Thursday, November 8, 2007

Financing the Confederacy

Marc D. Weidenmier and Kim Oosterlinck have a new paper looking at the probability of the South winning the U.S. Civil War as seen through financial markets. Their paper is titled "Victory or Repudiation? The Probability of the Southern Confederacy Winning the Civil War" (non-gated version). I have posted their abstract below. If you find this research fascinating then be sure to also check out the "Money and Finance in the Confederate States of America" article over at the Economic History Net.

Victory or Repudiation? The Probability of the Southern Confederacy Winning the Civil War
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.


  1. This reminds me of a fascinating chapter in Niall Ferguson's book, The Cash Nexus, where he looks at how French bond yields behaved pre-1789 and during the Terror, and effects of Napoleonic wars on British consol yields, and German bond yields in lead up to Hitler.

  2. Professor Beckworth,
    I just read your article in Baron's,"Deflation Isn't Always Dangerous". This got me thinking about our current "weak" dollar. Maybe it is not such a bad or dangerous situation.

    It is has been perfectly clear that China, Asian rim countries, and European countries, have artificially kept their currencies artificially low compared to the dollar for years. But, we know market dynamics eventually prevail.

    Perhaps, the dollar is just trying to find equalibrium/parity against these currencies?

    What do you think?