Financial Asset Ownership and Political Partisanship: Liberty Bonds and Republican Electoral Success in the 1920s

62 Pages Posted: 18 Jun 2018 Last revised: 16 Jan 2022

See all articles by Eric Hilt

Eric Hilt

National Bureau of Economic Research (NBER); Wellesley College

Wendy Rahn

University of Minnesota - Minneapolis

Date Written: June 2018

Abstract

We analyze the effects of ownership of liberty bonds, which were marketed to households during World War I, on election outcomes in the 1920s. In order to address the endogeneity of liberty bond subscriptions, we utilize the local severity of the fall 1918 influenza epidemic, which disrupted the largest liberty bond campaign, as an instrument. We find that counties with higher liberty bond ownership rates turned against the Democratic Party in the presidential elections of 1920 and 1924. This was a reaction to the depreciation of the bonds prior to the 1920 election (when the Democrats held the presidency), and the appreciation of the bonds in the early 1920s (under a Republican president), as the Fed raised and then subsequently lowered interest rates. Our results suggest the liberty bond campaigns had unintended political consequences and illustrate the potential for financial asset ownership to increase the sensitivity of ordinary households to economic policy decisions.

Suggested Citation

Hilt, Eric and Rahn, Wendy, Financial Asset Ownership and Political Partisanship: Liberty Bonds and Republican Electoral Success in the 1920s (June 2018). NBER Working Paper No. w24719, Available at SSRN: https://ssrn.com/abstract=3198021

Eric Hilt (Contact Author)

National Bureau of Economic Research (NBER)

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Wellesley College ( email )

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HOME PAGE: http://www.erichilt.net

Wendy Rahn

University of Minnesota - Minneapolis ( email )

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Minneapolis, MN 55455
United States

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