Liberty Bonds were government-issued bonds and were an attempt by the U.S. to finance its involvement in World War I.
In this lesson, you’ll learn about the Liberty Bond and how the nation promoted this important cause.
What Is a Liberty Bond?
Today the United States has a defense budget of over $500 billion, but that wasn’t the case 100 years ago. When the American government entered the Great War in 1917, it was faced with a difficult question: how was the country going to pay for it? Out of that problem the Liberty Bond was born.
Liberty Bonds were the result of a law passed by Congress that allowed the government to petition the people to help pay for the war. The bonds were a major step forward for Americans as investors, as they were the first time Americans invested in individual securities. They were also a way for Americans not fighting in the war to show their support and patriotism.
Different Kinds of Liberty Bonds
In total, five instances of Liberty Bonds were issued by the U.S. government.
In April and October of 1917 and in April and September of 1918 bonds were issued. The fifth bond issue in April 1919 was named the Victory Bond, and the government used that to consolidate short-term war debts.Liberty Bonds were sold to businesses at high dollar amounts, but an individual could buy one for as low as $50. To cater to the desire of poorer Americans to support the war, the government created War Savings Certificate Stamps starting in 1917.
Stamps costing 25 cents could be collected, and when $5 in stamps was collected the stamps could be traded in for a $5 savings certificate. The stamp program was meant to combat the idea that only the rich were making money on the war.
Marketing of Liberty Bonds
When the original Liberty Bond was first issued in April 1917, the rate of return for investors was 3.5%. The low rate didn’t sell well, especially since railroad bonds offered a return rate of 5% at the time, so the government mounted a massive propaganda campaign to drum up support. The government staged bond rallies at cities around the country and gave towns quotas of how many of the bonds they needed to sell.
The government also called on Hollywood to advance the Liberty Bond initiative. Famous actors such as Douglas Fairbanks publicly promoted the purchase of the bonds. Charlie Chaplin, at his own expense, made a short movie titled ‘The Bond’ and a famous cartoonist of that time, Windsor McCay, created a well-known propaganda poster.These celebrity endorsements and posters, along with a higher return on investment, made sales much higher by October of 1917. In fact, by the end of the war, about half of all the families in the United States had bought at least one Liberty Bond valued at between $5 and $100.
All total, by the end of the war, Americans had bought over $18 billion in bonds. These bonds helped to secure Americans’ support of the war, both financially and in spirit.
After the War
War bonds helped to solve a major issue for the American government: how to pay for the war. The bonds also created an investment-driven mindset among Americans, but there was speculation that this new mindset created too much confidence in the stock market, leading to its eventual crash in 1929. Despite this devastating consequence to the American economy, the U.S. government again sold Liberty Bonds to fund World War II, and similar bonds with the same name were sold after the terrorist attacks of September 11, 2001, to help rebuild areas devastated by the attacks.
Let’s review. Liberty Bonds were created and sold by the U.S. government during World War I to help fund the American war effort. The bonds were a way for Americans to support the war, especially if they were unable to take part in combat. The bonds were issued five times between 1917 and 1919.
When sales were slow at first, because of the low rate of return, the government responded by creating a massive propaganda campaign to gain more support.By the end of the war, about half of all Americans owned a war bond valued between $5 and $100. The government also created the War Savings Certificate Stamps program so that lower income Americans could buy stamps in 25 cent increments until they could afford a $5 savings certificate. Another major benefit of Liberty Bonds was that they got Americans to start making individual investments.
One drawback, however, was that they may have created too much confidence in the stock market, leading to its crash in 1929. Liberty Bonds were sold again to fund World War II and also to help rebuild after the September 11, 2001 terrorist attacks.