Biophysical economic interpretation of the Great Depression: A critical period of an energy transition

The objective of this paper is to explain the cause and proceedings of the 1930s Great Depression from a biophysical economic perspective. The Depression was a painful episode in the socio‐technological transition from a coal/railroad regime to one based on hydrocarbons, motor vehicles, and electricity. The beginning—the Great Crash of October 1929—corresponded with drastic cuts in oil prices and announcement of oil supply certainty, following discovery of huge oilfields in the US Southwest. The Depression principally centered on a change from railroads to motor‐vehicle‐based transportation, but was long and drawn‐out due to the hegemonic power that the railroads held over the US economy. The late 1920s saw increased use of hydrocarbon‐based technologies, but the emerging technologies were still reliant on the old technological system. Methods of biophysical economics, mapping energy flows to capital formation, show the critical role of railroads in the Depression. In 1929, railroads accounted for 24% of the non‐residential capital stock; they delivered between 70% and 76% of energy needs; and 69% of energy required for capital formation. Thus a hypothesis emerges that dwindling investment in the railroads was a major constraint on the economy. In biophysical terms, the US economy's main energy delivery system—coal carried by railcars—was hamstrung. Energy flow Sankey diagrams for 1929 and 1939 show the gradual change in energy systems that occurred over the Depression.