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A liberty bond (or liberty loan) was a
war bond War bonds (sometimes referred to as Victory bonds, particularly in propaganda) are debt securities issued by a government to finance military operations and other expenditure in times of war without raising taxes to an unpopular level. They are ...
that was sold in the United States to support the
Allied An alliance is a relationship among people, groups, or states that have joined together for mutual benefit or to achieve some common purpose, whether or not explicit agreement has been worked out among them. Members of an alliance are called ...
cause in
World War I World War I (28 July 1914 11 November 1918), often abbreviated as WWI, was one of the deadliest global conflicts in history. Belligerents included much of Europe, the Russian Empire, the United States, and the Ottoman Empire, with fightin ...
. Subscribing to the bonds became a symbol of patriotic duty in the United States and introduced the idea of
financial securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
to many citizens for the first time.


Liberty Bond Issues 1917–1918

There were four issues of Liberty Bonds: * April 24, 1917: Emergency Loan Act () authorizes issue of $1.9 billion in bonds at 3.5 percent. * October 1, 1917: Second Liberty Loan offers $3.8 billion in bonds at 4 percent * April 5, 1918: Third Liberty Loan offers $4.1 billion in bonds at 4.15 percent. * September 28, 1918: Fourth Liberty Loan offers $6.9 billion in bonds at 4.25 percent. Interest on up to $30,000 in the bonds was tax exempt only for the First Liberty Bond.


First Liberty Bond Act

The Second Liberty Loan Act established a $5 billion aggregate limit on the amount of government bonds issued at 30 years at 3.5% interest, redeemable by the government after 15 years. It raised $2 billion with 5.5 million people purchasing bonds.


Second Liberty Bond Act

The 2nd Liberty Loan Act established a $15 billion aggregate limit on the amount of government bonds issued, allowing $3 billion more offered at 25 years at 4% interest, redeemable after 10 years. The amount of the loan totaled $3.8 billion with 9.4 million people purchasing bonds.


