Turning Points in the Civil War: Views from the Greenback Market Author(S): Kristen L

American Economic Association

Turning Points in the Civil War: Views from the Greenback Market Author(s): Kristen L. Willard, Timothy W. Guinnane and Harvey S. Rosen Source: The American Economic Review, Vol. 86, No. 4 (Sep., 1996), pp. 1001-1018 Published by: American Economic Association Stable URL: http://www.jstor.org/stable/2118316 Accessed: 12-12-2016 15:48 UTC

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This content downloaded from 155.41.86.191 on Mon, 12 Dec 2016 15:48:40 UTC All use subject to http://about.jstor.org/terms Turning Points in the Civil War: Views from the Greenback Market

By KRISTEN L. WILLARD, TIMOTHY W. GUINNANE, AND HARVEY S. ROSEN *

"I wish every one of them had his dev- them to the accounts of traditional historians.2 ilish head shot off!" Our method agrees with conventional histories Abraham Lincoln on for some events, such as the Battle of Gettys- gold-market traders' burg, but also generates some surprises. Fi- nancial markets reacted strongly to several The goal of this paper is to determine which events that have not been assigned a central events of the U.S. Civil War were viewed as place in Civil War histories, and some events turning points by people at the time. Our basic viewed as turning points by historians did not source material is quite different from that em- stir the financial markets. In addition to our ployed in conventional histories: rather than findings about specific events in the Civil War, letters, diaries, speeches, and other verbal our results emphasize a more general point: statements, we use asset prices. The United even with the benefit of hindsight and a rich States issued an inconvertible currency called understanding of the entire period, historians' the Greenback starting in 1862. The Green- standard methods may not lead to an accurate back's value in gold fluctuated over time, re- assessment of how contemporaries viewed flecting the expectation of future war costs. events. Using data on the gold price of Greenbacks, To say that an historical event is important we compare the reactions of participants in fi- can mean one of two things: an event may be nancial markets to the significance the same important to us as later observers, or the event events have been assigned by Civil War his- might have been important to people who torians. This is not a conventional event study. lived at the time. Modern observers with the Instead of specifying a list of dates a priori and benefit of hindsight often think an event was testing for their importance, we allow the data important largely because we know its role in to identify the important dates, and compare later chains of events: the assassination of Archduke Ferdinand in 1914 might seem an isolated example of Balkan violence were it * Willard: Columbia University, Graduate School of not for its role in starting World War I. Simi- Business, 608 Uris Hall, 3022 Broadway, New York, NY larly, the Wannsee meeting in January 1942 10027-7004; Guinnane: Department of Economics, Box appeared to uninvolved contemporaries as one 208269, Yale University, New Haven, CT 06520-8269; more assemblage of Nazi bureaucrats. At the Rosen: Princeton University, Department of Economics, Fisher Hall, Princeton, NJ 08544-1021. We thank Don same time, modern observers may downplay Andrews, William Baumol, Ben Bernanke, Charles an event that was significant to contemporar- Calomiris, John Campbell, Steve Cechetti, R. Glenn ies, perhaps because of their inability to ap- Donaldson, William English, Ray C. Fair, William preciate fully the thoughts and fears of those Gentry, Richard Grossman, Jonathan Gruber, Christopher who lived in another time. Recent historiog- Hanes, James R. Hines, Douglas Holtz-Eakin, Oliver Linton, Robin Lumsdaine, James McPherson, James raphy has sought to bridge this gap, or at least Poterba, Richard Quandt, Kenneth Rogoff, Christopher to reassert the importance of knowing how Sims, Richard Startz, William Sundstrom, David Weil, events were perceived when they occurred. In Gavin Wright, members of the NBER Macroeconomic the spirit of such research, we compare the History Group and two anonymous referees for comments and suggestions, the Financial Research Center (Princeton University) for financial support, and Sarah Killien and Ben Shyman for excellent research assistance. Willard also thanks the Woodrow Wilson Society of Fellows 2 For a detailed event study of both the Civil War and (Princeton University) for financial support. postwar periods, see Gregor W. Smith and Todd R. Smith ' Quoted in F. B. Carpenter (1867 p. 84). (1994).

1001

This content downloaded from 155.41.86.191 on Mon, 12 Dec 2016 15:48:40 UTC All use subject to http://about.jstor.org/terms 1002 THE AMERICAN ECONOMIC REVIEW SEPTEMBER 1996 reactions of participants in financial markets funds necessary to pay for the war. Thus, the to the significance the same events have been Greenback's price, in terms of gold, provides assigned by Civil War historians.3 a running commentary on the Union's for- Because asset prices are determined by peo- tunes, as perceived by participants in financial ple who are "putting their money where their markets.5'6 mouths are," the reaction of market prices (or The Greenback market has another impor- lack thereof) to various events is a strong in- tant virtue: studying it permits us to avoid a dication of the sentiments of market partici- complication that would arise in connection pants. This approach uses a basic tenet of with virtually any other market (such as that information and financial economics: infor- for a railroad or bank security). The connec- mation that affects a security's expected pay- tion between war events and the price of any off is incorporated into its price. Indeed, the single financial security reflects idiosyncracies relative simplicity of the market we study of the particular security. In the case of a rail- makes it easier to examine what kind of infor- road security, for example, a Union victory in mation moves asset prices than it is for ana- some battle might raise the security's price be- lysts using contemporary data. cause it implies a shorter war and a faster re- Even after the appearance of Greenbacks, turn to a peacetime economy. On the other business people required gold dollars to com- hand, it might lower the price if some of this plete international transactions and to pay particular railroad's property was destroyed some obligations to the U.S. federal govern- during the battle. Hence, the movement of the ment. A market emerged in New York to fa- price of such a security is a poor index of cilitate conversions between Greenbacks and views on the probability of a Union victory. gold dollars. The records of this market- The United States did return to the gold daily quotations on the relative prices of standard at the prewar parity, but not until sub- Greenbacks and gold dollars-form our basic stantially after the war's end, on January 1, source.4 Our selection of the Greenback mar- 1879. In principle, one could also study Green- ket, as opposed to some other financial market, back prices during the postwar period; indeed, is based on several factors. First, the exchange Milton Friedman and Anna J. Schwartz rate between gold and Greenbacks allows us (1963) provide an excellent discussion of the to "measure the opinions of individuals who Greenback's postwar career. However, we are no longer alive to express them directly" limit our study to the Civil War period for two (Richard Roll, 1972 p. 498). People hoped reasons. First, there is a well-developed his- that after the war they could convert their toriography of the Civil War that permits us to Greenbacks to gold dollars one-for-one. The assess the importance ascribed by historians to longer and more costly the war, the more likely it was either that this conversion would not take place or that the United States would ' The same phenomenon exists in modem financial return to the gold standard at a different parity, markets. Thus, in 1994, a senior advisor to President in effect using inflation to raise some of the Clinton was quoted as saying "The value of the dollar on any given day is like a global referendum on all the policies of the Clinton Administration combined" (New York Times, 8 May 1994, p. E5). 6 Clearly, it would be most interesting to incorporate 'In a similar spirit, Jeffery G. Williamson (1981) and data on Southern asset prices into the analysis. The data, John Brown (1990) estimate hedonic wage functions for however, are much poorer: see George T. McCandless nineteenth century Britain to estimate the compensating (1996). Nevertheless, there is a related literature on the differential for living in a large town. In effect, this method Confederacy. Richard C. Burdekin and Farrokh K. allows workers to reveal their preferences through their Langdana (1993) take advantage of information from the actual decisions. nine Treasury reports issued by the Confederacy and dis- 'We will always refer to the price of Greenbacks in cuss the implications of war news for Confederate infla- gold dollars. Thus, increases in the Greenback/gold rate tion rates. Herchel I. Grossman and Taejoon Han (1996) are movements toward par and may be seen as increases provide a thoughtful analysis of moral-hazard problems in in the value of Greenbacks. Contemporaries and historians Confederate borrowing. Larry Neal (1990) is similar to the usually refer to the "price of gold," or the inverse of our present paper in its focus on the transmission of infor- measure. mation in historical financial markets.

