The Liberty Loan Bond 2007 Marks the 90th Anniversary of the First War Bond of the 20th Century By Lawrence D. Schuffman Registered bonds had semi-annual Popular actors and actresses of the interest payments mailed to the hold- day, such as Al Jolson, Mary Pickford, This year marks an important ers of record. At the time of issue, Douglas Fairbanks and Charlie Chaplin, anniversary in American financial these bonds were redeemable in gold. hosted bond rallies. Even the Girl and history. Ninety years ago the United McAdoo realized he had to fund the Boy Scouts were enlisted into the cause; States declared war on the Imperial war effort with publicly generated they went door-to-door selling bond German government and entered into funds while at the same time not harm- subscriptions. School children saved World War I. And on April 24, 1917, ing the banking system. Consequently, their nickels and dimes and added “The Great War” brought the first in the interest rates paid on Liberty and their change to their parents’ dollars a series of Liberty Loan and Victory Victory Bonds were lower than those to buy special stamps, which were Loan Bonds. paid by the banking institutions. then mounted into their War Savings Liberty Loan Bonds were con- McAdoo needed to appeal to the innate Certificate booklets to buy war bonds. ceived by then-Secretary of the Trea- patriotism of Americans to succeed, so The entire allotment of the First sury William Gibbs McAdoo to he launched an aggressive campaign to Liberty Bond issue of $2 billion finance and support the war effort; raise money from those who supported worth was sold in denominations of Victory Loan Bonds were issued after the war effort by selling Liberty Bonds. $50 to $10,000. The $50 and $100 the war ended. These bonds were usu- The government used famous denominations enabled lower income ally sold in maturities of 30 years artists and illustrators such as groups to participate, while the with call provisions for earlier Howard Chandler Christy, J.C. Leyen- higher denominations were pur- redemptions, although shorter matu- decker, Henry Raleigh, and J. Scott chased by high-income individuals, rities (five to 15 years) were also sold. Williams to motivate, inspire anger, banks, and by U.S. corporations to They could be redeemed for their face and create fear among Americans to pay dividends to shareholders. For value plus interest, and they had the realization of how horrible life example, U.S. Steel purchased $125 coupons which could be clipped for would be if America and its allies lost million in Liberty Bonds. redemption purposes. Some Regis- the war. The premise of these propa- Some complained that the interest tered bonds, similar to our Savings ganda posters ranged from patriotic rate of 3.5 percent was too low, but and “I” Bonds, were issued as well. and majestic to frightening. this was the same as other govern- Financial History ~ Spring 200718 www.financialhistory.org n a m f f u h c n S a . m D f f e u c h n c e S r . w D a L e c n e $100 Third Liberty Loan Bond, 1918. r w a L $50 First Liberty Loan Converted Bond, 1918. because they were redeemed due to the need for money during the Great Depression of the 1930s. There were a total of four Liberty Loan Bond issues and one Victory Loan Bond issue. Of the $24 billion in total subscriptions offered, $21 billion dollars of bonds were issued. The average purchase of five issues n was $445. Analyzing the denomina- a m f tions of the war bonds still outstand- f u h c ing as of June 30, 1920, only $3.9 S . D billion or about 20 percent, were e c n issued in the denominations of $50 e r w a and $100, representing average L Americans with modest means who $50 Liberty Loan Bond, 1917. supported the war effort. As a point of comparison, the financial cost to ment instruments, and the interest on Many of the first two issues of the U.S. of WWI was approximately these bonds was tax exempt except Liberty Bonds were redeemed or $32 billion, or approximately $500 for estate and inheritance taxes. converted to higher rate issues. billion in current dollars. FH This may not seem like a benefit Those bonds converted were under our current tax structure, but exchanged into the “First Liberty with the maximum tax rate then of 67 Bond Converted” or “Second Lib- percent, a bond paying a 3.5 percent erty Bond Converted” issues. The Lawrence D. Schuffman, MSFS, CFP, federally tax-free interest rate is first two Liberty Loan Bond issues CLU, specializes in Estate and equivalent to a risk free taxable 10.6 that were not redeemed or converted Retirement planning through Summit percent yield. are among the rarest of the bonds Financial Resources, Inc., and is the The wartime economy surged, issued. Many of these bonds have historical consultant to USALIB- interest rates rose and bond prices fell. not survived the last nine decades ERTYLOANBONDS.com. www.financialhistory.org19 Financial History ~ Spring 2007.