In 1900 the average American had nearly nothing to do with financial markets and institutions, but by the time of the stock market crash of 1929 stock ownership had spread to a quarter of American households. In When Wall Street Met Main Street: The Quest for an Investors' Democracy, Julia C. Ott traces this expansion of investment through the opening decades of the twentieth century. While American policymakers wrangle over raising the debt ceiling in 2011, Ott explains below how the mass effort to underwrite the federal debt incurred during World War I played a central part in the U.S. transition to an investors’ democracy.
This summer’s controversy over whether Congress should raise the debt ceiling reveals Americans’ deep discomfort with a government that can’t balance its books. Voices on the right call for cutting, freezing, or privatizing programs in order to rein in spending. Those on the left hope to grow revenue by repealing the Bush tax-cuts or by invigorating the economy with further stimulus measures. No one defends a large outstanding federal debt as a positive good for the nation.
This has not always been the case. During the First World War, many welcomed the vastly enlarged federal debt, envisioning that universal investment in war bonds would yield a better postwar society. Americans began to think differently about financial securities investment during World War I, which fostered widespread stock ownership in the 1920s. The Great War, therefore, marks a major turning point in When Wall Street Met Main Street, which considers how Americans’ relationships with financial securities markets changed dramatically—and permanently—in the first three decades of the twentieth century.
When the United States entered World War I, the federal debt more than tripled in size, relative to GDP. This unprecedented increase in borrowing by the U. S. government was not understood simply as a wartime necessity. Rather, policymakers and citizens alike celebrated the Liberty Loan, Victory Loan, and War Savings programs—which parceled out the war debt as small-denomination bonds—as means of cultivating support for an unpopular war, unifying a heterogeneous population, enhancing their citizenship, and ensuring a more secure and prosperous future for all. The architects of these War Loan programs believed that universal investment would transform all inhabitants into citizen-investors possessing a “stake” in the nation, regardless of their formal political status. At a historical moment marked by passionate debate over the meaning of citizenship and nationhood, the War Loan drives invited Americans to imagine the nation as a financial market, one in which investment both made and manifested citizenship.
The Treasury Department determined the goals, terms, quotas, and key themes for the War Loan drives. But, on the ground, Americans mobilized themselves through the broad array of private associations that organized public life. Groups representing those whose fealty the state sought to secure—especially women’s, labor, African-American and ethnic associations—proved particularly important in the financial mobilization of the home-front. As these groups rallied their members to raise money for the war, they advanced a wide range of answers regarding which political, social, and economic rights the citizen-investor could claim.
For example, the pageantry and rhetoric devised by African-American groups voiced demands for civic inclusion, political rights, and the destruction of the Jim Crow system of racial apartheid and terror. The editor of the Savannah Tribune envisioned that “the great War Savings and Bond Campaigns” would deliver “vast wealth and improved economic and industrial status … to the Negro race,” reshaping “the hierarchy of groups in America” and putting an end to racial “troubles and friction and oppression.” This editor entreated black Americans:
Come with your unmeasured determination to pour out your money that in the close of this world struggle and international carnage and war, the flickering rays of the Star of Hope may scintillate into a fully and complete brilliancy of rights and privileges, long longed and prayed for by our fathers and mothers who sleep beneath the soil of a country, made rich by the labor and toils of a race which has never produced a Benedict Arnold, an assassin of a president or a thrower of bombs to destroy life and property.
In a speech delivered at the State College of Georgia, Prof. L. R. Thompson offered “this simple plea: Oh flag! My flag! …vouchsafe to me and to those who are to come after me, every right and every privilege that are guaranteed to me in the Constitution and laws of the land.” These included “equality before the law,” wages and public expenditures commensurate with those received by whites, “equal accommodation on the highways of travel,” the “right to work along any line,” and, of course, the “right to register and vote.”
Marginalized groups earned mixed returns on their investments in the nation. In 1919, a grateful Congress passed the nineteenth Amendment. It conferred the right to vote upon women after nearly one million volunteered as War Loan sales agents. But in that same year, race riots in 26 U. S. cities answered African-American demands for racial equality and justice.
Even so, after the Armistice Americans engaged in crucial debates about how the birth of an investors’ democracy might alter the course of American capitalism. The success of the War Loan campaigns persuaded many progressives that mass bond drives (rather than taxation) could finance government projects to enhance public welfare, such as soldiers’ bonuses, farm mortgages, infrastructural improvements, even a federal buy-out of the nation’s railroads. Ultimately, voters elected Presidents who promised a “return to normalcy” in the 1920s. But the federal government—and the federal debt—never did revert to its prewar size or scope. Neither did the state retreat from the economic realm during the Harding, Coolidge, or Hoover administrations. By 1929, per capita federal expenditures net of military and interest expenses stood at four times pre-World War I levels. The social welfare benefits provided by federal and state governments—including workers’ compensation and pensions for soldiers, mothers, and the elderly—expanded.
Increased spending and borrowing by federal and state governments was only one legacy of the mass bond drives of World War I. As part of its conduct of war, the federal government nurtured both the practice of investing and an investors’ mentality. Because the War Loan campaigns celebrated the benefits of investment as a general practice, they opened the door for postwar marketers of corporate stocks in the 1920s.
Today, perhaps it is conceivable that Congress might allow the federal government to default on its obligations to investors because we no longer live in a world where the majority of U. S. households invest in federal bonds directly. Still, any default would harm the citizenry considerably, given our extensive indirect investments in the federal debt through the Social Security program and private retirement plans. Citizens need to regain their sense of investment in the government and its financial obligations in order to feel that they hold a direct stake in the projects it does and could fund, such as infrastructure that creates jobs and increases productivity.
This summer, as Americans debate how much our federal government should borrow, When Wall Street Met Main Street encourages us to consider what kind of future we wish to buy.