This content downloaded from 155.41.86.191 on Mon, 12 Dec 2016 15:48:40 UTC All use subject to http://about.jstor.org/terms VOL. 86 NO. 4 WILLARD ET AL: CIVIL WAR TURNING POINTS 1003 events that may have occurred on any given Greenbacks would be redeemed in gold.8 As the day. Second, by its very nature, the war gen- New York Herald (24 September 1862 p. 8) erated well-defined discrete incidents that are said: easier to characterize as surprises to contemporaries. Having said this, we still believe that ... if we can terminate the war by sup- exploring the post-Civil War data provides a pression of the rebellion, and the resto- potentially useful check on the appropriate- ration of the Union on a permanent basis, ness of our method. Hence, although they are conversions of currency will proceed so not our main focus, we briefly report some fast that it will very soon become prac- ticable, by a resort to the usual measures, findings for the post-Civil War era. to effect a general resumption of specie In Section I below we provide more back- payments and a general reconstruction of ground, describing the New York gold mar- our commercial edifice on a specie basis. kets and how they functioned. In Section II, we review some previous studies of the gold Greenbacks and gold dollars were not market. Section III describes our economet- perfect substitutes. First, transactions with for- ric method. Our results, presented in Section eigners required gold. Moreover, the govern- IV, can be viewed as a set of "Civil War ment itself accepted only gold dollars for greatest hits" that we can compare to more payment of customs duties. Finally, and most conventional historical accounts. Section V important, gold was demanded for speculative concludes. purposes. Although the Greenbacks repre- sented promises to pay gold coin, "men did I. Greenbacks and the Market for Gold not esteem such promises as equivalent to gold itself after the promisors had given public no- During the first year of the Civil War, 1861, tice that they were unable to redeem their the Union's financial condition deteriorated, and promises for the present" (Wesley C. Mitchell, in December the Treasury issued a very bleak 1903 pp. 182-83). After a short time the report on the budgetary situation. In the face of Greenback depreciated from par with the gold such news, bankers concluded that investors dollar, and speculators began to bet on the would lose confidence in bank notes and that Greenback/gold exchange rate. banks would soon experience a massive outflow Not surprisingly, a formal market for trad- of gold. On December 30, the banks suspended ing gold came into existence within two weeks the convertibility of their notes into gold (Davis of the suspension of convertibility. The price Rich Dewey, 1939 pp. 182-83). The govern- of a Greenback depended on its expected value ment almost immediately followed suit, sus- in gold dollars. The first organized dealings pending the right to convert Treasury notes into took place at the New York Stock Exchange specie. Soon thereafter, in February 1862, Con- on January 13, 1862. At about the same time gress passed the first of the Legal Tender Acts.7 a second market formed in a basement on Wil- These acts authorized the government to issue liam Street in New York City. This market, an inconvertible currency popularly called whose venue changed several times, became "Greenbacks." Did people believe that the gov- known as the Gold Room.9 The prices in the emnment would eventually redeem Greenbacks Gold Room were regularly telegraphed to all for gold? As Irwin Unger (1964 p. 16) noted, major cities and accepted as authoritative. Ex- "Little had been said on the subject of redemp- cept during a short period in 1864 when the tion when Congress debated the Legal Tender" issue. However, all the available evidence indicates that the public believed that at some future date, convertibility would be reinstated, and all 8 For further discussion of this point, see Walter T. K. Nugent (1967 p. 26). For more on the Greenback and mon- etary reform during this time, see Charles W. Calomiris (1992a, b). ' Gold was also traded in several locations other than 7 For a discussion of the Legal Tender Acts, see Dewey the Stock Exchange and the Gold Room. See Mitchell (1939 pp. 284-90). (1903 p. 184).

This content downloaded from 155.41.86.191 on Mon, 12 Dec 2016 15:48:40 UTC All use subject to http://about.jstor.org/terms 1004 THE AMERICAN ECONOMIC REVIEW SEPTEMBER 1996 government shut it down, the gold exchange tysburg published on July 3, 1863, the New operated until redemption in 1879. York Tribune noted "Such accounts of the en- We know of no statistics on the volume of gagement of Gettysburg as the Government gold transactions, but according to Mitchell has permitted to pass the wires, although on (1903 p. 184) the volume was "very great." the whole not unfavorable, are too meager to Contemporary accounts emphasized how uni- support any decided opinion, or to require versal the speculation was: much comment" (p. 4). The fact that newspapers were slow in re- Lawyers and editors, clergymen and porting war developments does not ipso facto doctors, learned professors and illiterate imply that the market responded to events with store-keepers, bank officers and farmers, long lags. There were ways other than the pa- dentists and architects, publishers and pers to obtain war news: authors, army paymasters and government clerks, gamblers and gentlemen, Members of both Houses [of Congress], saints and sinners-a mighty and a mot- and of all political creeds, resident bank- ley host ... rushed to the Gold Room, ei- ers, the lobby agents, clerks, and secre- ther in propria persona or through the taries, haunted the War Department for medium of a sweltering multitude of the latest news from the seat of war. The brokers. daily registry of the Gold Room was a -[Kinahan Cornwallis, quicker messenger of successes or de- 1879 p. 4] feats than the tardier telegrams of the Associated Press. A private secretary of a Apparently, the decorum of this "motley high official, with no capital at all save his host" was not exemplary. James K. Medberry position, which gave him authentic infor- ( 1870 p. 241 ), for example, observes that "In mation of every shaping of the chess game the days of the war an unexpected victory con- of war a full twenty hours in advance of verted the gold arena into a den of wild the public, simply flashed the words "sell, beasts." buy" across the wires, and trusted to the An important question for our purposes is honor of his broker for the rest. how the gold market used the information [Medberry, 1870 p. 245, emphasis added] coming to it. Did the financial market react quickly to news that was available, or did it If there was a sufficiently large number of "in- take several days to digest important events? siders" competing with each other, then the A closely related question is whether news of market would quickly transform war news into battles and other relevant events reached all changes in the price of Greenbacks, despite participants at about, the same time. Any an- the fact that the news was not coming swers to these questions must begin with the through published sources. The observations observation that communications during the of Cornwallis (1879 p. 5), are consistent Civil War were often poor. Important battle with this notion: news sometimes appeared in newspapers only after substantial delays. Consider, for example, the Battle of Vicksburg. On July 3 the New Almost every individual speculator in York Tribune published a series of dispatches the Gold Room, whose transactions were on the fighting that were dated June 26 through large enough to make it of consequence, June 28. Indeed, on some occasions the mili- had a correspondent at the national cap- tary apparently prevented news from getting ital, who sent him a telegraphic dispatch as occasion required. Sometimes infor- into the newspaper at all. In a report on the mation so communicated was of great burning of Chambersburg, Pennsylvania, the advantage to speculators, but more fre- New York Herald explicitly noted that the gov- quently it had been 'discounted' in the ernment frequently withheld information from Gold Room before there was time to act the public to minimize alarm and protect in- upon it, owing to the same advices being telligence and sources (July 31, 1863 p. 4). simultaneously received by many others Similarly, in a discussion of the Battle of Get- ... [emphasis added]

