Abstract
During a war, government will be able to issue debt only if the public expects that the value of the debt will not be inflated away after the war. I argue that the United States government used the 1940s bond price support program to convey its intention to offset high rates of money production during the war with low rates later. Whether this program was credible depended on the expected duration of the war and the rule the public expected government to use in tax-financing the postwar government expenditures. Ex ante, the public may have been rational in buying low rate long-term war bonds, even though postwar money rates generated negative realized rates of return.
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