After the war, McAdoo’s assistant in fiscal matters, Assistant Secretary Russell Leffingwell, described the loan campaigns “as the most magnificent economic achievement of any people
For the task of molding public opinion, Wilson turned to an investigative journalist, George Creel, who staffed the Committee on Public Information with psychologists, fellow journalists, artists, and advertising designers. The magazine illustrator Howard Chandler Christy drew Liberty as an attractive young woman dressed in a see-through gown cheering on the troops. 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.
By war’s end, after four drives, twenty million individuals had bought bonds. That is pretty impressive given that there were only twenty-four million households at the time. More than $17 billion had been raised. In addition, the taxes collected amounted to $8.8 billion. Almost payday loans in Colorado exactly two-thirds of the war funds came from bonds and one-third from taxes. This was a time when $17 billion was an almost unthinkably large number. An equal share of gross domestic product today would amount to $6.3 trillion. Most of McAdoo’s bonds were purchased by the public, 62 percent of the value sold by one estimate. A government survey of almost 13,000 urban wage-earners conducted in 1918 and 1919 indicated that 68 percent owned Liberty Bonds. It seems undeniable that the emotional advertising campaign effectively produced a broad and strong desire to do one’s part for the war effort by participating in this way. … the actual achievement of 100,000,000 united people inspired by the finest and purest patriotism.”
McAdoo had taken a gamble when he depended on faith that Americans could be induced to save more heavily than they would otherwise. He won that gamble. Saving rates shot up during the war and then returned close to their pre-war levels following the end of hostilities. Consumption as a percent of personal income fell during the war, by roughly 10 percentage points. McAdoo’s faith in and reliance upon borrowing during a time of emergency proved the value of deficit spending and emboldened those who later advocated fiscal policy to fight business recessions and unemployment. McAdoo’s belief that public opinion could be changed and mobilized to provide the will and the way to achieve great things provides a continuing foundation for an optimistic, progressive, and democratic view of our free-market capitalist economy.
Richard Sutch is the Edward A. Dickson Distinguished Professor of Economics (Emeritus) at the University of California, Riverside and Berkeley, and a research associate at the National Bureau of Economic Research. Written as of . See disclaimer.
- 1 The provision that the secretary of Treasury chair the Federal Reserve’s Board of Governors was eliminated in 1936.
- 2 For details on this maneuvering, see the autobiographies of McAdoo [1931: 242-245] and Glass [1927: 101].
- 3 Accompanying the personal income tax was an increase in the corporate income tax, an entirely new “excess-profits tax,” and excise taxes on such “luxuries” as automobiles, motorcycles, pleasure boats, musical instruments, talking machines, picture frames, jewelry, cameras, riding habits, playing cards, perfumes, cosmetics, silk stockings, proprietary medicines, candy, and chewing gum. These ad valorem taxes ranged from 3 percent on chewing gum and toilet soap to 100 percent on brass knuckles and double-edged dirk knives. A graduated estate tax on the transfer of wealth at death exempted the first $50,000 and rose progressively thereafter from 1 percent to 25 percent on amounts over $10,050,000. There were also a variety of miscellaneous war taxes introduced. These included taxes on transportation services; admissions to places of entertainment; social, athletic, and sporting club dues; a stamp tax on legal documents; a tax on the value of outstanding corporate stock; and a tax on the use of yachts.