Did Henry Ford Cause the Recession of 1926-1927? A Test of the Granular Hypothesis.

Aaron Bergman, Georgetown University
Gabriel Mathy, American University
Stephen Sun, Independent Scholar

Henry Ford’s decision to shut down all production at the Ford Motor Corporation to retool for the transition from the Model T to the Model A coincided with the 1926-1927 recession. Many authors, including Kindleberger (1986) have alleged that this event was a major cause of this recession. Also, the granular hypothesis of Gabaix argues that large shocks to major firms can generate recessions, and this would seem to qualify as a large shock to one of the largest firms in the U.S. at the time. We examine these hypotheses and find them unconvincing. Other car companies, especially General Motors and specifically Chevrolet, took advantage of the shutdown to increase their sales, taking market share from Ford and offsetting the decline in automobile production. The recession was well underway by the time of the May 1927 shutdown, and we can detect little change in the course of the recession as a result of the Ford shutdown.

No extended abstract or paper available

 Presented in Session 184. Innovation and Disruption: Beyond Creative Destruction