Paul Revere’s 1780 Contribution to a Revolutionary Innovation: Inflation-Indexed Bonds

Inflation-indexed bonds, including TIPS, reinvented in the 20th century, help protect investor returns

Stephen Foerster
19 min readNov 14, 2022

Painting of Paul Revere’s midnight ride
Midnight Ride of Paul Revere by Edward Mason Eggleston, Wikimedia Commons

In the late 1770s, the Revolutionary War wasn’t going well for America. The British Army was making gains in America’s south, and the British Navy was blockading the eastern coast. U.S. Army morale was low as the troops were poorly clothed, poorly fed, and often in need of medical attention. Mutinies were a real threat. Also sapping morale was another enemy: soldiers were facing a loss of value of their pay due to inflation, jeopardizing their ability to support their families.

What happens when inflation runs rampant? To this day, central banks and governments continue to grapple with this issue. In 1780, The Commonwealth of Massachusetts rode to the rescue, with a financial innovation that was truly “revolutionary” and that played an important role in the eventual turnaround in army morale, and consequently America’s fortunes. That famous midnight horseback rider, Paul Revere, even contributed, but not at all in a way you might have expected from what we know of Revere from history books. Largely forgotten for centuries, the financial innovation was reinvented in the 20th century, in time to fight that enemy — inflation — that returned worldwide with a vengeance in 2021.

Inflation is the change in price of a basket of goods and services. Uniting financial returns (such as a bond’s coupons and principal) with inflation — the “revolutionary” idea — is now referred to as inflation indexing, but was historically called a tabular standard, or accounting for changes in purchasing power. Writing in 1877 in his book, Money and the Mechanism of Exchange,[1] W. Stanley Jevons credits work by Joseph Lowe published in 1822[2] for proposing an inflation indexing scheme that was “probably invented by him.”[3] If that’s the case, then like the cart coming before the horse, surprisingly, inflation-indexing theory came along after practice. Inflation indexing was actually enacted in legislation in Massachusetts more than four decades before Lowe’s “invention,” in 1777 and in 1780, and that’s when our story takes place.

Stephen Foerster

I’m a Finance prof, CFA, and author of In Pursuit of the Perfect Portfolio (with Andrew Lo). I write stories about investing. (I don’t give financial advice.)