Your Duty—Buy United States Government Bonds

2nd Liberty Loan of 1917

Poster

By: U.S. Treasury

Date: 1917

Source: © Swim Ink, LLC/Corbis.

About the Artist: The artist who composed this poster is unknown. The image is part of the collection of the Corbis Corporation, headquartered in Seattle, with a worldwide archive of over seventy million images.

INTRODUCTION

From 1914 to 1918, the nations of the world spent an estimated $185 billion fighting the Great War, better known today as World War I. Another $150 billion was probably spent as well, making the total cost of the conflict more than $300 billion. From its entry in 1917 to the war's conclusion the following year, the United States incurred an estimated $23 billion in direct costs. Given that total federal receipts for 1917 were only $1 billion, the U.S. Congress and the president needed to quickly boost revenue to underwrite the war.

As in the Civil War, Congress first expanded the federal income tax, doubling the rate from one percent to two percent and lowering the threshold at which individuals began paying. Taxpayers fortunate enough to earn $1 million or more were taxed at a rate of fifty percent, a rate later raised to seventy-seven percent. Federal revenues quadrupled, rising to $4 billion in 1918, due largely to these tax changes.

Anticipating climbing war costs, Congress also passed the Emergency Loan Act of 1917. This action raised war capital by authorizing the treasury to issue $5 billion in war bonds. These bonds, dubbed Liberty Bonds, carried an interest rate of 3.5 percent. By purchasing a bond, citizens were loaning the government money to prosecute the war in return for repayment after the war ended.

Liberty Bonds were among the most heavily marketed financial products of the early twentieth century. Massive rallies were held to promote bond sales. Celebrities lent their names and their time to the sales effort, and civilian volunteers traveled the country promoting the cause. Colorful posters depicted the suffering of enlisted men and the threat to children and homes, urging Americans to help defeat the enemy by buying bonds. As war costs mounted, another $4 billion in Liberty Bonds were issued later that year, followed by $9 billion more in 1918.

PRIMARY SOURCE

YOUR DUTY—BUY UNITED STATES GOVERNMENT BONDS

See primary source image.

SIGNIFICANCE

While warfare is generally incited by ideology, it is supported with money. In the simplest economic analysis, the Allies won World War I due to their deeper pockets. Whereas the Allies spent $126 billion during the war, the four Central Powers were able to invest less than half that amount. This enormous financial advantage ultimately proved insurmountable.

In the years since World War I, the costs of warfare have spiraled upward. World War II was significantly more expensive than World War I. The total cost is difficult to accurately estimate due to the war's immense scope. The United States is generally acknowledged to have invested more than $341 billion, or more than the total direct cost to all combatants of World War I. Germany's expenditures in World War II also exceeded the combined cost of World War I, spending an estimated $272 billion, while the Soviet Union and Great Britain each spent more than $100 billion. Estimates of the total cost of the war range from $1 trillion upward.

Later conflicts have not reached the massive scope of World War II, however, war continues to be an expensive undertaking. In colloquial terms, governments often must make a choice between guns and butter, meaning that government resources spent on the military are not available to carry out domestic programs. During the two World Wars, the nation was willing to make this sacrifice in the name of winning a massive conflict. Later wars have been fought on a more limited scale, forcing presidents to weigh spending options and make difficult choices.

The involvement of the United States in the Korean War was relatively limited and cost an estimated $20 billion, minimizing its financial impact at home. But the Vietnam War dragged on for years and became increasingly costly. President Lyndon Johnson's administration was committed to a massive expansion of federal social programs, an effort he labeled The Great Society. Johnson believed he could battle poverty at home and Communists in Southeast Asia simultaneously. However, the rising cost of the Vietnam conflict, which eventually topped $140 billion, drained funds from domestic initiatives, hamstringing his efforts.

The financial cost of the Cold War, a fifty-year nuclear standoff between the United States and the Soviet Union is harder to quantify. Throughout this period, the United States consistently spent five to ten percent of its Gross National Product on defense. An analysis by the CATO Institute places total U.S. military expenditures from 1948 to 1986 at $6.3 trillion. Following the fall of the Soviet Union, the former Cold War adversaries have each incurred billions of dollars per year in clean-up costs related to nuclear weapons production.

As he left office in 1961, President Eisenhower, a former military officer, warned of the dangers of a growing military-industrial complex, as the United States had, for the first time in its history, developed industrial firms dedicated solely to military production. Eisenhower feared that the influence of these firms would lead to rising military expenditures, and along with them the incentive to employ military force more frequently.

In 2005, New York governor George Pataki proposed the issuance of state-backed Liberty Bonds These tax-free bonds would help fund the redevelopment of the area destroyed in the terrorist attacks of September 11, 2001.

FURTHER RESOURCES

Books

Blum, John Morton. V Was for Victory. Politics and American Culture during World War II. New York: Harcourt Brace Jovanovich, 1976.

Hackemer, Kurt. The U.S. Navy and the Origins of the Military Industrial Complex, 1847–1883. Washington, D.C.: Naval Institute Press, 2001.

O'Neill, William L. A Democracy at War. America's Fight at Home and Abroad in World War II. New York: The Free Press, 1993.

Periodicals

Bagli, Charles V. "Pataki Offers Liberty Bonds to Keep Tower On Schedule." New York Times 155 (2005): B3.

Taliaferro, Jeffrey W. "Power Politics and the Balance of Risk: Hypotheses on Great Power Intervention in the Periphery." Political Psychology 25 (2004): 177-211.

Whitney, J. D. "Insurance Oil for War Waters." Nation 106 (1918): 162-164.

Web sites

Brigham Young University. "The World War I Document Archive." 〈http://www.lib.byu.edu/∼rdh/wwi/〉 (accessed June 8, 2006).

PBS. "The Great War and the Shaping of the 20th Century." 〈http://www.pbs.org/grearwar/〉 (accessed June 7, 2006).

University of Houston: Digital History. "A Chronology of World War I." 〈http://www.digitalhistory.uh.edu/historyonline/ww1_chron.cfm〉 (accessed June 8, 2006).