War Loans and Bonds: A Working History of How America Paid for Its Wars

How wars actually get paid for

A government fighting a war has three basic ways to fund it. It can tax its citizens, which raises money immediately but is politically unpopular and can only go so far. It can borrow, either from banks and foreign governments or directly from its own public, which spreads the cost into the future. And, in extremis, it can print money — issuing fiat currency faster than the economy can absorb it — which is inflationary and eventually destructive. Every American war has used some mix of the first two, and a few have resorted to the third.

A war loan is an umbrella term for government debt raised specifically to fund war costs. A war bond is a specific instrument within that category: a debt security sold to individual citizens, usually in denominations small enough that ordinary households can buy them, usually marketed with an explicit patriotic appeal alongside the financial return. The pages that follow walk through how this second category — the retail-scale public war bond — has evolved across American history.

Revolutionary War and the early Republic

The American Revolution was financed by a combination of paper currency (the infamous Continental dollars, whose rapid loss of purchasing power gave English the phrase “not worth a Continental”), foreign loans from France and the Netherlands, and a series of domestic interest-bearing loan certificates issued by the Continental Congress. The certificates were a form of war loan in the modern sense — debt securities paying interest, intended to be held to maturity — but the distribution network was narrow and most holders were wealthy patriots, merchants, and foreign creditors.

The foundational act of postwar federal finance, though, was Alexander Hamilton’s 1790 Funding Act. The newly constituted federal government assumed the outstanding Revolutionary War debts of the individual states and restructured them into long-dated federal bonds. The consolidation established the full-faith-and-credit of the United States as a reliable borrower, which then made it possible to issue federal debt to fund later conflicts — beginning with the War of 1812, which was paid for largely with interest-bearing Treasury notes and bonds rather than significantly higher taxation. The American public-debt market that would later support Liberty Bonds and War Bonds starts here.

Civil War: Chase, Cooke, and the 5-20 Bond

The American Civil War is where the modern U.S. war bond as a mass-retail instrument really begins. Salmon P. Chase, Abraham Lincoln’s Treasury Secretary, faced financing requirements that dwarfed anything the Treasury had raised before, and existing bond-sales channels — banks and a small circle of wealthy New York investors — could not absorb the volume.

Chase’s solution was to contract with Philadelphia banker Jay Cooke & Company to run the Union’s retail bond-sales operation. Cooke built something the country had never seen: a nationwide sales network of thousands of agents, advertising the bonds in newspapers and selling them in small denominations directly to ordinary households — farmers, teachers, shopkeepers, and wage-earners. The most famous of the Civil War issues was the 5-20 Bond, so named because the Treasury had the option to redeem it in not less than 5 years and not more than 20, and it paid 6 percent interest in gold coin. Cooke’s network placed those bonds at a scale previously reserved for bank syndicates.

The pattern Cooke built — decentralized retail sales, small-denomination bonds, patriotic marketing paired with a financial return — is the direct ancestor of the Liberty Bond and Series E campaigns that followed. When William McAdoo designed the WWI Liberty Loan operation half a century later, he was in essence running the Cooke playbook at the scale a fully industrialized economy could support.

World War I: the Liberty Bonds

The United States entered World War I in April 1917. Treasury Secretary William McAdoo — who at the time also chaired the Federal Reserve Board, which had been established only three years earlier — was tasked with financing American participation. He chose a deliberate strategy: roughly one-third of the war’s cost would come from new taxes and roughly two-thirds from borrowing directly from the American public through a series of bond campaigns he named, explicitly, Liberty Loans.

The Treasury issued four Liberty Loan bond campaigns between April 1917 and September 1918, followed by a fifth campaign in 1919 called the Victory Liberty Loan — five bond issues in all. The campaigns were operated in partnership with the Federal Reserve banks, which handled distribution, and were promoted through an unprecedented volunteer-driven marketing machine. McAdoo was explicit that the bond drives were as much an educational effort as a fundraising one: the public would be taught about government debt, the objectives of the war, and the country’s financial capacity, and would be asked — from schoolchildren buying Thrift Stamps to millionaires buying large tranches — to do their part.

