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Before getting into today’s fascinating topic, I wanted to share an exciting conversation I’ll be hosting on February 9th with Bill Brewster and Francisco Olivera. These two savvy investors will their views on investing in media & entertainment. In addition to Q&A with the audience, our discussion will cover:

  • The rise of social gaming and the metaverse
  • How the media industry is changing from linear to digital
  • How the rise of Roblox disrupts the entertainment industry
  • Investment opportunities in the entertainment and media space
  • The impact of the Microsoft-Activision acquisition and potential copycat transactions
  • How to use expert call transcripts to build your investment thesis.

Not one to miss, and its free to register!


Okay, back to our regular programming…

Enlist or Invest: The Liberty Bond Story

Happy Sunday, everyone! Today we are going to dive deep into a topic that irrevocably changed financial markets forever: The Liberty Bond. Now, while many of you may think you learned everything there is to know about Liberty Bonds in high school, just keep reading. Trust me.

In today’s newsletter, we will cover:

  1. The Toll of World War I
  2. The Purpose of Liberty Bonds
  3. How Liberty Bonds Birthed the Retail Investor

The Toll of World War I

An estimated 20 million soldiers and civilians died in World War I, with another 21 million wounded during the conflict. To put this in context, that is equivalent to New York’s entire population (19.68 million) disappearing in 4 years. Even worse, the ‘Great War’ was also an ‘Expensive War’. Focusing on the American experience, the U.S. government’s federal expenditures rose an eye-watering 25x after entering World War I.

U.S. Federal Budget Expenditures (1906-1928)

The following table reflects the costs of World War I by Allied Powers country:

The financial and economic toll of World War I required innovative thinking for how to finance this costly conflict.

The Purpose of Liberty Bonds 

Second Liberty Loan in Washington, DC

Clearly, with such mountainous costs, the American government had to devise a plan for financing the war effort.

William McAdoo

No single person was more at the heart of financing America’s military efforts than William McAdoo, U.S. Treasury Secretary and effective leader of the Federal Reserve. Using history as a guide, McAdoo aimed to avoid the same mistakes that the government had made during the Civil War, specifically printing money through “greenbacks” that produced rampant inflation. That said, McAdoo’s objective was to finance the war effort through 50% taxation – 50% borrowing (bonds). By the end, “money creation” (printing) became a key component of the war financing effort, but borrowing from the public accounted for the vast majority of funds raised.

Enlisting the Public

Charlie Chaplin at a Liberty Loan Drive

One of McAdoo’s main tenets was giving “ordinary Americans a financial stake in the war effort” (Source). McAdoo’s Liberty Bonds accomplished that objective as tens of millions of American households were persuaded to buy such bonds as a “patriotic act” to support the war effort. In his memoirs, McAdoo wrote that those “who could not serve in the trenches in France might nevertheless serve in the financial trenches at home.”

For the average American, Liberty Bonds also offered a critical benefit: they were exempt from Federal Income Taxes at a time when Income Taxes were rising across all levels of income. The chart below depicts the tax rates for individuals making $50,000 / $100,000 / $1,000,000.

To entice smaller investors, Liberty bonds were sold in denominations as low as $50 and could be purchased in installments. In fact, the government prioritized smaller liberty bond purchases, as the government sought to involve as many Americans as possible. The New York Times reported that even John D. Rockefeller could only buy $3 million of Liberty Bonds – despite pledging to buy $15 million worth – as McAdoo’s plan allotted more Liberty Bonds to smaller investors.

Furthermore, the Federal Reserve’s Liberty Loan committees’ publicity divisions flooded the country with materials encouraging bond purchases through appeals to people’s patriotism, civic duty and moral code. State and local Liberty Loan committees formed a voluntary sales force numbering in the hundreds of thousands, engaging every type of civic and economic organization in “patriotic partnerships” as a way to encourage their fellow citizens to do their part. 

“Fight or Buy Bonds”

The Liberty Bonds marketing campaign was a sight to behold:

“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.” (Federal Reserve)

The video below shows America’s “first sweetheart”, Canadian-American actress Mary Pickford, travelling across America to sell Liberty bonds at various public rallies and “Liberty Loan Drives”.

This grand scale marketing effort was overseen by the “Committee on Public Information”, America’s version of a propaganda ministry, which was headed by investigative journalist George Creel.

