Working Paper: NBER ID: w10183
Authors: Robert J. Shiller
Abstract: 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.
Keywords: inflation; indexed bonds; financial innovation; historical economics
JEL Codes: E31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| wartime inflation (H56) | issuance of inflation-indexed bonds (H63) |
| end of extreme inflation (E31) | discontinuation of indexed bonds (G12) |
| absence of a theoretical framework (B50) | failure to sustain indexed bonds (G12) |
| social factors (Z13) | failure to adopt indexed bonds (G12) |