Sales difficulties and the subsequent campaign

The response to the first Liberty Bond was unenthusiastic and although the $2 billion issue reportedly sold out, it probably had to be done below par because the notes traded consistently below par. One reaction to this was to attack bond traders as "unpatriotic" if they sold below par. The Board of Governors of the New York Stock Exchange conducted an investigation of brokerage firms who sold below par to determine if "pro-German influences" were at work. The board forced one such broker to buy the bonds back at par and make a $100,000 donation to the Red Cross. Various explanations were offered for the weakness of the bonds ranging from German sabotage to the rich not buying the bonds because it would give an appearance of tax dodging (the bonds were exempt from some taxes). A common consensus was that more needed to be done to sell the bonds to small investors and the common man, rather than large concerns. The poor reception of the first issue resulted in a convertible re-issue five months later at the higher interest rate of 4% and with more favorable tax terms. When the new issue arrived it also sold below par, although the Times noted that "no Government bonds can sell at par except temporarily and by accident." The subsequent 4.25% bond priced as low as 94 cents upon arrival. Secretary of the Treasury
William Gibbs McAdoo William Gibbs McAdoo Jr.McAdoo is variously differentiated from family members of the same name: * Dr. William Gibbs McAdoo (1820–1894) – sometimes called "I" or "Senior" * William Gibbs McAdoo (1863–1941) – sometimes called "II" or "Ju ...
reacted to the sales problems by creating an aggressive campaign to popularize the bonds. The government used a division of the
Committee on Public Information The Committee on Public Information (1917–1919), also known as the CPI or the Creel Committee, was an independent agency of the government of the United States under the Wilson administration created to influence public opinion to support the ...
called the
Four Minute Men The Four Minute Men were a group of volunteers authorized by United States President Woodrow Wilson to give four-minute speeches on topics given to them by the Committee on Public Information (CPI). In 1917–1918, over 750,000 speeches were give ...
to help sell Liberty Bonds and Thrift Stamps. Famous artists helped to make posters and movie and stage stars hosted bond rallies.
Al Jolson Al Jolson (born Eizer Yoelson; June 9, 1886 – October 23, 1950) was a Lithuanian-American Jews, Jewish singer, comedian, actor, and vaudevillian. He was one of the United States' most famous and highest-paid stars of the 1920s, and was self-bi ...
,
Elsie Janis Elsie Janis (born Elsie Bierbower, March 16, 1889 – February 26, 1956) was an American actress of stage and screen, singer, songwriter, screenwriter and radio announcer. Entertaining the troops during World War I immortalized her as "Forces ...
,
Mary Pickford Gladys Marie Smith (April 8, 1892 – May 29, 1979), known professionally as Mary Pickford, was a Canadian-American stage and screen actress and producer with a career that spanned five decades. A pioneer in the US film industry, she co-founde ...
,
Theda Bara Theda Bara ( ; born Theodosia Burr Goodman; July 29, 1885 – April 7, 1955) was an American silent film and stage actress. Bara was one of the more popular actresses of the silent era and one of cinema's early sex symbols. Her femme fatal ...
,
Ethel Barrymore Ethel Barrymore (born Ethel Mae Blythe; August 15, 1879 – June 18, 1959) was an American actress and a member of the Barrymore family of actors. Barrymore was a stage, screen and radio actress whose career spanned six decades, and was regarde ...
,
Marie Dressler Marie Dressler (born Leila Marie Koerber, November 9, 1868 – July 28, 1934) was a Canadian stage and screen actress, comedian, and early silent film and Depression-era film star. In 1914, she was in the first full-length film comedy. She ...
,
Lillian Gish Lillian Diana Gish (October 14, 1893February 27, 1993) was an American actress, director, and screenwriter. Her film-acting career spanned 75 years, from 1912, in silent film shorts, to 1987. Gish was called the "First Lady of American Cinema", ...
,
Fatty Arbuckle Roscoe Conkling "Fatty" Arbuckle (; March 24, 1887 – June 29, 1933) was an American silent film actor, comedian, director, and screenwriter. He started at the Selig Polyscope Company and eventually moved to Keystone Studios, where he worked w ...
,
Mabel Normand Amabel Ethelreid Normand (November 9, 1893 – February 23, 1930), better known as Mabel Normand, was an American silent film actress, screenwriter, director, and producer. She was a popular star and collaborator of Mack Sennett in their K ...
,
Douglas Fairbanks Douglas Elton Fairbanks Sr. (born Douglas Elton Thomas Ullman; May 23, 1883 – December 12, 1939) was an American actor, screenwriter, director, and producer. He was best known for his swashbuckling roles in silent films including '' The Thie ...
, and
Charlie Chaplin Sir Charles Spencer Chaplin Jr. (16 April 188925 December 1977) was an English comic actor, filmmaker, and composer who rose to fame in the era of silent film. He became a worldwide icon through his screen persona, the Tramp, and is consider ...
were among the celebrities that made public appearances promoting the idea that purchasing a liberty bond was "the patriotic thing to do" during the era. Chaplin also made a short film, ''
The Bond ''The Bond'' is a propaganda film created by Charlie Chaplin at his own expense for the Liberty Loan Committee for theatrical release to help sell U.S. Liberty Bonds during World War I. Made in 1918 with Edna Purviance, Albert Austin and Sydn ...
'', at his own expense for the drive. The
Boy Scouts Boy Scouts may refer to: * Boy Scout, a participant in the Boy Scout Movement. * Scouting, also known as the Boy Scout Movement. * An organisation in the Scouting Movement, although many of these organizations also have female members. There are ...
and Girl Scouts sold the bonds, using the slogan "Every Scout to Save a Soldier". Beyond these effective efforts, in 1917 the Aviation Section of the U.S. Army Signal Corps established an elite group of Army pilots assigned to the Liberty Bond campaign. The plan for selling bonds was for the pilots to crisscross the country in their
Curtiss JN-4 The Curtiss JN "Jenny" was a series of biplanes built by the Curtiss Aeroplane Company of Hammondsport, New York, later the Curtiss Aeroplane and Motor Company. Although the Curtiss JN series was originally produced as a training aircraft for th ...
"Jenny" training aircraft in flights of 3 to 5 aircraft. When they arrived over a town, they would perform aerobatic stunts, and put on mock dog fights for the populace. After performing their air show, they would land on a road, a golf course, or a pasture nearby. By the time they shut down their engines, most of the townspeople, attracted by their performance, would have gathered. At that point, most people had never seen an airplane, nor ridden in one. Routinely each pilot stood in the rear cockpit of his craft and told the assemblage that every person who purchased a Liberty Bond would be taken for a ride in one of the airplanes. The program raised a substantial amount of money. The methodology developed and practiced by the Army was later followed by numerous entrepreneurial flyers known as
Barnstormers Barnstormer, Barnstorm or Barnstorming may refer to: __NOTOC__ Sports * Barnstorming, aerial stunts performed for entertainment, popular in the 1920s * Barnstorming (sports), athletic practice of traveling and playing exhibition matches outside of ...
, who purchased war surplus Jenny airplanes and flew across the country selling airplane rides. Vast amounts of promotional materials were manufactured. For example, for the third Liberty Loan nine million posters, five million window stickers and 10 million buttons were produced and distributed. The campaign spurred community efforts across the country and resulted in glowing, patriotically-tinged reports on the "success" of the bonds. For the fifth and final loan drive (the Victory Loan) in 1919 the Treasury Department produced steel medallions made from melted down German cannon that had been captured by American troops at
Château-Thierry Château-Thierry () is a French commune situated in the department of the Aisne, in the administrative region of Hauts-de-France, and in the historic Province of Champagne. The origin of the name of the town is unknown. The local tradition att ...
in NW France. The inch-and-a-quarter wide medallions suspended from a red, white, and blue ribbon were awarded by the Department to Victory Liberty Loan campaign volunteers in appreciation of their service in the drive. Despite all these measures, recent research has shown that patriotic motives played only a minor role in investors' decisions to buy these bonds. Through the selling of "Liberty bonds," the government raised around $17 billion for the war effort. Considering that there were approximately 100 million Americans at the time, each American, on average, raised $170 on Liberty bonds. According to the Massachusetts Historical Society, "Because the first World War cost the federal government more than $30 billion (by way of comparison, total federal expenditures in 1913 were only $970 million), these programs became vital as a way to raise funds". Peak US indebtedness was in August 1919 at a value of $25,596,000,000 for Liberty Bonds, Victory Notes, War Savings Certificates, and other government securities. As early as 1922 the possibility that the war debt could not be paid in full within the expected schedule was raised, and that debt rescheduling may be needed. In 1921 the Treasury Department began issuing short term notes maturing in three to five years to repay the Victory Loan.Los Angeles Times, October 5, 1922, page IV9.


