War bonds are a method of financing war that reduces demand for goods and services by taking money out of circulation through investment in the bonds. This provides funds to underwrite the war. Modern warfare is an expensive business and must be financed carefully, else a government risks triggering inflation by increasing demand for goods. One method of avoiding this outcome is to raise taxes to finance the war, but such methods risk making a war unpopular. Through the more popular method of selling war bonds, citizens, in effect, invest in the war effort of their government just as they might invest in stocks. Selling war bonds lessens the need for tax increases.

A War Bonds poster.

During World War I, the U.S. government raised $5 billion through the sale of Liberty Bonds. Mass rallies to sell the bonds featured celebrities such as Douglas Fairbanks, Sr...