar
Carter, S. B., Gartner, S. G., Haines, M. R., Olmstead, A. L., Sutch, R. and Wright, G. (2006). Historical Statistics of the United States: Earliest Times to the Present. Millennial edition. New York: Cambridge University Press.Google Scholar
Creel, G. (1972 [1920]). How We Advertised America. New York: Arno Press.Google Scholar
Dewey, D. R. 1931. Financial History of the United States. New York: Longmans, Green and Co.Google Scholar
Evans, P. (1986). Do large deficits produce high interest rates? American Economic Review, 75, pp. 68–87.Google Scholar
Fisher, I. (1918). How the public should pay for the war. Annals of the American Academy of Political and Social Science, 78, pp. 112–17.CrossRefGoogle Scholar
Friedman, M. (1957). A Theory of the Consumption Function. Princeton: Princeton University Press.CrossRefGoogle Scholar
Friedman, M. and Schwartz, A. J. (1963). A Monetary History of the United States, 1867-1960. Princeton: Princeton University Press, for the NBER.Google Scholar
Friedman, M. and Schwartz, A. J. (1970). Monetary Statistics of the United States: Estimates, Sources, Methods. New York: Columbia University Press, for the NBER.Google Scholar
Garbade, K. D. (2012). Birth of a Market: The US Treasury Securities Market from the Great War to the Great Depression. Cambridge MA: MIT Press.CrossRefGoogle Scholar
Gilbert, C. (1970). American Financing of World War I. Westport, CT: Greenwood.Google Scholar
Gilbert, M. (1994). The First World War. New York: Henry Holt and Company.Google Scholar
Hume, D. (1970 [1752]). Of public credit. In Rotwein, E. (ed.), David Hume: Writings on Economics. Madison: University of Wisconsin Press, pp. 90–107.Google Scholar
Johnston, L. and Williamson, S. W. (2002). The annual real and nominal GDP for the United States, 1789 – present. Economic History Services, April: www.eh.net/hmit/gdp/.Google Scholar
Kennedy, D. M. (2004). Over Here: The First World War and American Society. Oxford: Oxford University Press, twenty-fifth Anniversary issue.CrossRefGoogle Scholar
Klein, B. (1974). Competitive interest payments on bank deposits and the long-run demand for money. American Economic Review, 64, pp. 931–49.Google Scholar
Lauterbach, A. T. (1942). Economic demobilization in the United States after the First World War. Political Science Quarterly, 57, pp. 504–25CrossRefGoogle Scholar
Love, R. A. (1925). The use of Liberty bonds in payment of estate taxes. American Economic Review, 15, pp. 275–83.Google Scholar
Mcadoo, W. G. (1931). Crowded Years: The Reminiscences of William G. McAdoo. Boston: Houghton Mifflin.Google Scholar
Mccloskey, D. N. (1998). Bourgeois virtue and the history of P and S. Journal of Economic History, 58(2), pp. 297–317.CrossRefGoogle Scholar
Meltzer, A. H. (2003). A History of the Federal Reserve, vol. 1: 1913-1951. Chicago: University of Chicago Press.Google Scholar
Mill, J. S. (1940). Principles of Political Economy, ed. Ashley, Sir W. J.. London: Longmans, Green and Co.Google Scholar
Miller, E. T., Lutz, H. L., Lincoln, E. E., Urdahl, T. K. and Sprague, O. M. W. (1917). Loans and taxes in war finance: discussion. American Economic Review, 7(1), supplement: Papers and Proceedings of the Twenty-ninth Annual Meeting of the American Economic Association, pp. 214–23.Google Scholar
Nash, G. D. (1959). Herbert Hoover and the origins of the Reconstruction Finance Corporation. Mississippi Valley Historical Review, 46(3), pp. 455–68.CrossRefGoogle Scholar
Noyes, A. D. (1926). The War Period of American Finance, 1908-1925. New York: G. P. Putnam's Sons.Google Scholar
Olney, M. L. (1995). Saving and dissaving by 12,817 American households, 1917-1919 [computer file]. Ann Arbor, MI: Inter-university Consortium for Political and Social Research.Google Scholar
Pigou, A. C. (1921). The Political Economy of War. New York: Macmillan.Google Scholar
Samuel, L. (1997). Pledging Allegiance: American Identity and the Bond Drive of World War II. Washington: Smithsonian Institution Press.Google Scholar
Schultz, W. J. and Caine, M. R. (1937). Financial Development of the United States. New York: Prentice-Hall.Google Scholar
Seligman, E. R.A. (1918). Loans versus taxes in war finance. Annals of the American Academy of Political and Social Science, 78, pp. 52–82.CrossRefGoogle Scholar
Smiley, G. and Keehn, R. H. (1995). Federal personal income tax policy in the 1920s. Journal of Economic History, 55(2), pp. 285–303.CrossRefGoogle Scholar
Smith, A. (1979 [1776]). An Inquiry into the Nature and Causes of The Wealth of Nations, ed. Campbell, R. H. and Skinner, A. S.. Oxford, Oxford University Press. Reprint, Liberty Fund, Inc., Indianapolis Indiana, 1981.Google Scholar
Sprague, O. M. W. (1917). Loans and taxes in war finance. American Economic Review 7(1), supplement: Papers and Proceedings of the Twenty-ninth Annual Meeting of the American Economic Association, pp. 199–213.Google Scholar
Sprague, O. M. W. (1918). The relationship between loans and taxes in war finance. Annals of the American Academy of Political and Social Science, 78, pp. 83–9.CrossRefGoogle Scholar
St Clair, L. (1919). The Story of the Liberty Loans. Washington, DC: James William Bryan Press.Google Scholar
US Bureau of the Census (1975). Historical Statistics of the United States, Colonial Times to 1970, Bicentennial Edition. US Government Printing Office: Washington, DC.Google Scholar
Vaughn, S. (1980). Holding Fast the Inner Lines: Democracy, Nationalism, and the Committee on Public Information. Chapel Hill: University of North Carolina Press.Google Scholar
Whittlesey, C. R. (1950). Readings in Money and Banking. New York: W.W. Norton, Inc.Google Scholar