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.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
13567.
Length: Date of creation: Nov 2007 Date of revision: Handle: RePEc:nbr:nberwo:13567
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Find related papers by JEL classification: N2 - Economic History - - Financial Markets and Institutions N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913
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