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 over 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 earliest inflation-indexed corporate bond of which we are aware is of the Rand Kardex Company Inc., of July 1, 1925. The opening text is given below.

Rand Kardex Company, Inc., a Delaware Corporation, hereinafter termed the “company,” for value received, hereby promises to pay to the registered holder hereof on the first day of July, 1955, at the principal office of the Buffalo Trust Company, in the City of Buffalo, State of New York, such sum of money as shall possess the present purchasing power of One thousand dollars ($1,000.00) with interest thereon at the rate of seven per cent per annum, payable quarterly on January first, April first, July first and October first, in such sums as shall, at the respective times of payment, equal in purchasing power One and seventy-five one hundredths per cent (1.75%) of said purchasing power of One thousand dollars ($1,000.00), all to be based upon an index number of the prices of commodities defined and fixed in accordance with the amplified statement below.