When discussing artificial intelligence, most people are still preoccupied with whether their jobs will be taken. However, Deutsche Bank suggests this perspective might be too narrow.
According to a recent report by George Saravelos, Global Head of Foreign Exchange Research at Deutsche Bank, two extreme outcomes for AI development have been projected.
The first scenario is "Complete Substitution." Similar to Marx's prediction over 180 years ago and Elon Musk's current vision: in economic factors of production, "capital" itself becomes "labor," reducing the value of labor to zero and rendering capitalism obsolete. AI replaces human work on a massive scale, concentrating wealth and income in the hands of a few capital owners. Ordinary people's incomes and demand diminish, leading to an economy with abundant goods but insufficient purchasing power.
Did Marx predict artificial intelligence? Approximately 200 years ago, he wrote about "machines," envisioning a fully automated world where scarcity is resolved. However, as labor value drops to zero, capitalism becomes outdated, transitioning humanity to a new world of material abundance. Marx's endpoint bears a striking resemblance to Elon Musk's contemporary vision.
The second scenario is "History Repeats." AI enhances efficiency like previous technological revolutions without fully replacing human labor, merely augmenting human capabilities. New jobs continuously emerge, and policy systems can adapt to mitigate disruptions. In this case, economic operations resemble the past decades, with inflation, interest rates, and stock markets likely to rise moderately.
Will humanity descend into an abyss, reach a utopia, or experience a standard industrial upgrade? Deutsche Bank's report offers a fresh perspective.
When "Capital Becomes Labor": Why Traditional Economics May Fail
To grasp AI's ultimate disruptive power on the economy, one must return to the origins of modern economics.
Since Adam Smith, all classical economists have operated on a fundamental assumption: capital and labor are entirely separate factors of production. The prices of both capital and labor (interest rates and wages) are determined by their relative scarcity in the market.
Reviewing the past two centuries, all previous waves of technological innovation largely adhered to this model.
For analogy, the invention of the steam engine eliminated coachmen but created train engineers; the internet decimated traditional print media but spawned countless programmers and delivery workers. Throughout these historical cycles, labor always found new roles. Machines represented capital, while operating, maintaining, and designing them constituted labor. Capital merely complemented labor.
However, fully autonomous robots with artificial general intelligence (AGI) shatter this classification.
"In this scenario, capital becomes labor. It is no longer a complement to labor but a substitute," George Saravelos pointedly notes in the report.
When an AI machine can think, produce, and iterate autonomously, it embodies both capital and labor. The foundational structure of modern economics fractures at this point.
The report states bluntly: "When capital equals labor, the value of work drops to zero, and wages fall to zero. Economists call this an unacceptable equilibrium. Scientists term it a singularity. Classical economic theory collapses. Consequently, capitalism as a system becomes obsolete."
When "Supply Creates Demand" Fails: Growth Faces "Secular Stagnation"
How will macroeconomic mechanisms transform once labor is massively replaced? Deutsche Bank delves deeper into theoretical projections.
In a purely "AI-replaces-workers" world, wages decline, but material abundance reaches unprecedented levels. Machines tirelessly produce vast quantities of goods and services for the market.
According to classical economists like Say, Walras, and Wicksell, "supply creates its own demand." In their theoretical models, markets possess self-correcting mechanisms. Commodity prices fall with reduced production costs, enabling workers to buy more with less money or find employment in new sectors.
However, Deutsche Bank warns that in a fully automated AI world, this self-correcting mechanism fails entirely.
The logic is straightforward: automation concentrates wealth and income intensely within a narrow class of "capital owners." Economically, the wealthy (capital owners) have a far lower marginal propensity to consume than ordinary workers.
For example: an AI factory can produce ten thousand cars per day at minimal cost. All profits go to the AI owner, who cannot possibly purchase ten thousand cars individually. Meanwhile, the masses of unemployed, zero-income individuals cannot afford cars no matter how cheap they become.
"The transmission chain from supply to demand is broken," Saravelos writes.
This market-clearing equilibrium would manifest as structurally low labor income, deflationary price levels, and massive "excess savings" replacing robust goods demand. Deutsche Bank notes this aligns with the "secular stagnation" scenario proposed by economists Eggertsson and Mehrotra and could, in extreme cases, trigger Marxist-style revolutions.
"Keynes Might Help, But May Not Be Enough": The Crucial Factor is Government and Institutional Response Speed
Confronted with market failure, can Keynesianism, another pillar of modern economics, save the day?
Keynes's revolutionary insight was acknowledging the failure of classical theory. Under Keynesian framework, economic dislocations are not permanent but cyclical. When price adjustments are slow and labor retraining lags, governments must intervene forcefully.
