Schrödinger’s Capital: How the value-form school bet on a dead cat bounce

by Jehu

NOTE 27: Avoiding empirical proof at all costs

As I showed in my last post, the classical theorists prior to Marx held that the rate of profit had a definite tendency to fall. Since the capitalist mode of production is essentially production for profit, this immediately raised the question whether capitalism has a definite shelf-life beyond which it must collapse.

A falling rate of profit is inherently incompatible with the indefinite continuation of the capitalist mode of production for the rather obvious reason that the capitalist mode of production is production for profit. If the capitalist cannot realize a profit on his investment, he has no incentive to invest.

Marx had two tasks regarding this alleged tendency: first, to establish whether it in fact existed and why; second, to establish that the falling rate of profit in fact actually limited the life-span of the capitalist mode of production.

The value-form theorist, Michael Heinrich, has produced a critique of Marx’s effort in an essay published in Monthly Review, Crisis Theory, the Law of the Tendency of the Profit Rate to Fall, and Marx’s Studies in the 1870s, in which he argues Marx’s theory is not scientifically valid.

Marx makes two arguments about the falling rate of profit: first, that indeed such a fall was inevitable under the mode of production. Second, Marx shows that this fall is periodically interrupted by crises, which have the effect of momentarily reversing that fall and restoring the mode of production to its normal conditions of operation.

For Marx, in other words, the rate of profit did not simply fall in a straight line to zero. To give an analogy: Instead, the rate of profit fell as if it were a ball dropping down a set of stairs, with each step down followed by a short-term bounce up before continuing down toward zero. If we could visualize this fall, it would look something like this:

Not scientifically valid

To begin his critique of Marx’s theory, Heinrich then makes this rather bizarre argument:

“With this ‘law,’ Marx formulates a very far-reaching existential proposition, which cannot be empirically proven nor refuted. The “law” claims that a fall in the rate of profit results in the long-term from the capitalist mode of development of the forces of production. If the rate of profit has fallen in the past, this does not constitute a proof—since the law purports to apply to future development, and the mere fact of a fall in the rate of profit in the past says nothing about the future. If the rate of profit has risen in the past, then this is also not a refutation, since the law does not require a permanent fall, but rather merely a “tendential” fall, which can still occur in the future. Even if the law cannot be empirically verified, the argumentative conclusiveness of Marx’s reasoning can be discussed.”

Although he does not expressly state it, Heinrich is essentially making the charge that Marx’s law of the tendency of the rate of profit to fall is not a scientifically valid proposition. Since, in principle, any valid scientific proposition must be falsifiable, Heinrich argues Marx’s theory of the falling rate of profit is not falsifiable and thus does not meet even the minimum requirement for a scientifically valid law.

On what scientifically fallacious proposition is Marx’s theory of the falling rate of profit based?

According to Heinrich, just because the rate of profit may be falling at any given point, does not mean this fall will continue into the future. Moreover, just because the rate of profit may be rising at any given point, does not mean it will continue to rise into the future. Since no given rise or fall of the rate of profit is indicative of the future trajectory of the rate of profit, Heinrich concludes Marx’s thesis cannot be proven based on any amount of empirical evidence. Marx’s theory of the falling rate of profit is not scientifically valid; the critique of the law by the value-form school is conclusively demonstrated.

A very good counter-argument, right?

Then, in an incredible move that defies all logic, rather than following this demonstration up by ripping out Marx’s jugular, Heinrich simply changes the subject!

Now, if you look at the illustration of the bouncing ball’s trajectory above, is it impossible in principle to empirically verify its long term trajectory? Of course, at some points in its overall fall the ball is actually falling, but at other points the ball is rising. At certain points, the short-term trajectory of the ball is consistent with its long term trajectory; while at other points its short term trajectory contradicts its long term trajectory.

But are we left to conclude the long term trajectory of the ball cannot be determined?

Even a dead cat bounces when it hits the ground

Speculators have a term for this. They call it a dead cat bounce.

A dead cat bounce occurs when a bear phase (drop) of a stock’s price suddenly reverses into a sharp short rise that draws the suckers in. Like a falling ball down a set of stairs, once the stock’s price declines to a certain point, the price suddenly reverses on itself without warning and starts to rise. Newbies, who misjudge the decline of the stock, thinking it has bottomed, buy into it and get wiped out when the price decline resumes.

To give another analogy, there is a similar concept in quantum physics: a false vacuum. A false vacuum is an apparently stable equilibrium energy state that suddenly gives way to a lower energy state.

As an analogy, think of walking on a lake covered by ice.

The surface of the ice is an apparently stable equilibrium state sufficient to allow you to cross the lake. But, unexpectedly, you suddenly reach a weak point where the strength of the ice is insufficient to support your weight. Without warning you plunge down into the icy water.

From your false equilibrium state on the surface of the ice, you plunge down into a new, more stable, equilibrium state: defined by your buoyancy in the icy waters under the ice.

Now we could take either these analogies, dead cat bounce or false vacuum, and ask ourselves if these states can be empirically verified.

The value-form school doesn’t want proof

Heinrich is suggesting there is no way to tell a real long term decline in the rate of profit from an essentially directionless trajectory of the rate of profit. He might be correct about this, but it seems to me this requires more than a simple assertion on his part. There is in fact nothing about Marx’s “existential proposition” that makes it irrefutable in theory, which is essential to any valid scientific proposition.

However, Heinrich doesn’t even attempt to refute Marx on the basis Marx has advanced a proposition that cannot be refuted, because it is vital to Heinrich’s argument we never attempt to verify Marx’s proposition based on the empirical evidence. This is the basic strategy of the value-form school: to avoid having to press their claims against Marx’s labor theory of value with empirical evidence.