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Capitalizing patriotism: the Liberty loans of World War I

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  • Kang, Sung Won
  • Rockoff, Hugh

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.

Suggested Citation

  • Kang, Sung Won & Rockoff, Hugh, 2015. "Capitalizing patriotism: the Liberty loans of World War I," Financial History Review, Cambridge University Press, vol. 22(1), pages 45-78, April.
  • Handle: RePEc:cup:fihrev:v:22:y:2015:i:01:p:45-78_00
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    2. Miguel Cantillo Simon, 2019. "Using long term implied volatilities to assess past and present U.S. stock prices," Working Papers 201908, Universidad de Costa Rica, revised Dec 2019.
    3. Michael Bordo & Arunima Sinha, 2016. "A Lesson from the Great Depression that the Fed Might have Learned: A Comparison of the 1932 Open Market Purchases with Quantitative Easing," NBER Working Papers 22581, National Bureau of Economic Research, Inc.
    4. Joel Slemrod, 2010. "Old George Orwell Got It Backward: Some Thoughts on Behavioral Tax Economics," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 66(1), pages 15-33, March.
    5. David, Geraldine, 2016. "Art as an investment in a historical perspective," Other publications TiSEM 2361da4b-d827-4cae-91ce-1, Tilburg University, School of Economics and Management.
    6. Joel Slemrod & Yulia Kuchumova, 2023. "Gifts to government," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(2), pages 453-492, April.
    7. Geraldine David & Kim Oosterlinck, 2011. "War, Inflation, Monetary Reforms and the Art Market .The Belgian Art market (1944 – 1951)," Working Papers CEB 11-055, ULB -- Universite Libre de Bruxelles.
    8. Benny Geys & Kai A. Konrad, 2016. "Patriotism and Taxation," Working Papers tax-mpg-rps-2016-11, Max Planck Institute for Tax Law and Public Finance.
    9. Tobias A. Jopp, 2016. "Contemporaries' opinions of the Allied and Central Powers' performance during the First World War: measuring turning points in perception with sovereign debt prices," European Review of Economic History, Oxford University Press, vol. 20(2), pages 242-273.
    10. Torregrosa Hetland, Sara & Sabaté, Oriol, 2021. "Income Taxes and Redistribution in the Early Twentieth Century," Lund Papers in Economic History 224, Lund University, Department of Economic History, revised 05 Sep 2022.
    11. Hilt, Eric & Jaremski, Matthew & Rahn, Wendy, 2022. "When Uncle Sam introduced Main Street to Wall Street: Liberty Bonds and the transformation of American finance," Journal of Financial Economics, Elsevier, vol. 145(1), pages 194-216.
    12. Christoph A. Schaltegger & Lukas A. Schmid, 2021. "Public perceptions and bond markets during the Great War: the case of a neutral country," Public Choice, Springer, vol. 186(3), pages 537-561, March.
    13. Michael D. Bordo & Arunima Sinha, 2023. "The 1932 Federal Reserve Open‐Market Purchases as a Precedent for Quantitative Easing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(5), pages 1177-1212, August.
    14. Hugh Rockoff, 2015. "War and Inflation in the United States from the Revolution to the First Iraq War," Departmental Working Papers 201516, Rutgers University, Department of Economics.
    15. Butkiewicz, James L. & Solcan, Mihaela, 2016. "The original Operation Twist: the War Finance Corporation's war bond purchases, 1918–1920," Financial History Review, Cambridge University Press, vol. 23(1), pages 21-46, April.
    16. James L. Butkiewicz & Mihaela Solcan, 2012. "The Original Operation Twist: The War Finance Corporation's War Bond Purchase, 1918-1920," Working Papers 12-13, University of Delaware, Department of Economics.
    17. Joel Slemrod, 2007. "Cheating Ourselves: The Economics of Tax Evasion," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 25-48, Winter.

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