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125 ______

., 100

.c 75

'4- 00

E 25

0 - ...... Jan, 1862 Jan, 1863 Jan, 1864 Jan, 1865 Jan, 1866

FIGURE 1. GREENBACKIGOLD EXCHANGE RATE

In short, the descriptive accounts support the plotted the price of Greenbacks for the months basic premise of this paper: the gold market of the Civil War, producing a graph much like transformed information about war news into our Figure 1. Mitchell then talked his way expectations about the Greenback's future value. through the picture. He noted that the Greenback Having said this, we should also note that some depreciated until the Union victories of the sum- contemporaries did not view all gold room trad- mer of 1863, and again in the face of setbacks ers as behaving rationally. Several sources claim that put the war's outcome in doubt until early that some traders' decisions were guided as 1865 (Mitchell, 1908 p. 15). We use Mitchell's much by patriotic sentiments as the desire to data series and admire his pioneering effort, but make money: " [s] ectional feeling often entered depart from his methods in several ways. First, largely into bull and bear contests in the Gold as stressed by Charles W. Calomiris (1988) in Room, and Union men and rebel sympathizers his important study of the Greenback, Mitchell's fought their battles sometimes, as much to grat- account is predicated on the implicit notion that ify this as to make money" (Comwallis, 1879 one should be able to find some "news" to ex- p. 7). Of course, the fact that some market par- plain every price movement. This, as Calomiris ticipants were not always seeking to maximize notes, is a serious error: profits does not necessarily mean that new information had no effect on prices. Indeed, modem theories of financial markets easily reconcile the existence of noise traders with prices that Ex ante, news is virtually impossible to respond to information. identify. In deciding what constitutes news the informed researcher and the contemporaneous press on which he II. Previous Studies of the Greenback Market draws will look for news where there is much to be explained, much the same The first systematic analysis of the movement way The Wall Street Journal seems to of Greenback prices was done by Wesley Mitch- explain all market events ex post with an ell, as part of his massive study of wages and R2 of unity. prices during the Civil War. Mitchell essentially -[Calomiris, 1988, note 21]

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o 85

>80 ~75 70 ,

o65 60

120 Day Window around July 6, 1863

FIGURE 2. EXAMPLE OF A MEAN SHIFT IN THE GREENBACK/GOLD EXCHANGE RATE

In contrast, we do not assume that a significant from Gettysburg and from Vicksburg, as a movement in Greenback prices has to reflect matter of fact. In the space of just a few days, significant news, although it can. Our second the Greenback's price increased by about 13 and third departures from Mitchell's method percent, and did not experience a significant reflect his lack of an a priori definition of decline for several weeks. Blips, on the other what constitutes a significant change in prices. hand, may reflect a wild market reaction to In any market, prices change from day to day early news that later turned out to be false; or (if not minute to minute), often without any simply market nervousness over events on accompanying news. Before attributing a which there was little information. Blips of 0.5-percent increase in the gold price of a this sort are not uncommon even in contem- Greenback to a Union Army victory, we need porary securities markets. In their analysis of some formal way to distinguish that 0.5- modern stock-market data, David M. Cutler et percent increase from the large number of such al. (1989) show that some large changes in increases that might occur just through seem- stock value have no apparent cause. Figure 3, ingly random changes in prices due to noise or which enlarges the second box in Figure 1, liquidity trading. The econometric machinery shows a series of blips in late 1864 and early we describe and use below is intended to pro- 1865. On virtually every day the Greenback vide just that formal structure. price moved up or down, but these movements Finally, Mitchell did not distinguish be- were rarely even as much as 0.5 percent and tween two important types of changes in the were often swamped by an opposite movement Greenback price: those that persist for only a soon after. Since we are primarily interested day or two (which we call "blips") and those in long-lasting reevaluations of the prospects that persist for a much longer time (here called for redemption, our focus will be on the turn- "turning points"). The distinction has great ing points. Of course, any statistical procedure substantive importance. We want to identify for distinguishing tuming points from blips events, such as the battle at Gettysburg, that will occasionally confuse the two. This issue led participants in financial markets to con- is discussed below. clude that the war would be shorter or longer More recent discussions of the Greenback than they had previously expected. Figure 2, have focused on its role as a form of money. which is an enlargement of part of the first Years after the publication of Mitchell's work, boxed area in Figure 1, shows a turning Friedman and Schwartz (1963) argued that point-the shift corresponding to the news his basic approach was in error because the

