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When Uncle Sam introduced Main Street to Wall Street: Liberty Bonds and the transformation of American finance

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  • Hilt, Eric
  • Jaremski, Matthew
  • Rahn, Wendy

Abstract

We study the effects of the Liberty Bond drives of World War I on financial intermediation in the 1920s and beyond. Using panel data on US counties, and an instrument that captures differences in the approaches used to market the bonds, we find that higher Liberty Bond subscription rates led to an increase in investment banks and a contraction in commercial bank assets. We also find that in the late 1930s, individuals residing in states where Liberty Bond subscription rates had been higher were more likely to report owning stocks or bonds. Although they were conducted to support the American effort in World War I, these bond drives reshaped American finance.

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  • Hilt, Eric & Jaremski, Matthew & Rahn, Wendy, 2022. "When Uncle Sam introduced Main Street to Wall Street: Liberty Bonds and the transformation of American finance," Journal of Financial Economics, Elsevier, vol. 145(1), pages 194-216.
    • Handle: RePEc:eee:jfinec:v:145:y:2022:i:1:p:194-216
    DOI: 10.1016/j.jfineco.2021.06.043
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    2. Akkoyun, Cagri & Ersahin, Nuri & James, Christopher M., 2023. "Crowded out from the beginning: Impact of government debt on corporate financing," Journal of Financial Intermediation, Elsevier, vol. 56(C).

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    More about this item

    Keywords

    Liberty bonds; Financial literacy; Investment banking; Commercial banking; Stockholding; Financialization; Financial intermediation; Financial development; Trust;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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