 Look what Marx has done. He has given us a second reason why there may be a business cycle and the second reason has got to do with competition. The very expansion of the capitalist where I started, Honda, General Motors and Ford. Going on very robust competition in the automobile industry, in the TV industry, in the computer chip industry, in the food industry and so forth, throughout the entire economy produces rising productivity of labor, rising composition of cup capital, lower average cost, lower prices, and paradoxically the possibility of a recession because the rate of profit is driven down so much that in reaction to a lower rate of profit capitalists begin to cut back the demand for means of production, the demand for labor power, demand for credit and so forth, etc. Because they have to make decisions about the future now and the now is at a lower rate of profit and they get scared, they get fearful that the future doesn't look good. In other words, their mood and their mind changes now. They become fearful over this future because the rate of profit is falling and the rate of profit is an index of what, you know, in their heads of what may happen and so they begin to cut back and you get a recession. So that which is celebrated in capitalism, which is the market that is celebrated by non-Marxian discourses, celebrated for its incentives, which is what we just went through, the incentives to innovate and so forth, carries with it the possibility of a recession. So that's the second thing that Marx has now shown. First thing we did before was the expansion carries within it the seeds of the possibility of a contraction. Here the very necessity for capitalist to accumulate, that is the K-star, the very necessity for them to distribute, to secure all these other conditions of existence carries within it again the possibility of this recession. That's the first of these dramatic results. But like I did before, there is no necessity for this to occur and then no necessity for this to occur is connected to relative surplus value. So that's the one last thing I want to show in this exercise. And to show it, notice something here that the unit value, the unit value of this particular commodity is falling. If this is automobiles it's a wage good. So it went from eight to seven to six. And it went from eight to seven to six because labor was becoming more productive. This is a lecture a long time ago, I told you the inverse relationship between a rise in the productivity of labor and a fall in the unit value. And I told you at that time that carried within the possibility of a crisis. I'm going to go back to that. That's a terribly important point. Marx then says, look, a rise in the productivity of labor, that's a wonderful thing that capitalism accomplishes because it develops the forces of production, technology, Delta C goes up and up and up. That's quite wonderful. We have more and more wealth for our given labor power. On the other hand, it also carries with it the risk of a bad thing, a recession, which is what we just did, a falling rate of profit as a result of that very good thing, the mechanization which is occurring. Another way of saying the same thing. This result of rising productivity creates a lower unit value. And that lower unit value produces another good thing which is what I'm going to show you now of relative surplus value. So capitalism is contradictory. This recession need not occur because of this relative surplus value. So let's get that on the board. That's that analysis. I'm going to go back to this equation I derived for you from Paul Suisy to try and argue this. We have two results. The value of automobiles, unit value of automobiles is falling. And the unit value of the means of production of this chip, the chips is falling. So the robust competition, if you ask yourself, why is this happening? This is happening because of what I just showed you. The struggle over super profits in this V industry, in the V industry. And the same thing goes here. This is because of a struggle over super profit in the computer chip industry. Okay? So that's our competition within each of these industries. And as a result of that, the unit values fall. Well, look at this equation here. Let's see. If C is falling, then that ratio is going to fall. Okay? Because the C is falling in the numerator and denominator, but it'll be falling proportionally more rapidly because you're adding to the denominator an unchanged V. And hence, the ratio of the two will fall. Okay? That means the R is going to be pushed up. So the cheapening of the C, if there's no other changes, is going to push up the rate of profit. Well, we've got two different results then. That says competition in the computer chip industry and other means of production industries are pushing the rate of profit down. And pushing it down means the risk of recession. On the other hand, the very cheapening of the means of production implies that those industries which are purchasing means of production get the benefit of a cheaper C. And hence, that's going to push their rate of profit and therefore the rate of profit in the economy up. An example. Robust competition in the computer chip industry creates a potential disaster for each one of these producers. Why? Because the rising composition of capital in that industry is driving down the rate of profit. The productivity is going up rapidly and hence you have the risk of a cutback in that industry. On the other hand, cheaper computer chips is a tremendous benefit to the TV industries and all the other industries that are purchasing the chips because their C in the TV industry is being cheapened and that increases the profit rate in the TV industry because they're using these chips. So when you look at the economy as a totality, you have the benefit to those industries that are buying this cheaper C, all the wage good industries and so forth, etc. And then of course on the other hand, you have the problems arising in those industries which are going through intense competition. And so the net impact on the economy is quite problematic. I shall come back to that in a moment. Okay? Couple with this. We have not only cheaper C as a result of competition, but we have cheaper V. This is what Marx calls this result right here. Relative surplus value. The cheapening of V, V goods, what does that mean? Well, let's go back and do this again. I've done this many times, but I'm going to do it again. The value of labor power is equal to two things. The unit value of the wage goods times the wage goods that the workers consume. So this component is the real wage, the standard of living of workers. This is the unit value of that real wage. This is the goods that the workers actually can purchase. Okay? This right here, the real wage. This of course is the price of those goods. So what we have here is that this thing is falling in labor time. This thing is being pushed down by robust competition. So if this thing could go up a little bit, the real wage can go up and you might expect that. Okay? But if this downward arrow exceeds this upward arrow, the rise in the real wage, the value of labor power is going to fall and this is called relative surplus value. So don't forget now. Let's go back to the beginning of this course. If this is the length of the workday, if this was V, if this was surplus. So if the length of the workday remains unchanged, which I'm assuming, then a fall in the V means a rise in surplus. So capitalists get an extraordinary benefit from intense competition, which is relative surplus value, as well as the cheapening of C. So put, if you put it all together, we have an interesting and fascinating contradiction in an economy like the United States, a kind of chaos that's going on, which is intense competition in each and every industry is pushing this rate of profit down. On the other hand, the very intense competition is setting forth all kinds of cheapening of C and V of the economy, which is pushing the rate of profit up. So on one hand, the rate of profit is pushed down. On the other hand, it's being pushed up by the, this is the cheapening effect, the relative surplus value, the cheapening of C. This one over here, this arrow right here is mechanization. Okay. And these two effects that I have here, the arrows being pushed up and down are a result of the same process, they're not too different, the same process being expansion, which set all this in motion. And so the, what happens to the rate of profit is uncertain. Marx captures this by saying, yes, there's a tendency for the rate of profit to fall because of a rise in the composition of capital. But there's also a counter tendency, which tends to offset it, which is relative surplus value and the cheapening of C. You'll find this in volume three of capital. And hence the result at any moment is uncertain. To use our language, the rate of profit is over-determined by these two different contradictory forces. I want to come back, then I'll stop on this. I want to come back to one last point on this C, since it's very important, it's very controversial within the Marxian literature, but it's very, very important in terms of this cheapening of C in particular, but cheapening of C and V. But I want to focus on the cheapening of C. So let me just erase this, leave this on the, well, I may just erase it and put it on again. I'm not doing anything new, I'm just new, I'm just examining this C for a moment.