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o 551I

545O

35 120 Day Window around December 31, 1864

FIGURE 3. EXAMPLE OF BLIPS IN THE GREENBACK/GOLD EXCHANGE RATE

Greenback's price was determined by the sup- and Schwartz critique is more pertinent to ply of Greenbacks and the demand for money, Mitchell's long-run analysis than to our focus of which Greenbacks were merely one type. on daily changes: it is unlikely that changes in That is, the conventional variables that are the demand for money were large enough, on used to explain the demand for money (such a daily basis, to produce the daily fluctuations as interest rates, nominal income, and so on) that we observe. In this light, we proceed on should be essential to any analysis of Green- the basis of Mitchell's assumption that expec- back prices. If Friedman and Schwartz were tations about resumption did strongly affect right-if Mitchell's emphasis on news in de- the price of Greenbacks. termining Greenback prices was misplaced- then there would be little point in a study such III. Econometric Method as ours. However, in his analysis of the Green- back in the postwar era, Calomiris (1988) ar- This section describes our methodology for gues convincingly that this is not the case. analyzing the Greenback price data. We also Central to Calomiris' s argument is the fact that discuss some methodological paths not taken a third form of money existed in addition to and why. In a generic sense, our problem can Greenbacks and gold-notes supplied endog- be characterized as follows: suppose that a enously by banks. Calomiris shows that these time series is generated by some autoregres- bank notes were the marginal money in the sive process. Define a "break" in the series as sense that changes in the money supply cor- a change in the intercept of that process, that responded to changes in the quantity of these is, a shift in its mean value. How does one notes. Therefore, changes in the demand for determine if there are breaks in the process, money resulted in changes in the quantity of and if so, where they are? In our context, the the endogenously supplied bank notes, and so breaks in the price of Greenbacks series mark did not affect the relative price of Greenbacks the turning points of the war: long-lived and gold. This analysis supports "... the basic changes in the price of Greenbacks, condi- approach taken by Mitchell and others who tional on their past values. concentrate on expectations of government In developing a method to find these breaks, fiscal policies during the Greenback era as one of the central questions we must confront the main determinants of exchange rates and is just how long is a "long-lived" effect on prices, and through them, money" (Calomiris, prices? To see why this is important, suppose 1988 p. 217). In any case, the Friedman that there is only one turning point, and we are

This content downloaded from 155.41.86.191 on Mon, 12 Dec 2016 15:48:40 UTC All use subject to http://about.jstor.org/terms 1008 THE AMERICAN ECONOMIC REVIEW SEPTEMBER 1996 attempting to find the date on which it oc- point, there are two mean shifts: one on day s, curred. One way to approach this problem and another 20 days later. If the second shift would be to estimate a series of equations like reverses the first, the algorithm described those in Pierre Perron (1989): above may very well miss both shifts. The algorithm only chooses events that shift the K price for the remainder of the war; the two ( 1) In p, = ,lSo + , pi In pt - i events will tend to be "averaged," so that nei- i = 1 ther is located. Even if the two shifts move in the same direction, the algorithm may have + -ysDst + et, trouble dating the shift, for the same reason. To address this problem we look for mean where Pt is the gold price of Greenbacks on shifts that last for periods of time that are day t, Ds, = 1 if the date is on or after date sshorter than the rest of the war.12 Clearly, as and zero otherwise, the /3's and es are param- the time period gets shorter, it becomes easier eters to be estimated, and s, is a white noise for a shift to be characterized as "long last- error term. For example, if s = June 1, 1863, ing." The time period could be made two then D,, takes a value of zero for all observa- days-then there would be no worries about tions up to but not including June 1, 1863, confounding the effects of different events. and it equals 1 for all observations thereafter. But then we would be back to analyzing blips. In effect, then, ys is the magnitude of the In short, there is a trade-off-as the time pe- mean change that occurs at date s, because for riod of the analysis grows longer, we are more all days after and including date s, the price likely to obtain false negatives, that is, miss shifts by -s, ceteris paribus.'0 events that are important; but as the time pe- Because s was chosen arbitrarily, perhaps riod grows shorter, we may obtain false posi- no mean shift occurred on that date. This ob- tives, that is, characterize events as "long servation suggests the following procedure. lasting" that really were not. Clearly, some Estimate equation (1) repeatedly, each time unavoidable arbitrariness is involved in mak- letting s be a different date. For each such ing this trade-off, but our results do not seem equation, test whether ys is different from zero sensitive to reasonable changes in the length using a conventional F test. Then compare the of the window of time examined.1" After some F tests on all the ys's, and designate the date experimentation, we settled on a 50-day pe- associated with the highest F statistic as the riod, that is, the change in price after a given most important mean shift." date must last at least 50 trading days in order This procedure, however, was developed to be deemed long lived. Below we discuss under the assumption that there is a single potentially important events that mnight be break point in the data. As with any econo- missed because of our focus on mean shifts. metric technique, this procedure can give mis- Our procedure for finding the turning points leading results when applied to inappropriate is based on Banerjee et al. (1992), and in- data. Suppose that instead of a single break volves the following steps:

"' Stock-market studies using contemporary data usually include some measure of the performance of the mar- '2 An altemative approach would be to look for all the ket as a whole as a right-hand side variable. No such index break points simultaneously. Locating five shifts within a is available on a daily basis for the Civil War period. 1000-day time series would require estimating 9.9 x 10'4 Stephen J. Brown and Jerold B. Warner (1980) have regressions, which is computationally burdensome. Look- shown that in at least some situations, methods that do not ing for two shifts is computationally feasible, but risks the explicitly adjust for market factors perform no worse than "averaging problem" discussed above. Nevertheless, to those that do. obtain a rough check on our results, we did it. Of the two ' Anindya Baneree et al. (1992) derive the asymptotic break points isolated, one corresponds exactly to one of distribution of a number of test statistics for unit roots and the breaks reported below, and one falls between two changing coefficients in time-series regressions, including others. this F statistic. Their results encompass the case of tests '" An 80-day period, for example, did not change the for a break in a stationary time series. basic location of significant break dates.

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TABLE 1-MAJOR STRUCTURAL BREAKS AND CORRESPONDING EVENTS

Percentage change Long-run percentage Date in greenback price change in price Major events (1) (2) (3) (4)

September 23, 1862 -0.44 -8.8 Battle of Antietam; formal announcement of Emancipation Proclamation January 8, 1863 -1.40 -28.0 Ways and Means Committee proposes increasing the supply of Greenbacks by $300 million July 6, 1863 1.56 31.2 Battle of Gettysburg; news of Battle of Vicksburg August 27, 1863 -0.63 -12.6 Unknown July 12, 1864 4.80 96.0 Early's army retreats; Fessenden confers with New York bankers August 24, 1864 0.40 8.0 Rumors of Lincoln's agreement to a peace conference March 8, 1865 2.60 52.0 Unknown

Notes: Column (1) shows break-point dates determined by the algorithm described in the text. Column (2) is the percent change in the conditional mean, based on the estimates of yr from equation (1). Column (3) is the long-run change percentage change in the price; in terms of equation (1), it is yS (1 - 2fii). Column (4) gives a brief explanation for the shift, which is elaborated upon in the text.

