Pale Horse Pale Rider is a story set in World War 1, and we see a lot of elements from the era become everyday realities for Miranda, our protagonist. One of those are the Liberty Bonds, which salesmen keep hounding her for, and she wonders what use her 50 dollars could be for the country.
War is a military effort. It is an economic effort. It is a political effort. The Liberty Bonds were a way of making it a public effort too. It is quite interesting to delve a bit deeper into Liberty Bonds, to understand what they were and how useful they ended up being.
A war is, beyond the display of military firepower, a stress test for the economy as well. Great war efforts need an economy that will support them. The “war economy” is the result of changes a country makes to alter its production capabilities. This means reorganising factories and mobilising extra labour (on account of increases in required production, and drafting of able-bodied soldiers).
However, a vital cog in this machine is how all of this is funded. When automobile companies produced vehicles for the US military, they called it their patriotic duty, but they still had to get paid for it. Who would pay, and how?
During World War 1, the US Government had 3 options: printing money, taxation, and borrowing. While printing money sounds like an easy fix, it actually means facing the risk of inflation in the economy, which wasn’t an exciting prospect in the middle of a war.
Both taxation and borrowing were on the table, but having only one of them wasn’t the right option. Taxation meant that the US Government could conveniently pick the tax rate and collect a certain amount of revenue for the war. However, in an uncertain situation, it was not known how much the war would cost, and regularly increasing taxes was not something any government would be keen on.
Hence, Liberty Bonds were introduced as a way to raise an extra amount of money to fund the effort. They were supposed to be effective because of their high interest rates and the sense of patriotism one was supposed to get from buying one. It was targeted at households and individual investors, to introduce them to financial securities.
The Committee for Public Information, a propaganda office that was established to mobilise public opinion, took care of building a campaign around the bonds.
The effort was unprecedented
Here is a quote from an article by the Federal Reserve:
“The loan drives were the subject of the greatest advertising effort ever conducted. The first drive in May 1917 used 11,000 billboards and streetcar ads in 3,200 cities, all donated. During the second drive, 60,000 women were recruited to sell bonds. This volunteer army stationed women at factory gates to distribute seven million fliers on Liberty Day. The mail-order houses of Montgomery Ward and Sears-Roebuck mailed two million information sheets to farm women. “Enthusiastic” librarians inserted four-and-one-half million Liberty Loan reminder cards in public library books in 1,500 libraries. Celebrities were recruited. Charlie Chaplin, Mary Pickford, and Douglas Fairbanks, certainly among the most famous personalities in America, toured the country holding bond rallies attended by thousands.”
It did not go unrewarded. Approximately 20 million individuals purchased bonds, and they funded two-thirds of the expenses of the war (the rest funded through taxation).
Fueled by this success, the US Government also continued issuing War bonds during World War 2 (along with other governments involved in the War). Fortunately we have not seen any more world wars. However, the US government remains the most important player in the Bond market. Most financial investors looking to hold a balanced portfolio (i.e. distributing their eggs across baskets) hold about 40% of their investments in bonds (both government and corporate). US Government bonds are currently the safest investments on earth.
Coming closer to the present, in the “war against COVID”, it’s the public that needs money, not the government. So the Federal Reserve actually bought bonds in the market, as a way to ease the economic pressure in the market.
Bonds are a reliable, frequently used tool in the arsenal of central banks around the world. Liberty or not, bonds have affected the day-to-day life of billions of people around the world, directly and indirectly.
P.S. – who can say no to Captain America?