Deutsche Bank's major report: Two endgames for AI – Marx's predictions and Musk's vision

Author: Chasing the Wind Trading Platform

When discussing AI, most people are still preoccupied with whether their jobs will be taken away. But Deutsche Bank believes this perspective may be a bit narrow.

According to a recent report by George Saravelos, Global Head of FX Research at Deutsche Bank, published on the TrendFocus trading platform, two extreme endgame scenarios for the development of AI are proposed:

The first possible outcome is "complete replacement." Just as Marx predicted over 180 years ago and Musk envisions today: in the factors of production in economics, "capital" itself becomes "labor power" itself, the value of labor becomes zero, and capitalism becomes obsolete. AI will massively replace human jobs, wealth and income will be highly concentrated in the hands of a few capital owners, the income and needs of ordinary people will be weakened, and the economy will fall into a predicament of "plenty of things, but nobody can afford them."

Did Marx predict artificial intelligence? About 200 years ago, he wrote a book about "machines," envisioning a scenario of complete automation. In this world, the problem of scarcity would be solved. However, as the value of labor would drop to zero, capitalism would become obsolete , and we would transition to a completely new world of immense material abundance. The endpoint envisioned by Marx is strikingly similar to Elon Musk's vision today.

The second possible outcome is a "history repeating itself." AI, like previous technological revolutions, increases efficiency but doesn't completely replace human labor; it merely "empowers" humanity. New jobs continue to emerge, and the policy system can still mitigate shocks. In this scenario, the economic logic is similar to that of the past few decades, with inflation, interest rates, and the stock market more likely to rise moderately.

Will we descend into an abyss, a paradise, or simply experience a routine industrial upgrade? This Deutsche Bank report offers us a completely new perspective.

When "capital becomes labor," why might traditional economics fail?

To understand the ultimate destructive power of AI on the economy, we must return to the starting point of modern economics.

Beginning with Adam Smith, all classical economists have based their work on a fundamental assumption: capital and labor are two completely independent factors of production. The prices of both capital and labor (interest rates and wages) are determined by their relative scarcity in the market.

Looking back at the past two hundred years, all previous waves of technological innovation have basically conformed to this model.

By analogy, the invention of the steam engine eliminated coachmen but created train drivers; the internet destroyed traditional print media but created countless programmers and delivery drivers. Throughout these historical cycles, labor always has something to do. Machines are capital, but operating, maintaining, and designing machines is still labor. Capital is merely a "supplement" to labor.

However, fully automated robots with artificial general intelligence (AGI) completely break this classification.

“In this situation, capital becomes labor. It is no longer a supplement to labor, but a substitute,” George Saravelos pointed out incisively in his report.

When an AI machine can think, produce, and iterate completely autonomously, it becomes both capital and labor. The fundamental structure of modern economics breaks down at this point.

The report states bluntly: "When capital equals labor, the value of work drops to zero, and wages also drop to zero. Economists call this an unacceptable equilibrium. Scientists call it the singularity. Classical economic theory collapses. Consequently, capitalism as a system will also become obsolete."

When the law of "supply creates demand" fails, growth may face "prolonged stagnation."

What changes will occur in the gears of the macroeconomy once the workforce is replaced on a large scale? Deutsche Bank has introduced a deeper theoretical deduction.

In a world where AI replaces workers, wages decline, but material abundance increases like never before. Machines tirelessly produce massive quantities of goods and services for the market.

According to classical economists such as Say, Walras, and Wicksell, "supply automatically creates its own demand." In their theoretical models, the market possesses self-correcting capabilities. Goods prices decrease as production costs decline, allowing workers to eventually buy more with less money or find work in new sectors.

However, Deutsche Bank warns that in a world of fully automated AI, this self-correcting mechanism will completely fail.

The logic is very straightforward: automation will concentrate wealth and income extremely in the hands of a small class of "capital owners." And according to economic principles, the "marginal propensity to consume" of the wealthy (capital owners) is far lower than that of ordinary workers.

For example, an AI factory can produce 10,000 cars a day at extremely low cost. However, all the profits go to the AI owner. This owner cannot possibly buy 10,000 cars by himself; and many ordinary people who have lost their jobs and have zero income cannot afford to buy cars even if they are very cheap.

“The transmission chain from supply to demand has broken,” Saravelos wrote.

This fully cleared market equilibrium will manifest as structurally low labor income, deflationary price levels, and massive "excess savings" replacing strong demand for goods. Deutsche Bank points out that this is precisely the scenario of "secular stagnation" proposed by economists Eggertsson and Mehrotra, and in extreme cases, it could trigger a Marxist-style revolution.

"Keynes can save the day, but it may not be enough." The key lies in the speed of government and institutional response.

Faced with market failures, can Keynesianism, another major pillar of modern economics, turn the tide?

Keynes's revolutionary contribution lay in acknowledging the failure of classical theory. Within the Keynesian framework, economic imbalances are not permanent but cyclical. When price adjustments are slow and workforce retraining lags behind, strong government intervention is necessary.

