War Bonds

An American War Bonds poster from 1942

War Bonds

War bonds were savings bond sold to individuals by the government during World War II. These types of bonds were known as Series E bonds (later replaced by Series EE bonds in 1980) and were first made available for purchase on May 14, 1941. The main function of these bonds was to give funding to the government, however they also served other purposes.

Lowering Inflation

Generally during times of War, the inflation rate rises because goods produced do not produced for domestic benefit. More money is spent, but less goods are available on the market. The monetary policy for fighting inflation is to decrease the money supply. In a normal economy, the Federal Reserve will sell treasury bonds (to banks) to lower the monetary base.

MS = mm x MB

However, the Federal Reserve does not have power over the sale and purchase of savings bonds purchased by individuals. When Americans purchased war bonds, they were effectively removing money from circulation, therefore lowering the Money Supply.

Feelings towards the War

With the boost in available jobs and higher wages during World War II, the average disposable income was rising. A massive advertising campaign encouraged workers to purchase War bonds to support the War effort. The fact that so many people were willing to forgo their disposable income for cause showed that people had a positive attitude toward the war and felt their investments were safe. Many companies offered payroll deduction plans in exchange for War bonds.