How an Energy Transition Underlay the Great Depression
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.