1) Using data from the 100-day period March of statistics, first picking the maximum and 24, 1862 to July 19, 1862, estimate the re- eliminating the window around that date, gression then searching for the next peak. These are the windows in which the null hypothesis 12 of no breaks is most strongly rejected;'6 (2) lnpV = /3 + pi nlfp,- + si, they therefore have the greatest likelihood of containing structural breaks. and calculate the F statistic associated with 4) Within each of the windows isolated in a test of the hypothesis that the coefficient step 3, test for statistically significant struc- on an omitted dichotomous variable is tural breaks by estimating a series of re- zero. ' (The lag length of 12 days was cho- gressions like equation (1 ).17 As explained sen by using the backward selection procedure suggested by Perron [1989] under the assumption of no break.'5) 2) Estimate the regression again, this time us- 6 Critical values for the F test of no break were ap- ing a 100-day "window" that begins one proximated with 5000 Monte Carlo simulations for the trading day after that used above, that is null model y, = 0.9y, - I + s, with 8, independently and identically distributed (i.i.d.) N(0, 1), and a length of 1000. March 25, 1862 to July 21, 1862. (July 20 (Nonparametric tests of the distribution of deviations from was a Sunday.) Repeat the process over the autoregressive process in the data do not reject normal and over, each time moving the window errors; moreover, fat-tailed error distributions, such as the over one day, until the entire period of the Cauchy, are rejected by such tests.) The 90-, 95- and 99- percent critical values are 10.1, 11.2 and 13.4, respec- war has been covered. tively. All F statistics for the break points in these data 3) Sequentially search for peaks in the series are greater than 20. " Jushan Bai et al. (1994) report that the width of the confidence interval for a sequential F test for a single structural break (as in step 4) identifying a date decreases " There is a correspondence between this F test and the with the magnitude of the true mean shift. For a mean shift associated Lagrange multiplier test. In essence, this pro- of 0.75, the 90-percent confidence interval would be about cess locates the windows with the highest sum of squared 31 days (that is, plus or minus 15 days). The mean shifts errors, or equivalently, the lowest R2. listed in Table 1, however, are relatively large (in absolute " It would be more appealing but computationally bur- value), so that a 90-percent confidence interval would be densome to allow for varying lag lengths at each possible closer to plus or minus 4 days (based on Bai et al.'s results break point. for a univariate series with a mean shift of 1.5). In the text

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above, the date associated with the maxi- native methodology based on surprises are mum F statistic is identified, as a break similar in spirit. point in the series. Note, however, that the The problem with this second approach, sequential break tests cannot identify which forms the basis of conventional event breaks around the beginning or end of a studies, is that it does not lead to an answer to sample. The usual practice is to trim some the question in which we are really interested. fraction of the sample, so that, if there are An event study estimates how an occurrence 100 observations in the sample, the search on a known date (like a battle) affects prices; begins at observation 26 and ends at ob- it does not identify which dates market partic- sexration 75. Since out windows are taken ipants view as major turning points. A turning from a larger sample, for each window point is a long-lasting change in the market identified in steps (1) - (3), we take a 150- valuation of the asset, and cannot be isolated day period, centered on that window as the merely by looking for extraordinarily high re- sample for the sequential test. Then we be- siduals. Indeed, when we attempted to imple- gin the sequential test on day 26 of the ex- ment this approach, it gave discomfiting panded window (day 1 of the original results. The events isolated were all bunched window) and end the search at day 125 of together closely in 1864 so that, for example, the expanded window (day 100 of the orig- Gettysburg was omitted. When we reestimated inal window). the model with a generalized-least-squares (GLS) correction for autoregressive condi- An Alternative Methodology tional heteroscedasticity the qualitative results did not change. An alternative approach to finding key dates An alternative approach that would be much is to estimate a regression like equation (2) for closer to ours is to characterize turning points the entire war and base the analysis on the cu- in terms of their impact on the ,P's of equation mulative value of the residuals over short pe- (1), in addition to the intercept. That is, a riods, for example, two or three days. The turning point changes the pattern of the auto- logic behind this approach is that the largest regressive process. We investigated this pos- cumulative residuals are associated with the sibility and found that, in practice, we can biggest surprises, and these must be the most never reject the null hypothesis that the coef- important pieces of news. From a formal point ficients on the interactions of Ds, and the of view, this approach uses a linear combina- lagged prices are jointly zero. tion of the regression errors, as opposed to the approach described above, which uses the IV. Results sum of squared errors. Thus the Banerjee- Lumsdaine-Stock methodology and the alter- The first stage of our econometric methodology yields the plot of F statistics exhibited in Figure 4. " Two features of this plot are noteworthy. First, most of the local maxima we discuss only the point estimates, but our examination exceed the critical value by a considerable of the newspapers and historical accounts did not reveal margin. Second, these local maxima are sharp important events within this interval. Our procedure for identifying break points is similar in spirit to that of James peaks, suggesting that periods in which the au- D. Hamilton (1989), who proposes a method for estimat- toregressive model fit the data poorly are rel- ing whether and when a regime shift may have occurred atively brief and clearly distinguishable from in time-series data. Hamilton examines the case where the one another. As noted above, all these maxima parameters of an autoregressive process are the outcome of a discrete-state Markov process. The number of regimes need not be break points, because they may is assumed to be known. In contrast, we come to our ex- not be associated with mean shifts. In fact, our ercise without strong priors about how many "regimes" exist in the data. Therefore, using Hamilton's method would require the computationally burdensome task of searching over the underlying Markov switching pro- "1 For the sake of completeness, the figure includes the cesses as well as over the parameters of the autoregres- F statistics for the postwar period. See the discussion of sions themselves. the postwar results at the end of this section.

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160 140 120 100

280 160 LL 40 20

Figure 4(a): 5/12/62 - 8/26/65

160 140 120 100 80 60- Li.. 40 _ 20

oi03M316 Figure0&12317 4(b): 8/28/65- 11a/7?"11/30/68 i27i?J6

0310)27/ 31/70 1/7 02123/78

140-

1201 0

1o 60 -

1600

Cu80 Cu60U U- 40 20

0 ~~~~~~11/16/72 07/16/73 Figure 4(c): 712/85-93/2272 03/14/74 11/07/74 Figure 4(d): 3/23/72 - 7/7/75

