The Depression of the 1930s Was an Energy Crisis

Economists, including Ben Bernanke, give all kinds of reasons for the Great Depression of the 1930s. But what if the real reason for the Great Depression was an energy crisis?

When I put together a chart of per capita energy consumption since 1820 for a post back in 2012, there was a strange “flat spot” in the period between 1920 and 1940. When we look at the underlying data, we see that coal production was starting to decline in some of the major coal producing parts of the world at that time. From the point of view of people living at the time, the situation might have looked very much like peak energy consumption, at least on a per capita basis.

Figure 1. World Energy Consumption by Source, based on Vaclav Smil estimates from Energy Transitions: History, Requirements and Prospects (Appendix) together with BP Statistical Data for 1965 and subsequent, divided by population estimates by Angus Maddison.

Even back in the 1820 to 1900 period, world per capita energy had gradually risen as an increasing amount of coal was used. We know that going back a very long time, the use of water and wind had never amounted to very much (Figure 2) compared to burned biomass and coal, in terms of energy produced. Humans and draft animals were also relatively low in energy production. Because of its great heat-producing ability, coal quickly became the dominant fuel.

Figure 2. Annual energy consumption per head (megajoules) in England and Wales during the period 1561-70 to 1850-9 and in Italy from 1861-70. Figure by Wrigley

In general, we know that energy products, including coal, are necessary to enable processes that contribute to economic growth. Heat is needed for almost all industrial processes. Transportation needs energy products of one kind or another. Building roads and homes requires energy products. It is not surprising that the Industrial Revolution began in Britain, with its use of coal.

We also know that there is a long-term correlation between world GDP growth and energy consumption.

Figure 3. X-Y graph of world energy consumption (from BP Statistical Review of World Energy, 2017) versus world GDP in 2010 US$, from World Bank.

The “flat period” in 1920-1940 in Figure 1 was likely problematic. The economy is a self-organized networked system; what was wrong could be expected to appear in many parts of the economy. Economic growth was likely far too low. The chance for conflict among nations was much higher because of stresses in the system–there was not really enough coal to go around. These stresses could extend to the period immediately before 1920 and after 1940, as well.

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