 This is Professor Resnick again, and we're getting towards the end of Economics 305, so I would like to finish up with two themes. The first is something called Monopoly Capitalism, and the second, I'd like to talk a little bit about the United States using the theoretical apparatus that we have studied in this course. First topic. Marx talks about competitive capitalism producing its opposite, its antithesis, which is that of monopoly capitalism. So the very struggle over super profits that I presented to you, and that Marx discusses that competition within every single industry across the economy, can drive out of business a number of capitalists who just can't compete. That is, they can't raise their composition of capital as fast as the others, cannot drive down their average cost as fast as the others. And so they're literally driven out of business. They lose so much of their surplus value to the more successful capitalists that they die. The result is the possibility is that the remaining capitalists form a significant share of the production capacity in that particular industry, and what emerges is their power to set the price. In other words, competition fades away, and monopoly power rises instead. Marx calls this the centralization of capital in volume one of capital. So what may emerge across capitalism in a variety of different industries is this fewer and fewer firms who are able to concentrate more and more production in their hands, and hence have the power now to raise the power to determine what is the price of the good that they're selling in the market. So I want to examine this centralization of capital. In our two commodities, the consumer good industry, that is the means of subsistence commodities, consumer goods, and then in the capital good industry, the means of production industry, two different commodities, the V commodity that's department two and the C commodity, department one. So let's assume that we have the emergence of monopoly in the wage good industry, and let's take our equation and this is also a good review. We have then the C plus the V plus the S, and just to make sure that we have the steam what we have here, this is the wage good industry. These are the few firms remaining in the wage good industry. They now have the power to set the price and hence they can sell this value, they can sell this value for an amount, for an amount of sales revenue, price times quantity, greater than the cost. And so they are in a favorable position because they have the power to set a price greater than the unit value, exchange value per unit use value of the thing that's being produced here. Here's their total revenues exceeds the cost, and I'm including obviously in the cost of the surplus. What this means geometrically is that here's the price, let's put it in our supply and our demand. And this is the quantity for this, let me not use Q, let me use it. This is the use values that are being produced and sold. So this firm somehow has set this, I'm going to call it a monopoly price, which is higher than the previous competitive price, that's where we start. I'm assuming the competitive price is the same as the unit value. And so the firm by driving out of business its competitors, that's the somehow, has now in its hands the power to set a price above the equilibrium. So the market, which is this, supply and demand, is no longer determining the price of the product. The PC is no longer the price, rather the firm is a price maker, it has the power to do that or the few firms are price makers and they set PM. Notice something interesting here. This firm by setting this price will sell this much, which is quite a bit the difference of what it was selling before. So this is the original, this is the new. And you might ask, is it possible for this firm to raise its price and sell more than UVN? In other words, get close to this. And the answer is yes. If the firm can make a very inelastic demand at the DN, if the firm somehow faces a very inelastic demand, then it won't lose too much in sales if it raises its price. That's very important in the case of Monopoly, because the firm now has an incentive to try and create an inelastic demand for its particular product. What do we mean by that if you recall in economics? An inelastic demand is a kind of necessary good. There are very few substitutes for that particular good. So if this firm can mount an advertising campaign, go back to a bidding of the course, that's a cultural part of the economy, if it can mount an advertising campaign, produce a whole set of new theories to persuade individuals to buy this good and there are no good substitutes for it, then it can raise its price and not lose, it'll lose a few, but not lose much sales. In other words, its total revenues will rise, it won't lose too much on the sales side if it can persuade individuals to purchase this particular good. So in this particular case, the Monopoly price that it charges, and this is what it sells right over there, it won't lose too much sales again if it persuades individuals that this is a necessary good. So let's put it all together. The firm then, this is the socially necessary abstract labor time to produce the good, it sells it for a worth, a value greater than this, and then I'm going to add here precisely what that is. That's a non-class revenue. The non-class revenue is precisely the difference between the price of