Intrinsic value: Inflation bonds: Revere, Rubin & Leather
When was the first inflation-indexed bond on free soil?</br></br>In the Revolutionary War, inflation was rampant. Massachusetts soldiers complained that by the time they got their pay to their families, it had depreciated by seven-eighths.</br></br>Beset with calls for "just pay" by barefoot troops and alarmed by reports of desertions, the Massachusetts Legislature made economic news. In 1780, it enacted a law to pay soldiers 6% interest-bearing notes indexed to inflation in the state's currency. No price index existed, but the Bay State slapped one together: "Both Principal and Interest to be paid in the then current Money of said State, in a greater or less Sum, according as Five Bushels of Corn, Sixty-eight Pounds and four-seventh Parts of a Pound of Beef, Ten Pounds of Sheeps Wool, and Sixteen Pounds of Sole Leather shall then cost . . . ."</br></br>Duly issued, the notes carried engravings by Paul Revere. Several wars and inflationary bouts later, economist Willard Fisher observed of this episode: "Once it is recognized that money is variable in value, there is no halting the quest for a stable standard."</br></br>The idea has been kicked around in this country and adopted in others, including England. Come January, the U.S. Treasury will issue 10-year notes engraved by Bob Rubin and pegged to the consumer price index. Unlike rebel Massachusetts, the U.S. today doesn't suffer from high inflation, or even desertions. The value of its money, whether measured by the CPI or sole leather, has been calmingly stable.