So I give you another example of practical financial innovation. Towards here about inflation indexed debt. So we've always traditionally borrowed money in debt contracts and promised to pay them back in the currency. But there are so many examples where the currency is unstable, especially if the government prints it. They make big mistakes. So, the idea is, why don't we have a price index and have a debt contract that pays back index to inflation? Then it's fixed in real terms. What could be more obvious? But the history of it is very slow to get going. I've tried to find who is the first person to define that in terms of a consumer price index. There were earlier examples. For example, in Japan, they had rice bonds, and maybe other places too. So a rice bond was a debt instrument that was payable in rice, yes, the grain, instead of a currency. And you're safer with that than in currency if the government might print money, and debase the currency. But the idea that I'm referring to is something broader. The problem with rice bonds is the price of rice isn't stable relative to other prices. So you really want an index of prices. You want to tie the contract to an index. So, as far as I've been able to tell, I wrote a paper about this. The first indexed debt was invented here in the United States in 1780, and it occurred because of inflation. The US Government was giving debt to the soldiers during the revolutionary war, denominated in currency that was issued then by state governments. And they debase the currency because of the war, it was rapid inflation. And the soldiers were really unhappy because what they got was already worthless before they got it. And in order to keep the soldiers happy, this was a necessity. As Plato said, necessity is the mother of invention. He was quoting someone else, I believe, but that's where it appears. So they decided to define a consumer price index. They didn't call it that, they just defined it. And the bond had to pay out in inflation-indexed terms. And what a wonderful idea, its simple. You should promise them in real terms not money terms, and then inflation. But there was a lot of other people were paid in nominal debts. And there was an actual rebellion called Shays' rebellion about the unfairness of this debt. So, somehow the US government didn't issue them again. Well, the indexed bonds in 1780 were issued by Massachusetts, but no state issued indexed bonds again until 1997. I can't believe that it took so long. I was there advocating, this is one thing I advocated before it happened. Not that that necessarily made a difference, but I just wonder about. It seemed impossible. I called treasury like in 1996 and I said, I want to talk to someone here, why don't you do inflation-indexed debt? And I got a guy on the phone and he said, we'd thought of that. We have a joke here at treasury. And that is that if we ever do issue inflation-indexed debt in the United States, we should send the prospectuses to the members of the American Economic Association. because they're the only ones who would be interested. I said, how can that be? I mean, people are getting the real value of their debt wiped out by inflation, don't they care? I mean, and it still puzzles me that it isn't more important. People just don't get it, they make the same mistake again and again. They think, well, inflation is only 2%. But they don't know that history shows that governments messed up all the time. Now of course, this is America, we don't mess up here, I guess, you could say it patriotic feeling. You don't want to raise the possibility that we would mess up and have a lot of inflation. But maybe even if it isn't a lot, maybe how about 4% a year inflation, and you lose half your money in 20 something years. That's within the realm of possibility, people don't even think about it. But we do have inflation-indexed debt in the United States, and it has spread around the world. Now, the US was not the beginning of inflation-indexed debt in 1997, it was in 1780, I believe.
