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How an Energy Transition Underlay the Great Depression

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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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    References listed on IDEAS

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    1. Federico, Giovanni, 2005. "Not Guilty? Agriculture in the 1920s and the Great Depression," The Journal of Economic History, Cambridge University Press, vol. 65(4), pages 949-976, December.
    2. Christopher A. Kennedy, 2023. "Biophysical economic interpretation of the Great Depression: A critical period of an energy transition," Journal of Industrial Ecology, Yale University, vol. 27(4), pages 1197-1211, August.
    3. Christina D. Romer, 1990. "The Great Crash and the Onset of the Great Depression," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(3), pages 597-624.
    4. Ayres, Robert U. & Warr, Benjamin, 2005. "Accounting for growth: the role of physical work," Structural Change and Economic Dynamics, Elsevier, vol. 16(2), pages 181-209, June.
    5. Kennedy, Christopher A., 2024. "Energy constraints on macroeconomic paradigms," Ecological Economics, Elsevier, vol. 226(C).
    6. Christopher Kennedy & Jan Corfee-Morlot, 2012. "Mobilising Investment in Low Carbon, Climate Resilient Infrastructure," OECD Environment Working Papers 46, OECD Publishing.
    7. Kennedy, Christopher, 2022. "The Intersection of Biophysical Economics and Political Economy," Ecological Economics, Elsevier, vol. 192(C).
    8. Madsen, Jakob B., 2001. "Agricultural Crises And The International Transmission Of The Great Depression," The Journal of Economic History, Cambridge University Press, vol. 61(2), pages 327-365, June.
    9. Christopher A. Kennedy, 2025. "Oil discovery, energy transition, and the decline in wholesale prices during the Great Depression," Journal of Industrial Ecology, Yale University, vol. 29(1), pages 233-245, February.
    10. Unruh, Gregory C., 2000. "Understanding carbon lock-in," Energy Policy, Elsevier, vol. 28(12), pages 817-830, October.
    11. Christopher A. Kennedy & Martin Sers & Michael I. Westphal, 2023. "Avoiding investment in fossil fuel assets," Journal of Industrial Ecology, Yale University, vol. 27(4), pages 1184-1196, August.
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    Keywords

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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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