NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Invention of Inflation-Indexed Bonds in Early America

Robert J. Shiller

NBER Working Paper No. 10183
Issued in December 2003
NBER Program(s):   DAE   EFG   ME

The world's first known inflation-indexed bonds were issued by the Commonwealth of Massachusetts in 1780 during the Revolutionary War. These bonds were invented to deal with severe wartime inflation and with angry discontent among soldiers in the U.S. Army with the decline in purchasing power of their pay. Although the bonds were successful, the concept of indexed bonds was abandoned after the immediate extreme inflationary environment passed, and largely forgotten until the twentieth century. In 1780, the bonds were viewed as at best only an irregular expedient, since there was no formulated economic theory to justify indexation.

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Document Object Identifier (DOI): 10.3386/w10183

Published: Goetzmann, William N. and Geert K. Rouwenhorst (eds.) The Origins of Value: The Financial Innovations that Created Modern Capital Markets. Oxford: Oxford University Press, 2005.

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