To help finance the war effort and build patriotism, the US Treasury issued securities termed “Liberty Bonds” in June and October 1917 and in May and October 1918. A fifth and final issue, termed the Victory Liberty Loan or Victory Loan, was issued in May 1919 to consolidate short-term debt issued during the war.
The promised rate of interest on the first Liberty Bond issue, 3.5%, was too low for market conditions, so subscription books were slow to fill. Instead of allowing the bonds to sell below par, the government put on a massive bond sales campaign replete with celebrity endorsements, air shows, sensationalistic posters (like one showing Manhattan ablaze and German bombers overhead), window stickers and buttons. Those tactics, plus larger interest payments and liberalized tax exemptions, increased demand for subsequent issues.
Treasury sold large denomination bonds to financial institutions and bonds with face values as low as $50 directly to individuals. In December 1917, Treasury offered War Savings Certificates and Stamps to entice low-income Americans to invest in the war effort. The 25 cent stamps could be collected in books and exchanged for $5 savings certificates, the lowest denomination offered. Treasury Secretary William McAdoo stressed the importance of retail sales as a means of combating inflation, increasing support for the war (and the national government a la Alexander Hamilton), and defusing claims that poor men did all the dying and working to support a few wealthy bondholders.
It was the brokers and banks, however, that handled most of the retail sales, reprising the role that Jay Cooke’s network of agents handled during the Civil War. Financing the war was greatly simplified by the Federal Reserve, which lent freely to banks at low interest rates. The banks, in turn, bought higher yielding government bonds or lent to borrowers who then bought the bonds. In the end, about half of all American families bought war bonds, most between $5 and $100 worth, but half of the total sum sold were purchased by financial institutions for their own account in $10,000 increments.
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