Victory Liberty Loan

A fifth bond issue relating to World War I was released on April 21, 1919. Consisting of $4.5 billion of gold notes at 4.75% interest, they matured after four years but could be redeemed by the government after three. Exempt from all income taxes, they were called at the time "the last of the series of five Liberty Loans." However they were also called the "Victory Liberty Loan," and appear this way on posters of the period.


Repayment

The first three bonds and the Victory Loan were partially retired during the course of the 1920s, but the majority of these bonds were simply re-financed through other government securities. The Victory Loan, which was to mature in May 1923, was retired with money raised by short term treasury notes which matured after three to five years and issued at 90-day intervals until sufficient funds were raised in 1921. The likelihood of successfully retiring all of the war debt (within the amount of time) was noted as early as 1921. In 1927, the 2nd and 3rd, together worth five billion dollars (25% of all government debt at the time), were called for redemption and refunded through the issuance of other government securities through the Treasury Department. Some of the principal was retired. For example, of the 3.1 billion dollars owed on the 2nd Liberty Bond, 575 million in principal was retired and the rest refinanced. At this same time, the 1st Liberty Bond still had 1.9 billion dollars outstanding in 1927 with a call date for 1932 while the fourth Liberty Bond, with six billion dollars, had a call date for 1932 as well.


Default of the Fourth Liberty Bond

The first three Liberty bonds, and the Victory Loan, were retired during the course of the 1920s. However, because the terms of the bonds allowed them to be traded for the later bonds which had superior terms, most of the debt from the first, second, and third Liberty bonds was rolled into the fourth issue. The fourth Liberty Bond had the following terms: *Date of Bond: October 24, 1918 *Coupon Rate: 4.25% *Callable Starting: October 15, 1933 *Maturity Date: October 15, 1938 *Amount Originally Tendered: $6 billion *Amount Sold: $7 billion The terms of the bond included: "The principal and interest hereof are payable in United States gold coin of the present standard of value."Perry v United States, 294 US 330 (1935) This type of " gold clause" was common in both public and private contracts of the time, and was intended to guarantee that bond-holders would not be harmed by a devaluation of the currency. However, when the US Treasury called the fourth bond on April 15, 1934, it defaulted on this term by refusing to redeem the bond in gold, and neither did it account for the devaluation of the dollar from $20.67 per troy ounce of gold (the 1918 standard of value) to $35 per ounce. The 21 millionSakolski, Aaron Morton. "Wall Street and the Security Markets". 1925 bond holders therefore lost 139 million troy ounces of gold, or approximately 41% of the bond's principal. This was the equivalent of $2.866 billion (in 1918 dollars) and $250 billion in 2021 dollars (139 million ounces x ~$1,800 per troy ounce). The legal basis for the refusal of the US Treasury to redeem in gold was the gold clause resolution (Pub. Res. 73–10), dated June 5, 1933. The Supreme Court later held this to be unconstitutional under section 4 of the Fourteenth Amendment: However, due to President
Franklin D. Roosevelt Franklin Delano Roosevelt (; ; January 30, 1882April 12, 1945), often referred to by his initials FDR, was an American politician and attorney who served as the 32nd president of the United States from 1933 until his death in 1945. As the ...
's elimination of the open gold market with the signing of
Executive Order 6102 Executive Order 6102 is an executive order signed on April 5, 1933, by US President Franklin D. Roosevelt "forbidding the hoarding of gold coin, gold bullion, and gold certificates within the continental United States." The executive order was ...
on April 5, 1933, the Court ruled that the bond-holders' loss was unquantifiable, and that to repay them in dollars according to the 1918 standard of value would be an "unjustified enrichment". The ruling therefore had little practical effect.


