War Chest

I’m not going to touch on the obvious cost of going to war: human lives.  As we were reminded last weekend, the sacrifice of those who die or are physically disabled in service to their country is immeasurable.  But it is interesting to look at the ways we have drummed up money to pay for our battles  – something I discovered when reading my grandparents’ letters about common folks selling bonds in 1918.


My great-uncle Guy had firsthand experience with those bonds.  “Scott Township has to raise $8,000 in the next few days,” he reported to his brother Jesse in June 1918.  “We have a few slackers whom we haven’t been able to collect from…I got $2 cash from —— and I pumped him for more till he pledged $3.  The next day I heard he said, ‘That Guy Covell is a damned hog …'”

It was the third of four separate World War 1 bond drives.  The strategy of William McAdoo, who was in charge, was to raise support by having patriotic rallies across the country.  My grandmother, at the time teaching in a one-room schoolhouse in a different county, wrote that someone there was planning a ride like Paul Revere’s to attract attention, but it didn’t happen.  She sold bonds to country neighbors, taking homemade cookies along to sweeten the deal.

Bank employees did not sell certificates for the Liberty Loan, so there were no commissions.  People thought it was their duty to raise the money.  And that they did — seventeen billion dollars worth, over half for $50.  Even those were monumental to the average worker who made 35 cents an hour.  But they could buy stamps for 25 cents each, paste them on a special card, and when they had enough cards filled could trade them for the lowest denomination.


The mass media of that time included posters to urge the Liberty Loan, foodconservation and soldier enlistment.  Today we marvel at their Art Nouveau style and vivid colors, at the same time realizing the sobering scope of the work of George Creel and his propaganda committee.

Over 125 years before, the American Revolution was funded with  loans from France and the Netherlands, and private loans from a few individuals.  Each colony was ultimately asked to equip its own soldiers.  The Continental Congress printed a lot of paper money, backed up by nothing, which Mercy Otis Warren called “immense heaps of paper trash.”   Consequently inflation rose to 30 per cent in 1783.

See the source image


The new Constitution gave the federal government power to regulate trade and commerce, print common currency, and have Congress tax citizens.  Until the peace treaty was signed, however, soldiers were given IOUs for back pay.  That was a pretty unpopular decision.  Alexander Hamilton got his way with the idea for the federal banking system, later losing his life in a duel surely connected to his spin on financial policy.

When the Civil War inevitably came, both sides doubted it would last long and didn’t plan to raise many taxes for their expense.  Instead, the Union printed “greenbacks,” doubling the North’s paper money supply.  A man named Jay Cooke engineered the “New National Banking System” in 1863, which favored large banks over small ones (It wasn’t a permanent benefit for him, though, as he went bankrupt in 1873) .

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In 1861 this note was worth $90; in 1865, $17.  http://www.usdollarbill.info

The Confederates printed their own paper money, too — to the tune of twenty times their supply.  You can see where this was going.  A dollar bill worth 90 cents at the beginning of the war shrank to 17 cents at the end.  They also tried selling “cotton bonds” to the British.  And then there are legends about gold from England hidden in the western United States, which was intended to help the South win the war.

During World War 2, the withholding tax was introduced and $186 billion in bonds sold.  The GI Bill compensated soldiers by providing education and job training (My dad took advantage of this program and earned a bachelor’s degree in chemical engineering.  He was the first one from whom I heard that war could be good for the economy, and that times of recession could be good for education because unemployed people go back to school).

Costs of the Korean War took 15 per cent of the GDP (gross domestic product); Viet Nam 10 per cent and Iraq 1 per cent.  Pork barrel spending for the military keeps making increases to the national debt.  There is also the matter of veterans’ pensions.   The current generation continues to pay the debt for wars begun and fought before they were born; George Washington put it this way: “throwing on posterity the costs we ought to bear.”

And then  I remembered one more thing: what the colonists were so mad about in the first place.  England put the Stamp Tax on them to help pay for the French and Indian War.

Sources: cbsnews.com, businessinsider.com, allthingsliberty.com, federalreservehistory.org, Wikipedia, marginalrevolution.inc., letters of Jesse O. Covell and Margaret E. Beck.  Contact me if you’d like to hear more about their story, Folks on the Home Front.


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