Ever since late medieval Italian city-states sold bonds to finance wars, the availability of debt financing has been crucial to the war-fighting ability of almost every country. However, not until the 20th century did their financing become a public affair. War Bonds played a significant role in civilian participation in the war effort during both World Wars. Funds were being raised, not just in finance ministries and banks, but on the streets of cities and towns in the US, Britain, and other belligerent countries. Relying on the public to raise the money needed required not just a PR campaign but an accessible approach to buying bonds.
Bonds and Stamps
During the First World War, Liberty Bonds, as they were called, were sold by the US government to finance the war. They could be bought in denominations as small as $50 (though they were also sold in $10,000 increments as well). This lower face value, while meant to make the certificates accessible to ordinary people and not just the wealthy or financial institutions, was still quite large for its day.
Recall that Henry Ford’s generosity would become firmly lodged in history when he decided to pay his workers $5 per day in 1914, the year the war started in Europe. It may not seem like much, but this was an era in which even skilled workers barely earned $5 a day and many working class occupations payed less than $2. To a seamstress, dock laborer, or farmhand in that era, paying $50 for a Liberty Bond would be akin to an average American paying a month’s wages for a single bond today. Not to be too poetic about it, but when it came to patriotic fundraising, raising every penny possible meant making every quarter count, quite literally in this case. The solution came, not in even smaller denomination traditional bonds, but in stamps.
You guessed it, even the post office had a role to play in the war effort and you may not have thought it would be a financial one. The War Savings Certificates, as they were called, allowed buyers to invest as little as a few dollars at a time. In fact, an accompanying ‘thrift stamp’ scheme reduced the initial investment even further, to 25 cents. But before explaining these stamps in greater detail, it is worth looking at the terms of the typical bond used to finance the First World War.
Sales of Liberty Bonds took place semiannually in 1917 and 1918. The coupon rate on the bonds was 3.5% for the first issue and 3% for the second, both in 1917, and the sales were initially met with little take up. But rather than accept selling the bonds at a discount or an undersubscribed offering, the Federal Government boosted its marketing budget. Out went your typical boring bond auction, in came celebrity endorsements, stickers, buttons, and sensationalized posters. Bond offerings now had the showmanship of a presidential campaign. The politicians knew just how to entrance the public.
But no amount of marketing savvy could compensate for better prospective returns, so the government provided advantageous tax treatment and boosted interest payments for the 1918 offerings, taking the coupon rates to over 4%. Income from the improved coupons and return of principal were exempt from federal, state, and local taxes (except estate tax and inheritance tax). They sold far better than those of a year earlier. Also, by the end of 1917 their sales were complemented by the smaller denomination War Savings Certificates.
The bonds could be purchased in both registered and coupon forms. The registered bonds, which could actually be bought in denominations as large as $100,000, paid interest directly to the account of its owner. Convenient though it was for collecting the interest, the process of registering them made the bonds less easily traded. The unregistered coupon forms, capped at denominations of $10,000, were your quintessential old-school bearer bonds, with coupons clipped semiannually and no official record of the owner being kept.
The physical coupons on the 3.5% coupon bonds of 1917, depicted above, alternate between 87 and 88 cents each, adding to $1.75 annually; hence, 3.5% on the $50 face value. Bonds of this issue had a maturity of June 1947, 30 years later, but were redeemable in 1932 after 15 years. Between both types of bonds and all four offerings made during the war, $16.7 billion worth of Liberty Bonds were sold to investors.
War Savings Certificate Stamps and ‘Thrift Stamps’
But Liberty Bonds were simply too rich for most people. The smaller denomination War Savings Certificate had a face value of $5 and unlike the Liberty Bonds were zero-coupon bonds; rather than paying a regular interest (or coupon) payment, they could be purchased at a discount to face value. The return earned by the investor came from receiving $5 at the end of the certificate’s life while having paid less than that to acquire it.
The War Savings Certificates had a maturity of January 1923 and were sold from December 1917 to the end of 1918. If purchased before January 1918, they could be bought for $4.12, for a yield of roughly 4% compounded quarterly. If purchased later than that, the price increased by one cent per month to keep the yield on the bonds roughly the same whether one bought earlier or later in the offering period.
Even an initial investment of over $4 was too much for many and so the Thrift Stamp reduced that to a mere 25 cents. Thrift Stamps, priced at 25 cents apiece, were sold not just at post offices, but in banks, rail stations, and beyond. The stamps were said to be available for purchase in 45,000 places in Texas alone. The Boy Scouts were among the most successful bond salesmen of the day, selling $53 million in stamps. Once someone had amassed a total of 16 of these stamps they could trade them in for a full $5 certificate with only a few extra cents. Together the certificates and stamps raised nearly $1 billion for the war.
Variation in the UK
Britain saw its own version of the War Savings Certificates and they went by the same name and functioned on a similar basis. Introduced one year earlier, the British certificates were zero-coupon instruments with a 5 year term to maturity when issued, like their American counterparts. They were also meant to be affordable for the common man. When issued, the smallest denomination £1 certificates could be bought for 15 shillings, 6 pence (15s 6d). For those unfamiliar with pre-decimalization British currency, a pound consisted of 20 shillings and each shilling was the equivalent of 12 pence (too confusing? just remember it was 240 pence to a pound until 1971, and not 100 like today).
Calculating a return on the British certificate gives us a yield of about 5¼%, quite a bit better than their American equivalents. They sold £207 million worth of these War Savings Certificates during the war and continued to sell them as ordinary savings products after it ended.
Compared to the $16.7 billion in Liberty Bonds sold, War Saving Certificates and their accompanying stamps raised $930 million. The concept would see a return a generation later in the Second World War when stamps of as little face value as 10 cents were sold. The sums raised by these micro-finance products may not have made the difference between victory and defeat in either case but they lived on, in some ways, long after the bonds matured.
For one, the US Postal Service, which actually got into the financial services business a few years before the war, would continue to sell savings products for decades. The Postal Savings System, created in 1911, continued to provide savers with government guaranteed savings accounts until the 1960s, not an insignificant point when you consider that FDIC insurance did not extend the same guarantee to private banks until the 1930s. In Britain, National Savings, the entity charged with selling the British War Savings Certificates had also been founded as a postal savings bank, the world’s first. The only difference is that the, since renamed, National Savings and Investments still exists as a state owned savings bank in Britain, having survived waves of deregulation and privatization. In fact, they continued to sell government bonds in Britain’s post offices until 2015. Besides learning about century old wartime finance, hopefully something was imparted here about the surprising historical connection between stamps and bonds.
1. United States. Bureau of Labor Statistics. Monthly Review of the U.S. Bureau of Labor Statistics. Washington: G.P.O., 19151918.
2. “Liberty Bond.” Museum of American Finance.
3. “Postal Savings and War Savings Stamps.” The Herbstman Collection: Preserving the History of the National Debt, The Joe I. Herbstman Memorial Collection of American Finance.
4. “This Day in History… December 1, 1917.” Mystic Stamp Discovery Center, 1 Dec. 2016.
5. “War Savings Certificates | RBS Remembers.” RBS Remembers, Royal Bank of Scotland, 2016.