Most Rev Justin Welby said the gap between the rich and poor is "significant" and the nation must make "fundamental choices" about its economic model.
He said: "Our economic model is broken. Britain stands at a watershed moment where we need to make fundamental choices about the sort of economy we need.
"We are failing those who will grow up into a world where the gap between the richest and poorest parts of the country is significant and destabilising."
Archbishop Justin is a member of the Institute for Public Policy Research's Commission on Economic Justice which has published a new interim report warning the economy is "unfit" to face the 2020s.
The commission said the benefits of economic growth are largely going to company profits, while wages have been stagnating for the longest period in 150 years.
It reported that gross domestic product has increased by twelve per cent since 2000 but average employee earnings have decreased by six per cent in the same period.
The commission called for "urgent public debate" about taxation, and the role of the financial sector and trade unions to make a fairer society.
A Treasury spokesman said: "Employment is at a record high, the deficit is down and inequality is at a 30-year low. We are proud of this record but there is more to be done.
"That is why we are investing £23 billion in infrastructure, R&D and housing while also reforming technical education to prepare for the high-paid, high-skilled jobs of the future."