Messages from "the Den of Wild Beasts": Greenback Prices as Commentary on the Union's Prospects

Messages from "the Den of Wild Beasts": Greenback Prices as Commentary on the Union's Prospects Timothy W. Guinnane Harvey S. Rosen Kristen L· Willard ". . . it is not knowing what people did but understanding what they thought that is the proper definition of the historian 's task ..." —R. G. Collingwood To say that a historical event is important can mean one oftwo things: that an event may be important to us as later observers or that the event might have been important to people who lived at the time. Modern observers with the benefit of hindsight often think an event was important largely because we know its role in later chains of events: for example, the assassination ofArchduke Ferdinand in 1914 might seem an isolated example of Balkan violence were it not for its role in starting World War I. Similarly, the Wannsee meeting in January 1942 appeared to uninvolved contemporaries as one more assemblage ofNazi bureaucrats . At the same time, modern observers may downplay an event that was significant to contemporaries, perhaps because of their inabiUty to appreciate fully the thoughts and fears of those who lived in another time. Recent historiography has sought to bridge this gap, or at least to reassert the importance of knowing how events were perceived when they occurred. The goal of this essay is to determine which events of the Civil War were viewed as turning points by people at the time. Our basic source material is quite different from that employed in most such studies—rather than letters, diaries, speeches, and other verbal statements, we use asset prices. Because We thank James McPherson and an anonymous referee for useful comments and suggestions, the Financial Research Center (Princeton University) for financial support, and Sarah Killien for excellent research assistance. Willard also thanks the Woodrow Wilson Society of Fellows (Princeton University) for financial support. Civil War History, Vol. xli. No. 4 © 1995 by The Kent State University Press 314CIVIL WAR HISTORY asset prices are determined by people who are "putting their money where their mouths are," the reaction of market prices (or lack thereof) to various events is a strong indication of the sentiments of market participants. As Richard Roll suggests, such data allow us to measure the "opinions of individuals who are no longer alive to express them directly."1 Using market prices, we can compare the reactions of participants in financial markets to the significance the same events have been assigned by Civil War historians. Our focus is on the market for greenbacks, a paper currency issued by the federal government that was not convertible into gold. Business people, however , still required gold dollars to complete international transactions and to pay some obligations to the U.S. federal government. In addition, speculators wanted to buy or sell greenbacks to profit from their expectations about changes in the currency's value. A market emerged in New York to facilitate conversions between greenbacks and gold dollars. The records of this market— daily quotations on the relative prices of greenbacks and gold dollars—form our basic source.2 Our selection of this market, as opposed to some other financial market, is based on several factors. First, the exchange rate between gold and greenbacks can be read as an index of the financial market's evaluation of Union war prospects. People hoped that after the war they could convert their greenbacks to gold dollars one-for-one. The longer and more costly the war, the more likely it was either that this conversion would not take place or that the U.S. would return to the gold standard at a different parity, in effect using inflation to raise some of the funds necessary to pay for the war. Thus, the greenback's price, in terms of gold, provides a running commentary on Union war fortunes as perceived by participants in financial markets. Indeed, newspapers at the time customarily related movements in gold prices to battle events. On July 7, 1863, for example, the New York Times noted that "The Great Victory at Gettysburg put down the price of Gold." Historians have long observed that the gold price of greenbacks fell in response to adverse outcomes for...