The marketing arm of the Liberty Loan operation produced some of the most recognizable commercial art of the 20th century. Poster artists including Howard Chandler Christy, James Montgomery Flagg (whose “I Want You” Uncle Sam was adapted for the Liberty Bond campaigns), and Joseph Pennell created images that were printed and distributed in the hundreds of thousands. The Library of Congress holds one of the largest surviving collections of these posters today. Silent-film stars — Charlie Chaplin, Mary Pickford, and Douglas Fairbanks — toured the country on celebrity bond drives. According to the National Archives, the campaign saturated American public life: posters, pamphlets, buttons, and stickers were distributed at scale, and many businesses across the country decorated their storefront windows with Liberty Bond advertising.

Liberty Bonds paid interest in a range between roughly 3.5 percent and 4.75 percent, depending on which of the five issues a bond came from and what maturity was chosen. According to Federal Reserve History, about 20 million Americans purchased Liberty Bonds by the end of the war, and the four wartime Liberty Loan drives raised more than $17 billion for the U.S. war effort. Including the 1919 Victory Liberty Loan, contemporary summaries put the cumulative total above $21 billion across all five issues — a scale of retail federal-debt placement the country had never approached before, and the institutional groundwork for the even larger operation that would follow twenty-five years later.

World War II: Series E and the $185.7 billion campaign

The United States began preparing for possible entry into World War II well before Pearl Harbor. On April 30, 1941, President Franklin D. Roosevelt announced a new Treasury retail savings instrument called the Series E Defense Savings Bond. The next day, Roosevelt himself purchased the very first Series E bond — serial number 1 — from Treasury Secretary Henry Morgenthau. After the attack on Pearl Harbor in December 1941, the Defense Bond was renamed the War Savings Bond, the form the instrument took for the rest of the conflict.

The Series E was engineered specifically for small-denomination, mass-retail sale. Buyers paid $18.75 for a bond with a face value of $25, which matured in ten years — an effective yield of roughly 2.9 percent compounded. Smaller and larger denominations (all the way up to $1,000 face-value bonds) were available, but the $25 bond was the retail workhorse. It was cheap enough to buy on a weekly paycheck, and the structure was simple enough for a new buyer to understand in a minute.

The sales operation was unprecedented. The Ad Council coordinated an advertising campaign that ran across newspapers, magazines, radio, and newsreels. The Office of War Information produced and distributed promotional material. A volunteer network modeled on the Liberty Loan committees of a generation earlier — schoolteachers, factory payroll departments, corner-store owners, door-to-door bond sellers — handled most of the actual selling. Celebrity bond tours featured Kate Smith, Bing Crosby, and Bob Hope; Irving Berlin wrote “Any Bonds Today?” as a campaign anthem. Norman Rockwell’s Four Freedoms paintings were produced for the Seventh War Loan Drive in 1943. By the end of the war, roughly 85 million Americans — roughly half the U.S. population at the time — had bought war bonds, and the overall campaign had raised approximately $185.7 billion, according to figures the U.S. Treasury and the Treasury’s historical archives have published widely.

That figure is worth pausing on. Measured in its own-era dollars, it is the largest retail-scale public-debt placement any country has ever executed. Measured in what it did to American household behavior, it was also a generational training in the habits of saving and in the idea of a private citizen as an investor in federal debt — an idea that before Jay Cooke’s Civil War operation had barely existed in the United States at all.

Cold War and the modern Treasury

The Series E continued to be sold as a peacetime retail savings instrument after 1945, gradually shedding its wartime framing and becoming simply “the U.S. savings bond” that a generation of American children received as birthday and graduation gifts. It remained in continuous issue for almost four decades. In 1980, the Treasury retired the Series E and replaced it with the Series EE, which carried the same small-denomination, long-maturity retail design. Paper Series EE bonds were discontinued in 2012, and the program moved fully online through TreasuryDirect. Series I inflation-indexed bonds were introduced in 1998 and continue to be offered alongside the EE.

The modern U.S. Treasury does not run era-specific “war bond” drives the way the Liberty Loan and Series E campaigns did. Today, the Treasury funds federal operations — including defense — through continuous market-based auctions of Treasury bills, notes, and bonds to institutional and retail investors. The retail savings-bond program is a residual of the World War II effort, kept alive because the product itself (a small-denomination, inflation-protected, long-maturity saving instrument) is useful to American households even outside wartime. But the idea of a mass-retail public-debt campaign as a wartime policy instrument is largely historical, rather than current, practice.

A chronology of American war finance

A lender’s view

I spend most of my working hours at Crest Capital structuring equipment financing for American small and mid-sized businesses, and writing about it on The Lease Guy. From that seat, three patterns in the long history of American war finance feel recognizable.