this particular product and its unit value of that particular product. That's the differential right here, the non-class revenue that the firm receives by being able to sell it for this particular product, a market price, a Monopoly market price greater than the unit value. So it's really this here times that distance over there, and that's equal then to the price of M times what it is sold. So in Monopoly capitalism, these non-class revenues loom large. Notice something, the firm is still exploiting individuals, that's the surplus here, let me remind you, surplus that it's pumping out of its workers, but this firm is getting something else. It's getting a non-class revenue by selling the good for more than what it's worth. So this is what we discussed a little bit before, this is unequal exchange. So we're changing the assumption of Marx and enabling this firm to sell its commodities at a price higher than the unit values thereby earning a non-class revenue times the good sold. So this NCR has nothing to do with class exploitation. This, don't confuse the two now at the end of the course, this is class exploitation, this is unequal exchange, this is the use of power to set a price greater than the unit value times the goods sold. And if this is still large, the NCR can loom very large. In this case then the rate of profit for the firm is the surplus, so let me call this the monopoly rate of profit is the surplus plus this non-class revenue divided by C plus V. And this can go up quite a bit if this is relatively important. So that's the payoff for monopoly capitalism. Notice something else in this. I want to come back to this point of advertising. Excuse me, let's take this numerator here. The surplus value of this firm plus the non-class revenue, that's in a sense it's new gross profits, then we'll be equal to the subsumed class payments that it makes to secure the conditions of existence of the surplus value, just like we've been doing throughout the course. But we have something new, this NCR. And over here you can add another expenditure, say advertising over there. And the advertising helps to secure the non-class revenue. And one could make an argument that the inequality goes in this direction. That is, it's true you have to firm and curse a new expenditure to help secure this, but these may be so large that it exceeds the expenditures necessary to secure and maintain the monopoly position to get the price higher than the unit value. So there's a strong, there's a profit rate takes off. Two other comments on this. You might say, well, monopolies are illegal. That's absolutely correct. What I have on the blackboard is not legal. There are, in the United States, there are laws in the past of the turn of the last century, after the 1900s, which say firms shall not have monopoly power, federal laws. And so what I have on the blackboard is not legal, but, of course, and I get to go back to the first part of the course, the firm will hire economists and lobbyists and lawyers to make an argument if anybody raises this question that they're not a monopoly, they're a competition. And there's many, there's a fascinating and interesting example of the epistemology where the lawyer is going to try and persuade a judge in our jury, a lawyer representing this firm, that that which is on the blackboard doesn't exist, rather it's a competitive firm. And on the other side, if it were the federal government that were prosecuting this, this firm had violated the laws because it did have monopoly power. And the other lawyers representing the state would make an argument that it is a monopoly and then you would have a struggle between these two different kinds of theorizations of whether or not there was monopoly present. So included in the why would not only be advertising, but I probably shouldn't be all the legal the fees for lawyers and lobbyists and so forth and economists arguing that the firm is not a monopolist, but rather it's a competitive firm. So there is a way of handling then using our value and surplus value theory in the case of monopoly. Let me erase this and then ask, so what? What's the consequences of this besides the firm having a higher profit rate? So what? So let me do two things on this and erase this from the board and examine that particularly. I hope interesting question consequences of monopoly power in once again in the consumer good industries. Okay. Well, first the workers who the value of their labor power, they have a problem now because since this is consumer goods, they have to pay higher prices for all their goods. So the inequality for the workers goes this way, assuming their wages don't change. That is the socially necessary abstract labor time to produce the goods to sustain the laborers. That doesn't change. Then they would have to pay higher prices. Assuming monopoly isn't all the means of subsistence. Okay. They would have to pay higher prices for the goods that they are demanding, that they want to maintain their standard of living. So they have a crisis on their hands. So the monopoly power in the means of subsistence industries, which is good for them, it gives them a higher profit rate. The way I've done it here comes at the cost of the workers, because the workers have to pay a higher price for those goods that they desire. And so this can't be sustained. One way, one possibility here, it's one possibility, is that the real wage falls.