In the AI era, such intervention might involve imposing high "AI taxes" on AI enterprises to fund stimulus checks or universal basic income (UBI) for the populace. Through strong fiscal transfers, the economy could achieve a new equilibrium.
However, this logic faces significant practical constraints.
The report cites extensive research by renowned economists Acemoglu and Johnson on the history of technological deployment. History proves that policy and institutional adjustments are often exceedingly slow.
For instance, during the early British Industrial Revolution, workers' real wages were suppressed for decades due to a lack of protective institutions.
To prevent declines in living standards, Deutsche Bank lists necessary institutional reforms: "stronger labor bargaining institutions, competition policies limiting monopolistic dominance, tax and subsidy structures not favoring capital over labor, public investment in skills and creative tasks, and expanded or reformed corporate governance."
If technological change outpaces governmental and institutional adaptation, Keynesian remedies may not take effect in time.
From Marx to Musk: The End of Property Rights and Scarcity
Even with a highly proactive and responsive government, deeper politico-economic challenges remain.
The report highlights a philosophically profound observation: Karl Marx's conception of "machines" and full automation nearly 200 years ago bears a startling resemblance to tech magnate Elon Musk's ultimate vision for AI today.
In this fully automated endgame, humanity solves the age-old fundamental problem—"Scarcity."
But this leads to the disintegration of societal consensus. "In this fully automated scenario, the essence of capitalism collapses. Political issues no longer revolve around subsidizing wages. They become more fundamental to social structure: if scarcity is resolved, what is the meaning of property rights?"
As Keynes pondered in his famous 1930 essay "Economic Possibilities for our Grandchildren": when humans no longer need to labor for survival, what becomes the meaning of human existence?
While these topics may seem grand, Deutsche Bank emphasizes that, given their existential nature, they are absolutely relevant to current financial market pricing.
Deutsche Bank's Two Endgame Scenarios and Pricing Logic
For markets, it is essential to consider both the "transition path to the endgame" and the "endgame itself." Deutsche Bank divides the future into two extreme parallel universes, providing clear asset pricing logic for each.
Endgame One: AI Completely Replaces Labor (Extreme Disruption)
This is a world where AI rapidly and (almost) fully replaces human labor. In terms of living standards, it represents a utopia where economic scarcity is permanently resolved. However, Deutsche Bank warns the path there will be "most disruptive and uncertain."
Macroeconomic Characteristics: Rising unemployment, persistent government intervention pressure, and intensified social conflict. Endless博弈 over resource allocation between capital owners and labor.
Market Pricing Logic: Macroeconomic deflationary pressure will be intense, with structurally lower real interest rates. Corporate profitability will surge due to AI's extreme efficiency.
Stock and FX Market Performance: Despite soaring profits, stock markets will experience prolonged confusion and volatility. The logic: corporate "expropriation risk" (e.g., extreme taxes or nationalization) rises significantly, and profit distribution among stakeholders remains perpetually unresolved. In foreign exchange markets, Deutsche Bank states clearly: "Currencies of countries that manage this transition most smoothly are most likely to appreciate."
Endgame Two: AI as Merely an Augmentation Tool (History Repeats)
In this world, AI does not trigger a singularity but acts merely as an augmentation technology, similar to innovations throughout the 20th century.
Macroeconomic Characteristics: This is a coherent world. Limitations in technology adoption, gradual institutional evolution, and Keynesian countercyclical fiscal policies function effectively. Although distribution conflicts and labor market pains persist, humans continually find new jobs.
Market Pricing Logic: Contrary to the first endgame, macroeconomic indicators point upwards.
Stock and FX Market Performance: Inflation levels, real interest rates, and stock markets are more likely to trend higher. Deutsche Bank concludes: "History would rhyme, not rupture, much like the past decades."
What to Watch Now?
Deutsche Bank clarifies that the report's purpose is not to provide an absolute prediction but to establish an analytical framework. Within this widely distributed set of outcomes, market debate on AI's macroeconomic impact will certainly not cease shortly.
From an investor's perspective, how should one monitor the progress bar of the AI economy's evolution? Deutsche Bank identifies clear "observable milestones":
Qualitative Changes in Labor Data: Are we beginning to observe structural increases in unemployment rates? Is the already declining labor share of income accelerating downward?
Shifts in Fiscal and Antitrust Policies: How willing are governments to adopt proactive fiscal and institutional policies? Are they beginning forceful income redistribution? Are substantive antitrust preventative measures being implemented against monopolistic capital conglomerates (tech giants)?
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