The Emancipation Proclamation, Confederate Expectations, And the Price of Southern Bank Notes‪.‬

1. Introduction In 1862, the Northern war effort floundered in the East. Stonewall Jackson threatened Washington, McClellan's peninsular campaign stalled, and the North suffered its second defeat at Bull Run. The end of the conflict and restoration of the Union were nowhere in sight. By the summer, Lincoln concluded: "Those enemies must understand that they cannot experiment for ten years trying to destroy the government, and if they fail still come back into the Union unhurt. (1) Lincoln conveyed this message to Southerners through the Emancipation Proclamation, which effectively eliminated the prospect of a negotiated settlement and a return to the Union unhurt. Was Lincoln's assessment of Southern expectations correct? Did the Emancipation Proclamation alter these expectations as he had anticipated? We present evidence from the market for Southern bank notes that he was right on both counts.