I was doing the introduction for the John Bates Clark Medal at the American Economic Association. And I was telling our own members at the AEA what did John Bates Clark do that is most distinctive. In 1895, he wrote a journal article defining what he called the real interest rate. What it is, is the interest rate corrected for inflation. Now, I did a search to see if anyone knew of real interest rates before 1895. And I got hits in 1894 and 1893, but nothing before that. So I think it was John Bates Clark who invented the idea. It's just amazing to me that people didn't understand forward rates, they didn't understand real rates. To me they seem like such natural concepts. So the nominal interest rate, what we've been talking about now, is quoted in currency. Dollars, Pounds, Renminbi, whatever. But it's not corrected for inflation, and as you know when you have inflation, the value of the currency declines. The real rate is quoted in terms of the market basket that underlies the price index, consumer price index. So just in simple terms, if you are investing money at 3% for next year and the inflation rate, consumer price index, is going up at 3% what is your real rate? How much are you making in real terms? Well, it's kind of obvious, it's zero, right? If I have $3 more on my $100 investment, but everything that I want to buy has gone up by 3% then I have the same buying power. So I didn't get anything. So the simple way of describing it is usually the real rate, this is simplified, the real rate equals the nominal rate minus the rate of inflation. But actually the formula is more like this. One plus the nominal rate, or money rate, equals one plus the real rate, times one plus the rate of inflation. This is an approximation. If you multiply this through, you'll see that it's missing the cross-product term, the product of R money times I. Which is close to zero. Another really important invention in history is the invention of index bonds, which are bonds that pay coupons defined in real terms and a principle, or one or the other in real terms. In 1780, I'm attributing this idea to Paul Revere but I don't know it probably wasn't his idea. But he engraved the bonds, the first issue of index bonds. I bought one under Will Goetzmann's influence. I discovered, I could buy one of these bonds. It'll only cost me $1,000, and I have it up and it's framed in my office if you want to come back and see it. Engraved by Paul Revere, that's pretty neat. But what's even neater about it, was it was a clever idea. Let's issue bonds whose coupons are just tied to the inflation rate, so that you know in real terms what you're getting. The US Treasury did not follow up on Massachusetts until 1997. So that's 217 year lag between the first issue of indexed bonds in the United States, and the second. Well, there might have been some minor issues somewhere in between, but basically that's what happened. So they were called TIPS, they still are, Treasury Inflation Protection Securities. They were issued in 1997. By 2006, they were 7% of the national debt. I should update this. They went up more by 2010 or so. I think they're down now. But, they're still big. In the UK they call them index-linked guilds. They're bigger in the UK, by 2006 they were 25% of the UK National debt. And France and other countries have been issuing them. They're still a little controversial, but they make great sense to me.