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.

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.