160 140 120 100

Cu 80 Cu60 U- 40 20

03/02/76 10/2076 06/6/7 02/23/78 Figure 4(e): 7/8/75 - 9/3/78

FIGURE 4. PLOTS OF F STATISTICS FOR EQUATION (2) FROM 1862 TO 1878

This content downloaded from 155.41.86.191 on Mon, 12 Dec 2016 15:48:40 UTC All use subject to http://about.jstor.org/terms 1012 THE AMERICAN ECONOMIC REVIEW SEPTEMBER 1996 methodology identifies only seven of these a golden opportunity to decimate Lee's Con- dates as being significant breaks in the gold federate Army; second, the battle itself cost so price of Greenbacks. Table 1 lists those turn- many lives that it could lead people to revise ing points, the percent change in the condi- upward their estimates of the war's future tional mean price of Greenbacks that occurred costs. on those dates, the long-run impact of that The more likely cause of the structural break change (that is, the percentage price change is that the Emancipation Proclamation de- we would observe if no other shocks ever oc- stroyed any hope for a peaceful settlement to cuffed), and the major associated events. the war. McPherson describes the Emancipa- The dates listed in Table 1 fall naturally into tion Proclamation as reflecting Lincoln's grad- three groups. The first group is comprised of ual realization that the war could not be won events, such as the victories at Gettysburg and except by breaking the South and making Vicksburg, that are completely consistent with southern property holders suffer. The actual conventional historical views of the Civil War. structure of the proclamation-it would not In other instances the market reacted strongly go into effect until January 1, 1863, and did to events that have received relatively little not take effect at all in the loyal slave states- stress from historians, but are easy to under- made the proclamation as much a threat as a stand as causes for concern or optimism. Our concrete measure. At a cabinet meeting on list also includes two dates for which the mar- July 22, Lincoln explained his determination ket appears to be responding to something, but to go ahead with the measure, and his cabinet from the historical record we cannot tell what approved (James McPherson, 1988 p. 557).2? it was.'9 Finally, we discuss two types of The proclamation raised the stakes (or at least events that did not make it onto the table. First clarified the higher stakes Lincoln had long in- are events that historians have suggested were sisted upon) in two ways. First, the Union important but which were not viewed as turn- Army was, in effect, going to free the slaves ing points by financial markets. Second are in conquered areas, essentially destroying the events that are associated with a substantial property relations on which southern society blip (a large one-day change) but were not had been based. "From now on the North persistent enough to be identified as mean would fight not to preserve the old Union but shifts. We consider each class of event in turn. to destroy it and build a new one on the ashes" (McPherson, p. 489). Second, Lincoln was A. Well-Known Historical Events shifting from his prewar rhetoric of "not dis- turbing slavery where it existed." Any doubts September 23, 1862. -The market reacted about his willingness to tolerate slavery in the negatively to two closely spaced events: the seceded states, even if they should end the re- battle at Antietam (a costly Union victory) and bellion, would now be over. Lincoln's official promulgation of the Eman- The New York Herald approved of the mea- cipation Proclamation. Why would Antietam sure on the grounds that the South would cer- be bad news for the Greenback? The New York tainly end the rebellion rather than risk the Herald (20 September 1862) claimed that "at social upheaval of emancipation (23 Septem- length, the backbone of the rebellion is bro- ber 1862, p. 4). In contrast, market partici- ken" (p. 1) and the next day called the battle pants did not believe that the proclamation a "turning point ... tantamount to the collapse would hasten the war's end. Rather, the Eman- of the rebellion" (p. 1). Market participants, cipation Proclamation caused people to think however, appear to have agreed with later his- in terms of a more "total" war, which would torians, who viewed Antietam in more sober also be a more expensive war. terms: first, Union General McClellan wasted

20 We are grateful to James McPherson for pointing out '9David Romer (1993) provides a theoretical expla- to us that Lincoln's cabinet kept this decision secret. The nation of how asset prices can move in the absence of Emancipation Proclamation was a surprise when it was external news, even if agents are rational. announced.

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July 6, 1863.-Gettysburg and Vicksburg on July 10, the Washington Evening Star pub- were, as noted above, clear and significant mil- lished a dispatch from Baltimore: "The ex- itary victories for the Union. Historians have citement in this city is intense and on the argued that, at the time, observers did not view increase. Crowds are thronging the bulletin Vicksburg for what it was: the end of Confed- boards, and a thousand wild and improbable erate control of the Mississippi, and so the sev- rumours are in circulation." Since Grant had ering of the western from the eastern part of withdrawn most of Washington's defenders to the Confederacy. In contrast, historians have aid in the siege of Petersburg, many feared for noted that contemporaries clearly understood the safety of the Union capital. On July 12, the significance of Gettysburg. Unfortunately, however-partly in response to the hasty ar- since news of these two battles reached the rival of Union reinforcements-Early decided east at about the same time, we cannot make to break off the raid and return to Virginia. any statistical distinctions between market re- Historians generally view this as a minor foot- actions to the two separate events. note to the war. Financial traders, apparently, took Early's threat very seriously indeed. B. Less Prominent Historical Events The July 12 percentage price change is the largest one in the table. This observation raises January 8, 1863.-The day before, a bill the question of how relative magnitudes of the approved by the Congressional Ways and percentage price changes should be inter- Means Committee to increase the supply of preted. The price changes do not measure the Greenbacks by $300 million was made pub- historical importance of an event; rather, they lic.2' Using Calomiris' conceptual framework measure the updating of expectations of the referred to above, the significance of this ac- future redemption value of Greenbacks. For tion is its impact on the public's perception of example, consider the difference between the Union financial conditions. Specifically, par- market's reaction to Gettysburg and to Early's ticipants in financial markets may have viewed retreat. Gettysburg was certainly more impor- this proposal as an admission that the fiscal tant in the larger historical sense because the measures taken to that date-previous Green- Union victory dramatically reduced the chance back issues, borrowing, and taxes-were in- of a negotiated settlement leading to southern sufficient to meet the Union's needs. Thus, the independence. When Early retreated from government was acknowledging, however in- Washington, it did not really change anyone's directly, that it expected the war to be more perception of the outcome of the war. How- expensive than earlier anticipated. ever, the size of the mean shift associated with Gettysburg is smaller because although it in- July 12, 1864. -This is the largest shift (in creased traders' probabilities of eventual Un- absolute value of the percent change) of the ion victory, it also increased expected costs of entire war; at 4.8 percent, it dwarfs the next bringing the war to a close. As noted earlier, largest, 2.6 percent. The large value reflects higher expected war costs would reduce the good military news. Jubal Early's Army, in a probability that Greenbacks would be re- threatened raid on Washington, had ap- deemed at par. On the other hand, Early's re- proached to within five miles of the White treat marked the end of any serious possibility House by July 11, 1864. Until the raid on July that the Confederacy would be able to bring 11, it was unclear what Early's objective was; the war back into the North. That said, it is useful to emphasize that the price changes in the table are percentage changes. By the time of Early's retreat, the price of Greenbacks in 21 See the New York Herald and the New York Times gold dollars was substantially smaller than it for January 7, 1863. The bill that ultimately passed (on was at the time of Gettysburg. The absolute March 3, 1863) authorized an expansion of only $150 mil- conditional change in the Greenback price was lion. No actual single increase in the supply of Greenbacks smaller after Early's retreat than at Gettysburg, came close to the $300 million figure proposed on January 8 (see Dewey, 1939 p. 288). There were three issues in all but because the base was so much lower, it during the war, totaling $450 million. registers as a larger percentage increase.

