18Financial History ~ Spring 2007 www.financialhistory.org

By Lawrence D. Schuffman

This year marks an importantanniversary in American financialhistory. Ninety years ago the UnitedStates declared war on the ImperialGerman government and entered intoWorld War I. And on April 24, 1917,“The Great War” brought the first ina series of Liberty Loan and VictoryLoan Bonds.

Liberty Loan Bonds were con-ceived by then-Secretary of the Trea-sury William Gibbs McAdoo tofinance and support the war effort;Victory Loan Bonds were issued afterthe war ended. These bonds were usu-ally sold in maturities of 30 yearswith call provisions for earlierredemptions, although shorter matu-rities (five to 15 years) were also sold.They could be redeemed for their facevalue plus interest, and they hadcoupons which could be clipped forredemption purposes. Some Regis-tered bonds, similar to our Savingsand “I” Bonds, were issued as well.

Registered bonds had semi-annualinterest payments mailed to the hold-ers of record. At the time of issue,these bonds were redeemable in gold.

McAdoo realized he had to fund thewar effort with publicly generatedfunds while at the same time not harm-ing the banking system. Consequently,the interest rates paid on Liberty andVictory Bonds were lower than thosepaid by the banking institutions.McAdoo needed to appeal to the innatepatriotism of Americans to succeed, sohe launched an aggressive campaign toraise money from those who supportedthe war effort by selling Liberty Bonds.

The government used famousartists and illustrators such asHoward Chandler Christy, J.C. Leyen-decker, Henry Raleigh, and J. ScottWilliams to motivate, inspire anger,and create fear among Americans tothe realization of how horrible lifewould be if America and its allies lostthe war. The premise of these propa-ganda posters ranged from patrioticand majestic to frightening.

Popular actors and actresses of theday, such as Al Jolson, Mary Pickford,Douglas Fairbanks and Charlie Chaplin,hosted bond rallies. Even the Girl andBoy Scouts were enlisted into the cause;they went door-to-door selling bondsubscriptions. School children savedtheir nickels and dimes and addedtheir change to their parents’ dollarsto buy special stamps, which werethen mounted into their War SavingsCertificate booklets to buy war bonds.

The entire allotment of the FirstLiberty Bond issue of $2 billionworth was sold in denominations of$50 to $10,000. The $50 and $100denominations enabled lower incomegroups to participate, while thehigher denominations were pur-chased by high-income individuals,banks, and by U.S. corporations topay dividends to shareholders. Forexample, U.S. Steel purchased $125million in Liberty Bonds.

Some complained that the interestrate of 3.5 percent was too low, butthis was the same as other govern-

The LibertyLoan Bond

2007 Marks the 90th Anniversary of theFirst War Bond of the 20th Century

The LibertyLoan Bond

19www.financialhistory.org Financial History ~ Spring 2007

ment instruments, and the interest onthese bonds was tax exempt exceptfor estate and inheritance taxes.

This may not seem like a benefitunder our current tax structure, butwith the maximum tax rate then of 67percent, a bond paying a 3.5 percentfederally tax-free interest rate isequivalent to a risk free taxable 10.6percent yield.

The wartime economy surged,interest rates rose and bond prices fell.

Many of the first two issues ofLiberty Bonds were redeemed orconverted to higher rate issues.Those bonds converted wereexchanged into the “First LibertyBond Converted” or “Second Lib-erty Bond Converted” issues. Thefirst two Liberty Loan Bond issuesthat were not redeemed or convertedare among the rarest of the bondsissued. Many of these bonds havenot survived the last nine decades

because they were redeemed due tothe need for money during the GreatDepression of the 1930s.

There were a total of four LibertyLoan Bond issues and one VictoryLoan Bond issue. Of the $24 billionin total subscriptions offered, $21billion dollars of bonds were issued.The average purchase of five issueswas $445. Analyzing the denomina-tions of the war bonds still outstand-ing as of June 30, 1920, only $3.9billion or about 20 percent, wereissued in the denominations of $50and $100, representing averageAmericans with modest means whosupported the war effort. As a pointof comparison, the financial cost tothe U.S. of WWI was approximately$32 billion, or approximately $500billion in current dollars.

Lawrence D. Schuffman, MSFS, CFP,CLU, specializes in Estate and Retirement planning through SummitFinancial Resources, Inc., and is the historical consultant to USALIB-ERTYLOANBONDS.com.

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$50 First Liberty Loan Converted Bond, 1918.

$100 Third Liberty Loan Bond, 1918.

$50 Liberty Loan Bond, 1917.

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