“[Creel] staffed the Committee on Public Information with psychologists, fellow journalists, artists, and advertising designers. The committee developed many of the techniques now associated with modern advertising…

The man now regarded as the “father of public relations,” Edward Bernays, also worked for Creel, pioneering the techniques of manipulating and managing public opinion based on the theories of mass psychology. The committee appealed to innate motives: the competitive (which city would buy the most bonds), the familial (“My daddy bought a bond. Did yours?”), guilt (“If you can’t enlist, invest”), fear (“Keep German bombs out of your home”), revenge (“Swat the Brutes with Liberty Bonds”), social image (“Where is your Liberty Bond button?”), gregariousness (“Now! All together”), the impulse to follow the leader (President Wilson and Secretary McAdoo), herd instincts, maternal instincts, and – yes – sex. Bernays’s uncle was Sigmund Freud.”

Yes, the man tasked with manipulating mass psychology and public opinion was the nephew of Sigmund Freud, the creator of “psychoanalysis”. Unbelievable!

Ultimately, the marketing campaigns and government efforts were wildly successful. According to government surveys in 1918 and 1919, some 70% percent of urban, working-class households bought Liberty Bonds in those years. As the table below shows, Liberty bonds were not some trivial piece of government propaganda. Measured in today’s values, the Liberty Bonds issued during World War I raised a staggering $5 Trillion.

How Liberty Bonds Birthed the Retail Investor

The following quote from Charles Mitchell, President of National City Company (an investment Bank), :

The banking organizations of this country are devoting themselves freely and wholeheartedlyand without compensation, to the work of floating the Liberty Loanand all other business is a standstill. Banking practically at houses are not only giving up their chances of profit along ordinary lines, but they are giving the salaries of their employees to the United States Government, who, through the Liberty Loan Committees, is now controlling such employees…

The only commercial reward is that which may come from the development of a large, new army of investors in this country who have never heretofore known what it means to own a coupon bond and who may in the future be developed into savers and bond buyers.

Author Charles R. Geisst echoed a similar sentiment in his 2018 book “Wall Street: A History”, writing:

“After the war, the Liberty loans matured and much of that money became available for new investment, prompting one of the largest mass investments of the century. Many of the Liberty bond investors had purchased a financial asset for the first time, and when redemption came so, too, did the assurance that investments were relatively safe. Wall Street and the banking community were well prepared to cater to the new investor class.”

Said differently, when Liberty bond holders received their principal back with interest after World War I ended, many of them reinvested those funds back into the market via equities or corporate bond issues. For these smaller investors, Liberty bonds had taught them to expect favorable investment outcomes and provided the experience of accessing financial markets for the first time. As Charles Mitchell stated in 1919, the Liberty bonds of World War I created a “new army of investors” that had not previously “known what it means to own a coupon bond”, but were now being “developed into savers and bond buyers”.

This sentiment is supported by data, too. In their paper “When Uncle Sam Introduced Wall Street to Main Street: Liberty Bonds and the Transformation of American Finance”, the authors show that higher Liberty Bond subscription rates led to higher levels of stock ownership in later years as the Liberty bonds of WWI introduced millions of Americans to the act of investing in public markets.

Historians’ estimate that in 1910 the United States had 0.81 million shareholders, but by 1932 that figure had risen to 10-12 million! That dramatic increase was fueled in large part by the Liberty bonds of World War I, which introduced an entire country to investing.

Now, learn even more about Liberty bonds in the fascinating articles below!

Turning Citizens into Investors: Promoting Savings with Liberty Bonds During World War I


“Increasing savings rates among households of modest incomes would strengthen their balance sheets and reduce wealth inequality. This paper analyzes one of the largest and most successful efforts to increase the savings of ordinary households in American history. The Liberty Bond drives of World War I persuaded tens of millions of Americans to buy government bonds, which were sold in denominations as low as $50, and could be purchased in installment plans. Using newly collected data on the sales of Liberty Bonds at the county level, we analyze the factors that influenced the degree to which the bond drives were successful. The results highlight the importance of the participation of civil society organizations and local banks in marketing the bonds. We discuss the implications of these findings for the design of modern programs to increase savings.”

Visualizing History:

Liberty Bonds and the Transformation of American Finance 

Charlie Chaplin at a Liberty Loan Drive


“We study the effects of the liberty bond drives of World War I on financial intermediation in the 1920s and beyond. Using panel data on U.S. counties, and an instrument that captures differences in the approaches used to market the bonds, we find that higher liberty bond subscription rates led to an increase in investment banks and a contraction in commercial bank assets. We also find that in the late 1930s, individuals residing in states where liberty bond subscription rates had been higher were more likely to report owning stocks or bonds. Although they were conducted to support the American effort in World War I, the liberty loan drives reshaped American finance.”

Visualizing History:


Missed last week’s article? Catch up here!