 The one he focuses on in Volume 1 is the following. He argues that this very rising cost, let me put it a different way, the way to deal with this inequality, he doesn't really argue so much that the surplus could rise, but the way to deal with the inequality is for this to fall. Now, you could say, okay, this could fall and or this could fall, but I'm going to focus on what his argument is of Volume 1 is that the inequality gets solved by this falling. In other words, capital accumulation, the K star, diminishes in order to solve this problem. The very rising costs make it more difficult for the capitalist to expand, and the way they deal with that is to purchase fewer labor powers, purchase fewer means of production, why? Because the prices of those inputs have risen. And you can also add to that, absolutely, that the impact here is that the capitalist may go out and hire fewer managers, borrow less from banks, why? Because the cost of management and the cost of credit has risen. So I did not do this, but clearly this lambda is having an effect upon other markets, which would be the credit market, management market, land market, and so forth. As this is increasing, what does this mean? The demand for managers are shifting to the right, just like we talked about a moment ago about the demand for labor power. The demand for management's labor power is shifting to the right. The demand for credit is shifting to the right. The demand for land is shifting to the right, and hence prices of those other inputs are going to start to rise. That is, the interest rate is going to start to rise, the rents are going to start to rise, managers' salaries are going to start to rise, and hence there's going to be increased costs there, too, that the capitalists have to face. So in general, there's rising costs, rising prices of inputs throughout the capitalist economy. And that feeds back to affect the capitalist expansion. Here we can see then that there will be these new subsumed-class payments that have to be made, and indeed more subsumed-class payments would have to be made to banks and to managers and for research and development and so forth, which would be generated from this expansion. And Marx argues then there's going to be a cutback, and the cutback he focuses upon is this one. So I'm going to follow the logic of volume one, in particular, and focus upon this one, raise the board and then go back to our markets, go back to the markets and ask, okay, what's going to now be the impact on these two markets, the supply of means of production, the demand for means of production. Let me now, let me put the price so I don't lose this, price of labor power, the price of means of production. And supply, demand, supply, demand. All right, let me write the old curve, the demand for labor power in red. If you recall, it shifted to the right, demand new. If you recall, it shifted to the right because of expansion. The expansion bid up the prices. As a result of that, Marx is assuming here that the demands for means of production and the demands for labor power, that K star plus lambda, are going to now start to diminish because of these rising costs. So what he's assuming here graphically is that these curves are going to start to shift back. Notice the two shifts. Notice the two shifts. We started with a shift this way as a result of expansion. The shift that way caused the prices, I'm going to put them in here, the prices to rise, the prices of means of production to rise, that's the N is the new. I just put in the blackboard, we conceptualized that as additional subsumed class payments that had to be made to labor power and means of production, that created the crisis in which the demands on the surplus were greater than the available surplus. Kapless reacted that by purchasing fewer labor power, fewer means of production, which means the curve is shifting back in order to solve the crisis. So focusing upon this one for the moment, we can see that the dotted red is shifting back just for the moment to kind of get it. Let's assume the curve shifts all the way back to the original line. What do we then have in this market? If this red curve shifts all the way back, well, we have then an excess supply of people. This here is called in economics an excess supply of people unemployment, unemployed labor. So unemployed labor results in the market because the demand curve shifts back. By the same logic, this is an excess supply of means of production. The way the market works is this unemployed labor, this excess supply of means of production, will put downward pressure on prices as you can see. The downward pressure on prices to correct this excess supply of means of production, excess supply of people. Marx comes up with a dramatic term for this unemployed labor as a result of the contraction of the demand for labor power. He calls it the reserve army of the unemployed. So this in Marxian terms, lovely term, reserve army of the unemployed. And the reserve army of the unemployed is internal to the system. It results as a consequence of the demand for labor power shifting back, my green, and I'm just making it dramatic, shifting it all the way back so you can see this reserve army of the unemployed and the point of the reserve army of the unemployed, two points to it. One, it pushes down the price of labor power to correct the disequilibrium in the situation. Number two, it disciplines the workers so they will accept a lower price of labor power otherwise they're going to be getting rid of. That is the workers who are already working. So the reserve army of the unemployed pushes down the market price to the unchanged value and thereby corrects the situation. The excess supply of means of production pushes down the prices in the market, the market prices of means of production and lo and behold, if that works, we have the following. We put it all together. Expansion causes a crisis because of rising input prices. And that crisis serves to correct the crisis by diminishing demands for labor power, diminishing demands for means of production and pushing down the very prices. So in a bizarre way, the crisis sets in motion the forces in society which correct the crisis. It's kind of a bizarre way for capitalism to expand. The expansion creates a contraction but the very contraction will solve the problem that brought it about by bidding down prices. So Marx has an argument here of how business cycles result internally within capitalism. You don't have to look outside in terms of sunspots or agriculture or whatever. Inside industrial capitalism is the mechanism for the ups and downs. You might, looking at the board, you say, well, does it necessarily have to go here and here? There's no control over these markets. So we can have the demands shifting all the way to the left. Demands for means of production shifting all the way to the left and prices could thereby fall. And the very prices falling in that situation will create opportunities for capitalists to purchase this relatively cheap labor power and the relatively cheap means of production to set in motion once again the capitalist expansion. So that's one part of this story. The other part of the story which I'm going to develop next time is that this contraction need not occur. There's no necessity for the contraction and that's the next step. So the first step is, yeah, capitalism has the potential for creating these downturns but they need not happen. If you look at these two markets for the moment, they need not occur because it's quite possible for the supply of labor power to shift to the right. That is, the demand for labor power could be increasing but if the supply of labor power shifts to the right, that price need not rise. And Marx is going to develop that argument in Volume 1 and it's a very interesting and fascinating example in England of the time. It's also important in understanding the United States over the last 30 years how the changes in the labor power market and how the changes in the labor power market specifically, how a shift in labor power to the right need not caught. Doesn't necessarily... The shift in the labor power to the... The shift in the supply of labor power to the right can offset any tendency for the price of labor power to rise. And by the same token, the supply of means of production can shift to the right and hence a rising price of labor power means of production need not occur. There can also be other changes in the economy which is that besides a shift in the supply and a shift in the supply of labor power it means of production to the right. For example, I focused on rising costs to the capitalists of having to pay labor power more. But that means that the workers have more earnings. So that means that the workers can take their earnings and go out and purchase more consumer goods and in so doing bid up the price of consumer goods. So the capitalists have to pay more for their input labor power and means of production but they're also in a favorable situation in which they can sell their goods for higher prices because the workers are getting higher money wages. So I want to develop these contradictory results in the next presentation. Thank you.