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There may have been financial news as well. New York Times (25 August 1863, p. 8) Chase resigned as Treasury Secretary on June reported rumors to the effect that Lincoln, 30, 1864. William P. Fessenden, previously under the pressure of a reelection campaign the chairman of the Senate Finance committee, against a peace-minded Democrat, planned to was appointed Chase's replacement on July 1. change his position. According to McPherson Prior to his appointment as Treasury Secre- (1988 p. 770), the rumors were not baseless: tary, Chase had been a Senator and Governor "Lincoln almost succumbed to demands for of Ohio. Both contemporaries and historians the sacrifice of abolition as a stated condition have been critical of Chase's financial exper- of peace." tise and his ability to accept advice. Fessenden, in contrast, played the part of financial savior, C. Structural Breaks Not Associated in no small measure because of his willingness with Events to take the advice of bankers.22 The mean shift on July 12 cannot reflect approval of August 27, 1863.-Most military news at Fessenden's appointment, since that had been this time was insignificant, and positive for the known since July 1. However, Fessenden had Union at that, making it hard to understand the a meeting with New York financial leaders just Greenback's depreciation. The sacking of prior to our mean shift; it is possible, although Lawrence, Kansas, by Confederate guerrillas we have no direct evidence on the matter, that occurred on August 21, but was viewed as mi- either Fessenden's general attitude or some nor by the New York newspapers (the Herald specific decision reached at that meeting reported the event on p. 5). The Union siege caused financial traders to evaluate the Green- of Charleston had been under way for some back more highly. time, and the Herald (28 August 1863, p. 2) claimed that the fall in the Greenback price August 24, 1864.-News of the only im- reflected disappointed expectations: " tt] he portant military event close to this date-the opinion on the street is partly that gold has fall of Fort Morgan on August 24, which vir- been oversold, on expectation about the taking tually completed the Union blockade of Con- of Charleston... " (Charleston did not actually federate ports-could not have caused the fall to the Union until February of 1865). price movement, since this would require essentially instantaneous transmission of infor- March 8, 1865.-There was virtually no mation, which is implausible. The New York military news at this time. Grant was bogged Times, in commenting on a rise in Greenback down in his assault on Petersburg, and prices on the 24th, advanced what is probably Sherman was somewhere in North Carolina- the real reason. Throughout July and August, his precise whereabouts, and so his activities, peace feelers from the Confederacy had put were unknown. Newspaper stories give the Lincoln (who was also facing reelection) un- impression of being desperate for some real 23 der great pressure to drop his commitment to news to report. abolition as a condition for negotiations. The These mean shifts show that, much like modem financial markets, some movements in

22 Albert S. Bolles (1886), writing not long after the Civil War's end, was scathing in his discussion of Chase, 23 Some Britishers apparently believed that the fall of who he described as overly proud, ambitious, narrow- Richmond was in fact "news" in the sense of this paper. minded, petty, and stubborn. Fessenden, on the other hand, However, the Economist (11 March 1865 and 18 March "... had the complete confidence of all. Of the purest pri- 1865) argued that such observers were overreacting to in- vate character, devoted to his country, not over- temperate remarks by Union politicians to the effect that, confident of his abilities, and desirous of knowing more, after defeating the Confederacy, the Union would invade a better choice probably could not have been made. He Canada. As stressed in the quotation by Calomiris above, accepted the office reluctantly, and, though serving as sec- it is always possible to "explain" a movement in prices retary only eight months, rescued the treasury department ex post. However, in this case, we are inclined to credit from the grave disorder into which his predecessor had the Economist's assessment that the fall of Richmond did plunged it" (p. 115-19). not signal an invasion of Canada.

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Civil War gold prices did not correspond to either located no breaks or identified a date real news. We find this neither surprising nor within about ten days of the onset of the up- puzzling. While one could certainly scour the dating.25 In other words, if a false break point news accounts for events to "explain" these is identified, it will be near the start of the time mean shifts, we think that it makes more sense at which the updating began. Inasmuch as the simply to acknowledge that some long-lived siege of Petersburg began the previous June, price changes may be inexplicable. Contem- we do not think that the identification of March porary observers trenchantly made the same 8 is a consequence of this phenomenon. observation: D. Events Not Viewed as Major News Were William Street [location of the by the Financial Markets Gold Room] the criterion, we should say that the Northern mind has lost its power Table 1 is also noteworthy for the events it of foresight. The doings there are just does not include. A number of military and such as might be expected of men as political events that are often viewed as turn- blind as bats to what may happen next ing points did not induce participants in the month or next week-of bipeds who gold market to revise their expectations about have somehow lost the great attribute of future costs of the war. For example, the Sec- humanity, the "large discourse of looking before and after. "... The price of ond Battle of Bull Run (August 30, 1862) did gold ought to be primarily determined by not even cause a blip in the price of Green- the military prospects. But the fact is that backs. Neither did Lincoln's removal of it is not so determined to any appreciable McClellan from command on November 7, extent. Successes achieved have an ef- 1862. The overwhelming victory of Union fect; successes in the course of achieve- forces at Chattanooga on November 25, 1863 ment have none. led to a 3.17-percent increase in the price of -[New York Times, Greenbacks on November 27 (the next trading 4 July 1864, p. 4] day), but this appreciation was almost entirely canceled by negative movements over the next An alternative possibility is that these two few days. Similarly, after Lincoln's reelection dates are associated with an unusual conflu- on November 8, 1864, the price of Greenbacks ence of events. Consider, for example, the fell by a few percentage points, but it re- March 8 break point and its relation to the bounded two days later. siege of Petersburg. Suppose market partici- sSme &2 mg AU gee *S XeX pants were frequently updating their assess- tional Banking Acts would have had an im- ments of Grant's eventual success on the basis portant impact on the Greenback market. The of news arriving from Petersburg. We already first act, passed on February 25, 1863, declared know that our method will not identify a break that any bank which met the specified capital point if the daily updates are sufficiently small, requirements could get a federal charter, es- even if the cumulative effect over a period of tablishing "free banking" at the federal level. months is large. However, during such a pe- The notes of such banks were backed by fed- riod of small updates, noise on a particular eral bonds and, at some level, these banks date might be mistaken for a structural break.24 were simply markets for federal bonds (Bray To investigate the likelihood of this occur- Hammond, 1985 p. 727). 26On March 3, 1865, rence, we constructed price series character- Lincoln signed a bill that taxed state-chartered ized by slow updating and noise, then checked to see how often our methods would detect a break in these data. Depending on the size of the break relative to the noise, our procedure 25 Specifically, the procedure identifies a break occur- ring within ten days of the onset of the updating in 87 percent of the trials where any shift is detected. 26 On June 3, 1864, Congress modified the original act 24 We are grateful to Charles Calomiris for this with new reserve requirements and some other changes suggestion. that are minor from our point of view.

