How Capitalism Endogenously Creates Rising Income Inequality and Economic Crisis: The Macro Political Economy Model of Early Industrial Relations

Abstract

A major economic issue today is the causes and consequences of wage stagnation and rising income inequality. This paper uncovers, describes, and formalizes the macro political economy model developed by pre–New Deal institutional/industrial relations economists to explain these issues. The model is formalized in a three‐part diagram and used to explain the role of inequality and wage stagnation in causing the Great Depression and World Financial Crisis and the appropriate policy responses.