War bonds and household saving in WWII

Household saving increased dramatically during World War II, reaching more than 19 percent of GDP. We study the effects of the war bond program implemented by the U.S. government on the level of household saving during the war. The bonds were heavily promoted in a series of drives, which encouraged thrift and associated subscriptions with patriotism, and also through a payroll deduction program. Yet as Friedman and Schwartz have noted, the main effect of the program may have been to change the form in which savings were held, rather than to increase saving. We use county-level data and an instrument for participation in the bond program to estimate the effect of war bond sales on total saving. We find that for every $100 in war bond sales, bank deposit inflows fell by $70, suggesting that while there was substantial substitution between war bonds and bank accounts, the program did actually increase total saving. A back of the envelope calculation suggests that the bond program increased total personal saving by about 7 percent, in large part driven by the voluntary payroll deduction program.