Income distribution and the Great Depression

Arbeitspapier

There is a growing literature comparing the current financial crisis or Great Recession to the worst economic crisis of capitalism, the Great Depression. However, the role of rising income inequality, which has risen dramatically before both crises, is rarely discussed. In this paper we discuss the rise of top-end inequality and its effects on household consumption, saving, and debt for the 1920s by applying a non-standard theory of consumption, the relative income hypothesis, to the period of interest. We argue that income inequality is linked to the increase of household consumption and the simultaneous decline of household savings as well as rapidly increasing household debt. Thus, the rise of top-end inequality in connection with a broader institutional change, such as the deregulation of financial markets, has contributed to a build-up of financial and macroeconomic instability, in the period leading to the Great Depression.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IMK Working Paper ; No. 153

Classification and Topics

• Classification: Wirtschaft ; Personal Income, Wealth, and Their Distributions ; Factor Income Distribution ; Macroeconomics: Consumption; Saving; Wealth ; Aggregate Factor Income Distribution ; Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: U.S.; Canada: 1913- ; Economic History: Financial Markets and Institutions: U.S.; Canada: 1913- ; Economic History: Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy: U.S.; Canada: 1913- ; Economic History: Manufacturing and Construction: U.S.; Canada: 1913-
• Subject: income distribution ; relative income hypothesis ; household debt ; financial innovation ; great depression

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Belabed, Christian A.
• Event: Veröffentlichung
• (who): Hans-Böckler-Stiftung, Institut für Makroökonomie und Konjunkturforschung (IMK)
• (where): Düsseldorf
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/113264
• Last update: 10.03.2025, 11:44 AM CET