Impact

According to a 2020 study, "counties with higher liberty bond ownership rates turned against the Democratic Party in the presidential elections of 1920 and 1924. This was a reaction to the depreciation of the bonds prior to the 1920 election (when the Democrats held the presidency) and the appreciation of the bonds in the early 1920s (under a Republican president), as the Federal Reserve raised and then subsequently lowered interest rates."


Liberty Bond posters

File:Fourth Liberty Loan Poster Walter Hunt Everett.jpg File:Liberty Bond - 1.jpg, 1 File:Liberty Bond - 2.jpg, 2 File:Liberty Bond - 3.jpg, 3 File:Liberty Bond - 4.jpg, 4 File:Liberty Bond - 5.jpg, 5 File:Liberty Bond - 6.jpg, 6 File:Liberty Bond - 7.jpg, 7 File:Liberty Bond - 8.jpg, 8 File:Liberty Bond - 9.jpg, 9 File:Liberty Bond - 10.jpg, 10 File:Liberty Bond - 12.jpg, 12 File:Liberty Bond - 13.jpg, 13 File:Liberty Bond - 14.jpg, 14 File:Liberty Bond - 15.jpg, 15 File:Americans All!, World War I poster - DPLA - 00fe42fe4c75896e321873d07970b2b9.jpg, 16 File:Invest in the Victory Liberty Loan, World War I poster - DPLA - 01fbbe3a69cc1e1dd0c4d36779c3922b.jpg, 17 File:Are You 100% American? Prove It!, World War I poster - DPLA - c3e4c4192b8068f6cd431b292e3f0a24.jpg, 18 File:Honor Roll, World War I poster - DPLA - e19a6a0c1835b162843fd4ef5f8dcdd7.jpg, 19


See also

* Economic history of the United States#World War I *
Economic history of World War I The economic history of World War I covers the methods used by the First World War (1914–1918), as well as related postwar issues such as war debts and reparations. It also covers the economic mobilization of labour, industry, and agriculture ...
*
National debt of the United States The national debt of the United States is the total national debt owed by the federal government of the United States to Treasury security holders. The national debt at any point in time is the face value of the then-outstanding Treasury sec ...
*
Philadelphia Liberty Loans Parade The Philadelphia Liberty Loans Parade was a parade in Philadelphia, Pennsylvania, on September 28, 1918, organized to promote government bonds that helped pay for the needs of Allied troops in World War I. More than 200,000 Philadelphians atten ...
*
United States home front during World War I United may refer to: Places * United, Pennsylvania, an unincorporated community * United, West Virginia, an unincorporated community Arts and entertainment Films * ''United'' (2003 film), a Norwegian film * ''United'' (2011 film), a BBC Two fi ...
* War bond (World War II)


References


Bibliography

* * Childs, C. Frederick. "United States Government Bonds." ''Annals of the American Academy of Political and Social Science'' 88 (1920): 43-50
in JSTOR
* * Hart Jr, Henry M. "The Gold Clause in United States Bonds" ''Harvard Law Review'' 48 (1934): 1057. * Hollihan, Thomas A. "Propagandizing in the interest of war: A rhetorical study of the committee on public information." ''Southern Journal of Communication'' 49.3 (1984): 241-257. * Kang, Sung Won, and Hugh Rockoff. "Capitalizing Patriotism: The Liberty Loans of World War I" (Paper No. w11919. National Bureau of Economic Research, 2006) * Kimble, James J. ''Mobilizing the home front: war bonds and domestic propaganda'' (Texas A&M University Press, 2006)


Primary sources

* *


External links


Posters for Liberty Bonds
from th
Elisabeth Ball Collection
of World War I posters
Liberty Loan documents, and other War Finance documents
available on
FRASER Fraser may refer to: Places Antarctica * Fraser Point, South Orkney Islands Australia * Fraser, Australian Capital Territory, a suburb in the Canberra district of Belconnen * Division of Fraser (Australian Capital Territory), a former federal ele ...

Circulars of the Federal Reserve Bank of New York
including circulars on Liberty Loans {{Authority control 65th United States Congress Government bonds issued by the United States United States home front during World War I