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How an Energy Transition Underlay the Great Depression

Author

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  • Christopher Kennedy

Abstract

This paper explains the mechanisms by which a major energy transition produced the US Great Depression. Stock market indices show the 1927-29 Wall Street Bubble was led by petroleum-based technologies--especially airplanes and agricultural machinery. The subsequent crash was triggered by oil discovery. Tractors replacing 32 percent of horses over the course of the 1920s led to a 26 percent increase in the net available farmland for domestic consumption. The oversupply of land lowered farm prices, causing deflation. The deflation was non-uniform, with prices of coal, metals, and building materials--essential for capital formation--rising in real terms. Railroads had hegemonic control over transportation and energy supply; their decline, complicated by technological lock-in, undermined the US financial system, contributing to bank failures. Several statistical tests corroborate the energy transition hypothesis.

Suggested Citation

  • Christopher Kennedy, 2026. "How an Energy Transition Underlay the Great Depression," Economics Working Paper Archive wp_1121, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_1121
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    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations
    • N5 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries
    • N7 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services

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