BUS101: Introduction to Business

The first systematic exposition of periodic economic crises, in opposition to the existing theory of economic equilibrium, was the 1819 Nouveaux principes d'économie politique by Jean Charles Léonard de Sismondi. Prior to that point, classical economics had denied the existence of business cycles; blamed them on external factors, notably war; or only studied them in a long-term context.

Sismondi found vindication in the Panic of 1825, which was the first international economic crisis occurring in peacetime. Sismondi and his contemporary Robert Owen, who expressed similar but less systematic thoughts in the 1817 Report to the Committee of the Association for the Relief of the Manufacturing Poor, both identified the cause of economic cycles as overproduction and underconsumption. These believed these problems were caused in particular by wealth inequality, and they advocated government intervention and socialism, respectively, as the solution.

This work did not generate interest among classical economists, although underconsumption theory developed as a heterodox branch in economics until being systematized in Keynesian economics in the 1930s.

Sismondi's theory of periodic crises was developed into a theory of alternating cycles by Charles Dunoyer, and similar theories, showing signs of influence by Sismondi, were developed by Johann Karl Rodbertus.

Periodic crises in capitalism formed the basis of the theory of Karl Marx, who further claimed that these crises were increasing in severity and would lead to a Communist revolution. Marx devoted hundreds of pages of Das Kapital to crises.