Concept

Crisis theory

Summary
Crisis theory, concerning the causes and consequences of the tendency for the rate of profit to fall in a capitalist system, is associated with Marxian critique of political economy, and was further popularised through Marxist economics. Earlier analysis by Jean Charles Léonard de Sismondi provided the first suggestions of the systemic roots of Crisis. "The distinctive feature of Sismondi's analysis is that it is geared to an explicit dynamic model in the modern sense of this phrase ... Sismondi's great merit is that he used, systematically and explicitly, a schema of periods, that is, that he was the first to practice the particular method of dynamics that is called period analysis". Marx praised and built on Sismondi's theoretical insights. Rosa Luxemburg and Henryk Grossman both subsequently drew attention to both Sismondi's work on the nature of capitalism, and as a reference point for Karl Marx. Grossman in particular pointed out how Sismondi had contributed to the development of a series of Marx's concepts including crises as a necessary feature of capitalism, arising from its contradictions between forces and relations of production, use and exchange value, production and consumption, capital and wage labor. His "inkling ... that the bourgeois forms are only transitory" was also distinctive. John Stuart Mill in his Of the Tendency of Profits to a Minimum which forms Chapter III of Book IV of his Principles of Political Economy and Chapter V, Consequences of the Tendency of Profits to a Minimum, provides a conspectus of the then accepted understanding of a number of the key elements, after David Ricardo, but without Karl Marx's theoretical working out of the theory that Frederick Engels posthumously published in Capital, Volume III. Marx's crisis theory, embodied in " ... the law of profitability did not appear until the publication of [Capital] Volume Three in 1894. Grundrisse was not available to anybody until well into the 20th Century ... " and therefore was only partially understood even among leading Marxists at the beginning of the twentieth-century.
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