This content downloaded from 155.41.86.191 on Mon, 12 Dec 2016 15:48:40 UTC All use subject to http://about.jstor.org/terms 1016 THE AMERICAN ECONOMIC REVIEW SEPTEMBER 1996 bank notes at 10 percent. This measure was back price is entirely understandable. One intended and viewed as an effort to force all other large blip occurred during the time the state-chartered banks to adopt federal charters Gold Room was closed (June 27, a 5.9-percent (and thus become markets for federal bonds). drop) and is probably associated with the fact Nevertheless, the passage of these acts had no that the lack of an organized market made significant impact on the Greenback's price. prices more volatile. The suppression of the Because these events are not even associ- gold market was not a success; the government ated with substantial short-term changes, we permitted it to reopen after only about two are confident that participants in the financial weeks. markets did not regard them as important Of the remaining three blips, two occurred news: either the events had no permanent ef- within 20 days of each other, on March 5 and fects on people's expectations or they were March 25, 1863. The March 5 increase of 5.5 fully anticipated and so had already been in- percent may have been caused by Congres- corporated into prices. Of course, the assess- sional passage of the Enrollment Act two days ments of financial market participants and the earlier. This act instituted a draft. The March general population need not be the same. Still, 25 increase of 7.75 percent may have been due despite the importance these events have been to financier Jay Cooke's successful sale of mil- assigned by historians, they apparently did not lions of dollars of Union bonds. As noted rate as turning points in contemporaries' esti- above, our method for isolating mean shifts mates of prospects for the war and eventual can be confounded when two events occur redemption. within a short period. While we cannot know for sure that these events were overlooked by E. Events Viewed as Blips but Not the algorithm because of their proxiniuty, it Turning Points seems a distinct possibility. The remaining blip was December 19, 1864, As we stressed earlier, our focus on events when the price increased by 5.75 percent. This with long-lasting effects carries a cost: we may may have been due to the disintegration, on miss some events that would have induced December 16, of the Confederate Army of mean shifts had not countervailing movements Tennessee, which had been defending Nash- occurred within a relatively short period of ville. On the other hand, this Army had been time. To investigate this possibility, we lo- besieged for several days, so it is not clear that cated the five largest single day percentage the final collapse would have been news. changes in the Greenback's price (that is, There are no other substantial blips within a blips) during the war. On June 22, 1864, there month of December 19 that would cause our was a 7.6-percent drop in the price of Green- algorithm to miss this date. Hence, we feel safe backs. This was two days after the government in concluding that this was in fact not an event ordered the Gold Room to close. The Union that led to a long-lasting reevaluation of pros- government viewed speculators with a con- pects for the redemption of the Greenbacks. tempt accurately reflected in the Lincoln comment cited at the beginning of this paper. F. Some Results from the Postwar Era Market participants may have viewed the Gold Room closure as an act of desperation: the Un- As noted earlier, a natural check on our ion government did not want a gold market method is to apply it to the postwar data. offering an immediate comment on every Therefore, we extended our daily price series move it made.27 If so, the decline in the Green- to December 31, 1878, and used our procedure to check for break points. Since this is only intended as a check on our method, our discussion of the results is necessarily brief. First, 27 There are other historical episodes in which govern- ments have objected to financial markets implicitly pass- ing judgment on their actions. For example, David Weir (1989) argues that one reason pre-revolutionary French ments was the difficulty of forming a secondary market finance ministers preferred life-contingent debt instru- for such annuities.

This content downloaded from 155.41.86.191 on Mon, 12 Dec 2016 15:48:40 UTC All use subject to http://about.jstor.org/terms VOL. 86 NO. 4 WILLARD ET AL: CIVIL WAR TURNING POINTS 1017 we find only eleven break points in the 156 the "opinion poll" implicit in financial market months of the Greenback's postwar history; in prices can lead to new conclusions about how comparison, we found seven break points dur- contemporaries viewed events. ing the forty months of the Greenback's war- More generally, our methodology provides time existence. The relatively low frequency a useful way for studying how people in the of post-Civil War break points demonstrates past responded to various events that were that our method does not force break points to happening around them. One could, for ex- occur with any particular frequency. ample, use financial market information from Without going into great detail, several of the the early twentieth century to gauge reactions postwar break points are associated with notable to the threats of war and feelers for peace that political news, such as a Supreme Court judg- preceded the outbreak of war in August 1914. ment against the government in favor of the Participants in financial markets may not, of Union Pacific Railroad or announcements about course, be "typical" of their contemporaries. debt-reduction measures by the federal govern- But why should the opinions of thousands of ment. Several other break points are associated people, distilled in market prices and ex- with financial crises, attempted gold corners or pressed at the risk of their own personal for- news regarding gold discoveries or shipments. tunes, be viewed as any less representative Finally, as was the case during the war, there are than those manifested in the literary sources several break points for which the news of the more commonly used by historians? day does not provide a compelling explanation. The fact that such reasonable results are found REFERENCES in the postwar era gives us more confidence in our findings for the war itself. Bai, Jushan; Lumsdaine, Robin L. and Stock, James H. "Testing for and Dating Breaks in V. Conclusion Integrated and Cointegrated Time Series." Working paper, Princeton University, De- To cover expenses during the Civil War, the cember 1994. Union issued Greenbacks, a legal tender cur- Banerjee, Anindya; Lumsdaine, Robin L. and rency that was not immediately convertible Stock, James H. "Recursive and Sequential into gold. Any event that increased the ex- Tests of the Unit Root and Trend Break pected future cost of the war decreased the Hypotheses: Theory and International Ev- likelihood that Greenbacks would eventually idence." Journal of Business and Eco- be redeemed with gold at par. Such events nomic Statistics, July 1992, 10(3), pp. therefore tended to decrease the gold price of 271-87. Greenbacks, ceteris paribus. Hence, the gold Bolles, Albert S. The financial history of the price of Greenbacks is a potential source of United States from 1861 to 1885. New information on opinions regarding the pro- York: D. Appleton and Co., 1886. gress of the war. In this paper, we analyzed Brown, John. "The Condition of England and daily price quotations to assess how people at The Standard of Living: Cotton Textiles in the time evaluated military, political, and fi- the Northwest, 1806-1850." Journal of nancial news. Economic History, September 1990, 50 (3), In some respects our results are consistent pp. 591-614. with conventional accounts: for example, the Brown, Stephen J. and Warner, Jerold B. "Mea- Battle of Gettysburg was viewed as a major suring Security Price Performance." Jour- turning point. In other cases, however, we nal of Financial Economics, September have found that contemporaries gave more 1980, 8(3), pp. 205-58. weight to certain events than historians gen- Burdekin, Richard C. and Langdana, Farrokh K. erally have. Once such example is Jubal "War Finance in the Southern Confederacy, Early's retreat from Washington in July of 1861-1865." Explorations in Economic 1864. Largely downplayed by modern histo- History, July 1993, 30(3), pp. 352-76. rians, Early's retreat triggered jubilation in the Calomiris, Charles W. "Price and Exchange Gold Room. Such findings demonstrate that Rate Determination During the Greenback

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