 Good day, it's Professor Resnick again, and today I want to talk about, I want to present to you a summary of how the economy is out of control, the chaos that characterizes capitalism. So it's going to be a summary of what we've done over the last few lectures. So let me put this on the board and then explain as I go along what we have here. We have the rate of profit, the little r, and now I want to characterize this as the rate of profit in each and every enterprise, and I'm going to use a little subscript here, i. So little i represents any one of the enterprises in the seagoon industry. So that's the means of production industry, and it's called, as I mentioned to you before, department one by Marx. So C represents the means of production of what Marx calls in volumes two and three of capital, department one. Two great departments, one being the means of production, department two being means of subsistence, consumer goods. And that's equal to use a notation K star, capital accumulation, delta C plus delta V, that's all the distributions to expand that enterprise, in this particular industry, plus everything else, which is necessary to support and expand the firm, the dividends, the managerial salaries, R&D, and so forth. So all of this for each and every firm in that industry. And by the same logic, we have every single firm in the V-good industry, department two equal to K star plus lambda, perfectly symmetrical in the V-good industry. So let's start. Let's assume there's an expansion, so everything is going well, the rates of profit are rising, capitalists are doing well, and by that logic, they are increasing their subsume class expenditures to secure these different conditions of existence. So the economy is expanding, and the demands for labor power, demands for means of production, demands for wage goods, and so forth, etc. People are euphoric. As I explained to you, this gives rise to intense competition within these industries. So let me mark that here, intense competition within each of these industries, within the means of production industry, within the wage-good industry. Now, Marx also talks about, and I'm not presenting it in this course, but let me just add it here, Marx also talks about competition across industries. That is, he talks about competition across the C-industry and the V-industry. What he has in mind there is that, for whatever complicated reason, if the profit rate in say the wage-good industry were, for whatever reason, higher than the means of production industry, then capital would move from the lower to the higher profit rate, from the means of production industry to the wage-good industry to take into account earning a higher rate of profit in the department to the wage-good industry. But we're going to leave that aside. He discusses that in volume three of Capital, and that's called, it's very famous within the Marxian tradition, the transformation problem. But it really is just a different form of competition. We're going to stay with our competition within each industry. So we have intense competition, and then as we explain, that's going to propel each and every firm in these different, two different industries to attempt to raise their composition of capital in each of these industries. Every single firm in the C-industry and the V-industry raise their composition of capital, raise the productivity of labor, the technical productivity of labor in each of these firms in these two different industries. And as I explained in that tableau that we put on the whiteboard, this in turn will produce a declining rate of profit. Where? Well, everywhere. So you're going to startling your result, which is the expansion is going to set in motion intense competition. The attempts of firms to increase their composition of capital, to raise their productivity so that they can survive. And then the ironic result is that it's going to beget a falling rate of profit and the possibility of a recession. So this is going to, let me not put it there because I put it over here. This is going to create the possibility of a recession, a decline in the demand for labor power, a decline in the demand for means of production. In other words, a recession. So what Marx has done here is shown how an expansion, higher rate of profit, increased demands for labor power, increased demands for means of production can set in motion via competition a recession. Expansion carries within it the possibility of a recession. So that's an explanation of why you have a downturn. The downturn is caused in part because there was an upturn. The Marx is trying to get across this kind of instability, which is present in capitalism. So just to review, so we don't lose it, this intense competition here, that is, as we explained, a struggle over super profit. That is, the successful firms, they get a surplus value plus a super profit. The unsuccessful firms in each and every industry, the unsuccessful firms in each and every industry, they lose a super profit to the more successful one, if you recall. This is for the C industry and the V industries. So this allows the firms that are gaining the super profit, they can then expand K star plus lambda. Those that are losing will contract their accumulation. So you have this process of competition occurring, successful firms expanding, unsuccessful firms contracting, as all the unsuccessful firms try to respond so that they don't go out of business, they raise their organic composition of capital. That's not the only strategy, but that's one of the things that Marx is talking about. They raise their organic composition of capital to stay alive. And as all firms try to do that, that drives down the rate of profit for all of them, and hence you have the possibility of recession. So it's a very powerful, fascinating story that Marx has talked, has described of this cyclical expansion decline of capitalism. But notice, this rise in the productivity of labor, which is the result of this competitive process, also produces something else, which is the decline in the unit values of these two goods. These two goods produced in these two great industries. So the very productivity of labor, this goes back in the course, I explained this a long time ago, a rise in the productivity of labor means it takes less social labor to produce a commodity. That's what this says. So there's the inverse relationship in volume one between a rise in the productivity of abstract labor and the fewer hours of abstract labor to produce a commodity. That's what's happening here. So capitalism on one hand, on the one hand, is driving the economy down because of expansion. On the other hand, this cheapening of C and V is going to push the economy up into an expansion. Let's call that this cheapening of inputs, that is C and V, that's going to drive the economy into an expansion. Why? Well, because of what we've already learned, because the rate of profit is S over C plus V, and so you are driving down the cost of C, driving down the cost of V, and driving up the rate of profit, and driving up the rate of profit, and hence increasing K star plus lambda. And therefore increasing the demands of a labor power and increasing the demands of means of production. And when you're watching this and you're listening to me and you're reading capital, you're saying, well, which is it? Is it the recession, the expansion? The point is it's both. It's not one or it's the other. What Marx is trying to get across is the chaos which is present in capitalism. You don't know. The system under which we live, in which we celebrate called capitalism, suffers from this bipolar problem. It suffers from the depression and it suffers from the euphoria, the expansion. They're present in the same body of the economy. Capitalism in that sense is not well. It suffers from this recession and expansion. It's both. So this is a summary of what we have of this business cycle. And if I may just, I'm going to erase this now. And if I may just put the whole thing together in one equation, if I may just to capture this.