Back in May 2020, when countries around the world were several months into lockdowns to avoid the spread of the coronavirus, the U.S. President proclaimed that America was at war with an ‘invisible enemy’ and that he was a war time president. Indeed, we are living in peacetime with no major global conflict, but the United States is at war against a global pandemic and an economic crisis unseen since the post-war period. One year into the COVID-19 public health crisis, America reached a grim milestone: 400,000 dead and 24 million infected, while healthcare capacity is stretched. Yet, history shows us that it was President Woodrow Wilson who truly presided over a war time economy and a global epidemic.
World War I broke out in Europe in 1914, but it was not until three years after when the United States officially joined. During his reelection campaign for a second presidential term, Wilson was reluctant about openly supporting the war. Though the war was intensifying in Europe, Wilson’s position to maintain United States neutrality reflected the state of nation at the time. But when Germany escalated tensions by attacking American military assets in neutral areas, President Wilson was left with little choice. To officially commit troops to the other side of the pond, the commander chief must ask Congress for a war declaration.
On April 2, 1917, President Woodrow Wilson, using his presidential power, convened a special joint session of the United States Congress, to issue a declaration of war against the German Empire. At the special address, Wilson addressed the State of War with Germany to Congress: “The world must be made safe for democracy. Its peace must be planted upon the tested foundations of political liberty. We have no selfish ends to serve. We desire no conquest, no dominion. We seek no indemnities for ourselves, no material compensation for the sacrifices we shall freely make.”
Congress gave the president what he needed: the declaration of war came on April 6. With the official backing of Congress, President Wilson was full steam ahead to allocate resources to support the war. The production frontier between guns and butter are now clearly focused on guns.
Wilson began his second term as a wartime president; therefore, it made strategic sense to establish a War Cabinet, assigning Secretary McAdoo the responsibility to finance the war. Wilson relied on McAdoo to finance World War I, much like Lincoln who relied on Salmon Chase, to finance the Civil war. McAdoo believed in the war effort, and believed that it should be driven by the people. McAdoo remarked: “Any great war must necessarily be a popular movement. It is a kind of crusade; and like all crusades, it sweeps along on a powerful stream of romanticism.” The question became what were the viable financing options? Would it solely rely on the government’s budget or perhaps leverage the power of the newly created central bank? How would the government mobilize support behind this effort? All these questions were on the mind of McAdoo as he amped up financing capacity before the U.S. entered the War.
There were several options: printing money, borrowing, or taxation. The economy was operating at near full capacity at the time. The tradeoff had to be shifting industrial resources towards the war effort. Printing money was not a feasible option since the Federal Reserve Act of 1913 established the Federal Reserve Notes as official obligations of the United State. McAdoo learned from the lessons of Lincoln’s experience with printing the greenback which led to inflation and declining confidence in the country’s money management. It ended up being a combination of taxation measures and borrowing. The borrowing program was done through Liberty Bonds. The regional federal reserve banks were the fiscal agents to offer the bonds.
Source: World War I poster depicting Lady Liberty, Courtesy of Library of Congress
On April 9, 1918, celebrities Charlie Chaplin and Douglas Fairbanks drew thousands to Wall Street and the foot of the United States Sub-Treasury building located at Federal Hall. Nearly five decades earlier, the sub-treasury building took market orders from the White House that would spark a market crash and a resulting depression.
The iconic photo shows Charlie Chaplin is being held up by actor Douglas Fairbanks to rally support for the War. The rally took place at the foot of the United States Sub-Treasury Building, which is now known as Federal Hall.
Following that act was a musical performance by Fairbanks and vocalist Harvey Hindemeyer who got the crowd in a rendition of “Over There,” the war anthem written by Broadway impresario George M. Cohan.
Unlike the COVID-19 pandemic of 2020-2021, which took place during peacetime, Wilson had to make tough decisions during the Spanish Flu almost a century ago when there was a major world war I. He needed to rally the public, albeit reluctantly, but as commander in chief, he needed to finance the war. The flu was merely an afterthought. Wilson did not discuss it publicly nor took any public health measures. The parade must go on was the rallying cry. But that came at a huge public cost.
On September 28, 1918, the Philadelphia Liberty Bond Parade drew 200,000 people. The crowd lined up for two miles along the parade route to cheer on uniformed troopers, Boy Scouts, and marching bands. Pressured to meet city bond quotas, salesmen readily handed out bonds to war sympathizers. The flu spread immediately, becoming one of the largest known outbreaks in the world. Within a matter of weeks an estimated 45,000 Philadelphians were stricken with the flu and with 12,000 dead. By contrast, St. Louis city imposed social distancing measures and locked down its public squares, including churches, parks and non-essential venues. The severity of the flu between Philadelphia and St. Louis remains a lesson of history.
This was a predictor for the grueling death toll that would come. The largest contributor to the spread of the Spanish Flu was the massive mobilization for the war. By June 1918 millions of young American men were packed in tight quarters and deployed to Europe. The influenza spread like wildfire across the continent; all told, the pandemic killed between 50 and 100 million people around the world, more than the battlefield. By financial metrics, the war bond campaigns were a success. In total the four national drives raised more than $17 billion with twenty million people subscribing.
Sutch, R. (2015). Financing the Great War: A Class Tax for the Wealthy, Liberty Bonds for All,. Federal Reserve. https://www.federalreservehistory.org/essays/liberty-bonds