 So as you know, from high school, C minus C is zero. I haven't done anything. But now I'm going to rewrite this. S over V, 1, V plus C over C plus V is 1 minus C over C plus V. So now I've got a formula for the rate of profit, which combines together my two other indices. What does this say? OK, 1. A rise in the rate of exploitation implies an increase in the rate of profit. Number two, a rise in the composition of capital. This is what Marx calls the composition of capital. What I called last time, the index of mechanization, or I call this time, the index of mechanization, implies a fall in the rate of profit. Because it has a negative sign associated with it. This is a positive sign. So notice something. The profit rate is going in two different directions. As the rate of exploitation rises in capitalism, it increases. But as mechanization occurs, which we expect in capitalism, that profit rate is going to fall. And then the next question is, what difference does this make? Who cares? So the last step in this, which is very, very important for the second message of capital. The first message is that capitalism has exploitation associated with it. That's this one. The second message is that capitalism has a business cycle associated with it. Is the one that we're going to now focus on. So what difference does a rising or falling rate of profit have for capitalism? So let me go back. The rate of profit is surplus value provided by the cost of production. What do the capitalists do with their surplus? Remember, I started out by saying, what do the workers do with their wages? They go out and buy means of production. So the logical question is, what do the capitalists do with their surplus? Well, you remember what we did in the first part of this course. The capitalists take their surplus and they distribute the surplus to secure their conditions of existence. That is, they make all kinds of subsumed class payments so that they can survive and prosper. Now, I want to divide the subsumed class payments into two kinds of categories, two broad categories for this argument. One is distributions for capital accumulation. That's what the delta C plus delta V means. The delta C is the capitalist purchase of additional means of production. What you read in the newspaper is heard on the TV and so forth as investment. They invest in new plants. Equipment means of production. The delta V is the expansion in what? Employment of what kind of productive labor? That is labor that's going to be productive of surplus. Everything else I'll put over here. And I'll just prime it to show that we've taken it out of, it's not the total. It's just what's left over after capital accumulation. So this would be all the payments for managers and rents to landlords and expenditures on research and development and so forth. So two broad forms of expenditures. I'm going to rewrite this because this is too laborious and too complex to have all these terms. So I'm going to call this portion K star and I'm going to call this a different letter, the Greek lambda. So we have a formula that the capitalists get a return on their capital R, then they go out and they spend it in these two ways. K star, they accumulate, they spend more on machines and so forth, et cetera. Lambda, they spend more on smart managers R and D and so forth. Now watch. If the rate of profit falls, then one or both of these are going to fall. So what? The so what is the possibility of a recession if not a depression? That's what's involved here. A falling rate of profit means then, in terms of one or both of these, a decrease in the demand for labor power and a decrease in the demand for means of production. So if K star is falling, productive labor, the demand for productive labor will fall. If lambda falls, the demand for unproductive labor will fall. And if the demands for those two different forms of labor power are falling, employment's going to fall, wages and salaries are going to fall, the demand for consumer goods are going to fall, bingo, we have a possibility of a recession on our hands. So a falling rate of profit may imply a recession. Rising rate of profit and expansion. Well, you can see what Marx has done here. He's related the falling and rising rate of profit to recessions and expansions to the business cycle in a capitalist economy. So if we can put this together for a moment, the argument is that, in terms of these indices, that a rising rate of exploitation will give us a rising rate of profit and the possibility of expansion, capitalist expansion. A rising rate of exploitation, which is a bad thing, is connected to a good thing, which is expansion. You see the dialectic, the contradiction again. A bad thing is connected to a good thing. More jobs, higher wages, and so forth, et cetera. A rising composition of capital, which is a good thing, because why? Because we have more machines, more raw materials in society. We're using more of those. And hence, the implications we have for rising productivity of labor, because that's where it yields, that's a good thing. That's connected to a falling rate of profit, that formula that I gave you. And that's a bad thing. That's a capitalist recession. Once again, the contradiction. Capitalism is filled with these contradictions, and Marx is now examining this particular one because of its importance. Finally, you must be asking, is it possible to have these things connected? Yes, and that's the last portion of this course. That is, this good thing, which has the potential of producing the bad thing, this good thing, also may produce a rising rate of exploitation. So in other words, a rising mechanization may not, in fact, create a falling rate of profit. It may create a rising, because this thing is connected to the rate of exploitation. So to go back to this formula, a rising mechanization, which you might expect is going to push down the, well, let's just write it in, push down the rate of profit, this rising mechanization may push this up by more, I'll make a bigger arrow, such that this goes up and we don't have the recession. So Marx is now going to introduce this kind of complexity into his analysis of capitalism. And let me stop there.