In the AI era, such intervention might manifest as levying a high "AI tax" on AI companies, using this as a fund to distribute "stimulus checks" or universal basic income (UBI) to the entire population. Through this powerful fiscal transfer payment, the economy will ultimately achieve a new equilibrium.

However, this logic faces significant real-world constraints.

The report cites extensive research on the history of technology deployment by renowned economists Acemoglu and Johnson. History has shown that policy and institutional adjustments are often extremely slow.

For example, in the early stages of the British Industrial Revolution, workers' real wages were suppressed for decades due to the lack of corresponding institutional protections.

To prevent a decline in living standards, Deutsche Bank has listed the necessary institutional reforms: "a stronger labor bargaining body, competition policies that limit the monopolies of dominant companies, tax and subsidy structures that do not artificially favor capital over labor, public investment in skills and technologies for creating tasks, and expanding or even reforming corporate governance."

If technological change outpaces the adaptation of governments and institutions, Keynesian remedies will not be effective in time.

From Marx to Musk: The End of Property Rights and Scarcity

Even with a highly proactive and responsive government, deeper political and economic challenges remain.

The report raises a profoundly philosophical phenomenon: Karl Marx's vision of "machines" and full automation, written nearly 200 years ago, bears a striking resemblance to Elon Musk's ultimate vision of AI today.

In this fully automated endgame, humanity has solved the ultimate problem since ancient times—"scarcity".

But this is followed by the disintegration of basic social consensus. "In this fully automated scenario, the essence of capitalism collapses. Political issues no longer revolve around how to subsidize wages. They become more fundamental to the social structure: if scarcity is resolved, what is the meaning of property rights?"

As Keynes famously asked in his 1930 essay, "The Possible Economic Prospects for Our Descendants": What is the meaning of human existence when humans no longer need to work for survival?

While these topics may seem grand, Deutsche Bank emphasizes that, given the nature of these issues, they are absolutely relevant to current financial market pricing.

Deutsche Bank's Two End-Game Prospects and Pricing Logic

For the market, it is essential to consider both the "transition period to the endgame" and the "endgame itself." Deutsche Bank divides the future world into two parallel universes at opposite ends and provides a clear logic for asset pricing.

Endgame 1: AI completely replaces labor (towards extreme disruption)

This is a world where AI can quickly and (almost) completely replace human labor. In terms of living standards, it's a paradise where the problem of economic scarcity is permanently solved. But Deutsche Bank warns that the road to it will be "the most disruptive and uncertain."

Macroeconomic characteristics : The unemployment rate is rising continuously, the government faces sustained pressure to intervene, and social conflicts are intensifying. An endless game will unfold between capital owners and the workforce over resource allocation.
Market pricing logic : The macroeconomy will face extremely strong deflationary pressures, and real interest rates will experience a structural and sustained decline. Due to the extremely high efficiency of AI, corporate profitability will surge.
Stock and Currency Market Performance : Despite soaring profits, the stock market will be mired in prolonged uncertainty and volatility . The logic is that the risk of corporate confiscation (such as extremely high taxes or nationalization) will increase significantly, and the distribution of profits among different stakeholders will remain unresolved. In the foreign exchange market, Deutsche Bank explicitly states: "The currencies of countries that are most successful in managing this smooth transition are most likely to reap the greatest benefits."

Endgame Two: AI is merely an enabling technology (history repeating itself)

In this world, AI has not triggered a singularity, but rather, like all the innovations of the 20th century, it is merely an augmentation technology that enhances human capabilities.

Macroeconomic characteristics : This is a coherent world. The limitations of technology adoption, gradual institutional evolution, and Keynesian countercyclical fiscal policies will be effective. Although distributive conflicts and labor market pains persist, people will always find new jobs.
Market pricing logic : In stark contrast to the first possible outcome, macroeconomic indicators here will point upward.
Stock and currency market performance : Inflation levels, real interest rates, and the stock market are all more likely to move in a higher direction . Deutsche Bank concludes: "History will rhyme, not break, just like it has in the past few decades."

What should we look at right now?

Deutsche Bank points out that the purpose of this report is not to provide an absolute prediction, but rather to establish an analytical framework. Given this extremely broad range of results, the debate in the market regarding the macroeconomic impact of AI is unlikely to cease in the short term.

From an investor's perspective, how should we observe the progress of the AI economy's evolution? Deutsche Bank has identified clear "observation roadmaps":

A qualitative shift in labor market data : Are we beginning to observe a rise in structural unemployment? Has the already declining share of labor compensation entered a trajectory of accelerated downward spiral?
The shift in fiscal and antitrust policy : How willing is the government to take proactive fiscal and institutional policies? Has it begun to vigorously implement income redistribution? Has it taken substantial antitrust preventative measures against monopolistic capital conglomerates (tech giants)?