Working Paper: NBER ID: w13567
Authors: Marc D. Weidenmier; Kim Oosterlinck
Abstract: Historians have long wondered whether the Southern Confederacy had a realistic chance at winning the American Civil War. We provide some quantitative evidence on this question by introducing a new methodology for estimating the probability of winning a civil war or revolution based on decisions in financial markets. Using a unique dataset of Confederate gold bonds in Amsterdam, we apply this methodology to estimate the probability of a Southern victory from the summer of 1863 until the end of the war. Our results suggest that European investors gave the Confederacy approximately a 42 percent chance of victory prior to the battle of Gettysburg/Vicksburg. News of the severity of the two rebel defeats led to a sell-off in Confederate bonds. By the end of 1863, the probability of a Southern victory fell to about 15 percent. Confederate victory prospects generally decreased for the remainder of the war. The analysis also suggests that McClellan's possible election as U.S. President on a peace party platform as well as Confederate military victories in 1864 did little to reverse the market's assessment that the South would probably lose the Civil War.
Keywords: Civil War; Confederacy; Financial Markets; Victory Probability
JEL Codes: N21; N22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial market behavior (bond prices) (G19) | Perceived probability of Confederate victory (H56) |
| Negative military outcomes (H56) | Selloff in Confederate bonds (N21) |
| Selloff in Confederate bonds (N21) | Decreased perceived chances of victory (D80) |
| Military defeats (Gettysburg and Vicksburg) (H56) | Perceived probability of Confederate victory (H56) |
| Confederate military victories in 1864 and potential election of McClellan (N41) | Market perceptions of Confederate victory (N21) |