It is not true that a world without human wages is a world without capitalism or profits. As Kalecki showed, profits are equal to investment plus capitalist consumption. After the initial shock of an aggregate demand loss, a new equilibrium would be possible based only on capitalist consumption.
Historically, of course, we have seen automation push people into services, and AI is likely to contribute to this trend. However, if AI becomes an immiserating force through outcompeting humans for jobs, then it will be capitalist consumption, rather than wages which sustain this demand for services.
The only thing necessary for there to be a tendency for the rate of profit to fall is a rising investment rate (of gross investment as a share of gross profit), something which has been historically correlated with the development of the productive forces. The US has been unwilling to have rising investment rates under neoliberalism in order to preserve its capitalist class, and hence has undermined its productive forces and increased rent seeking. And the less infrastructure and factories you have, the less use you'll have for AI to begin with. Already we're seeing the finance world hesitate about how the fixed capital expenditure is affecting the free cash flow of major tech companies, I suspect they'll be unable to endure it much longer.
At least regarding the issue of AI's effect on the economy from a Marxist point of view, this is something that I have written about before:
«It is not true that a world without human wages is a world without capitalism or profits. As Kalecki showed, profits are equal to investment plus capitalist consumption.»
I have reread this and I feel sad about it so I will make this explicit: this claim like those of so many right-wing Economists is not qualified with the all-important "in that specific model only" clause. Indeed Kalecki's theorem is not universally valid and it can only be proven in a model in which wage employees (proletarians) do exist. But in "a world without human wages" there are no wage employees by construction.
«After the initial shock of an aggregate demand loss, a new equilibrium would be possible based only on capitalist consumption.»
In "world without human wages" there are no capitalists, because "capitalists" are by definition the owners of means of production who have employees and there are no employees. Since these self-employed owners of the means production will consume each other's products there will be markets for those products.
Perhaps even if the production of economic goods will be fully mechanized there will still be wage employees as servants, in an unproductive role as status symbols, so they will generate no material profit.
The two-sector framework opens a cultural dimension that I think makes the model even richer than you've stated it here. The human-premium sector depends on consumers carrying a culturally transmitted preference for human authenticity, the ice-skater valued more precisely BECAUSE a human is performing. That preference was formed in a world where all output was human by default. The fascinating question your model raises is whether it reproduces across generations or slowly attenuates.
A generation raised on AI-generated content from age five is forming aesthetic preferences within an AI-saturated environment from the start. If your baseline sense of what good writing, music, performance and cooking feels like was shaped by AI output, the perceived gap between human and machine quality may never fully register. Which means the size of sector two could be generationally variable, large for cohorts who carry pre-AI cultural architecture, potentially much narrower for cohorts whose preferences were formed entirely within it. thats a demographic dimension to the equilibrium that makes the transition dynamics even more interesting to model, because sector two's long-run viability depends not just on redistribution but on whether the cultural preference that sustains it is durable or quietly depreciating across generational cohorts.
Good point; agree w/ you. Nobody knows if our preference for humans over non-humans would carry over. I think that, however reluctant I often am, to speak of transformational change, we enter here an unknown domain: machines no longer do what we tell them, they do not replace us, they actually, to some extent, become us. It moves from being an economic to being a philosophical or ontological issue.
Your ontological point opens a mechanism that I think is even more specific than it first appears. If machines "to some extent, become us" then the two-sector model eventually faces an Akerlof problem. The human-premium in sector two depends entirely on consumers being able to verify that the output is actually human. When that verification becomes impossible , tthe premium collapses even for output that genuinely IS human, because the uncertainty itself destroys the pricing signal..
This has already played out in one market. a painting's value depends on provenance, on WHO made it. When AI-generated art become indistinguishable from human work, the first instinct was labelling and certification. But the deeper problem is that provenance is becoming unfalsifiable. If you cant reliably prove something was made by a human, the market for human authenticity becomes a lemons market, the unverifiable drives out the verified and the premium dissolves across the board regardless of actual origin.
Thats the mechanism through which your ontological insight feeds back into the economics. Sector two fails when the boundary between human and machine output becomes unverifiable, because without verification the premium has no informationtheoretic foundation to stand on. The ice-skater survives because you can watch a physical body on the ice. The writer, the teacher, the coach, the counsellor, these are the categories where verification collapses first and they are precisely the occupations you placed at the heart of sector two.
Branko's two-sector model is elegant, but I wonder whether it resolves the contradiction or simply displaces it.
There is a material point that should come first. AI is often described as if it were almost immaterial production, but its infrastructure is deeply physical: chips, energy, water, cooling, data centers, grids, rare minerals, and land. The marginal cost of an AI output may look low only because much of the cost is hidden in the underlying fixed capital and environmental externalities. Once those costs are fully accounted for, the profit rate in the automated sector may be considerably less exceptional than it appears.
The argument then depends on the emergence of a sufficiently large labor-intensive "human touch" sector — care, teaching, sport, cooking, art, coaching — capable of generating surplus value and effective demand alongside the automated sector. But this seems to assume what needs to be proven. Why should capitalism naturally expand low-productivity, labor-intensive activities at the same scale at which AI displaces labor elsewhere? In many cases, that second sector may be less a growth engine than a residual — or even a social stabilization mechanism. It may be less a sector than a boutique.
From a political-economy point of view, the central contradiction may therefore shift. It is not simply labor versus machine. It is social productivity versus private appropriation. AI is built on collective knowledge, public research, open data, and vast social cooperation, yet the resulting productive capacity risks being enclosed in private models, cloud platforms, chips, datasets, and network effects.
That suggests a less stable outcome than a neat two-sector equilibrium: monopoly concentration, rent extraction at every layer, wage compression in remaining human tasks, aggregate-demand problems, and growing political pressure for redistribution. But that redistribution would require taxing the monopoly rents of the automated sector — precisely what the owners of that capital would resist.
AI may be the ultimate productive flow. But capitalism's instinct is to turn that flow into private stock. What feels new is the scale and object of enclosure: not only land, factories, or patents, but the capacity to think, create, and coordinate at scale. Left entirely to itself, that capacity will concentrate into private bottlenecks. But it does not have to. A democratic settlement could keep AI productive while preventing full enclosure: taxing monopoly rents, widening access, preserving competition, funding human capabilities, and recycling part of the gains into broad purchasing power. The question is therefore not whether AI ends capitalism, but whether democratic societies can redesign the valves before the flow hardens into stock.
«the emergence of a sufficiently large labor-intensive "human touch" sector — care, teaching, sport, cooking, art, coaching»
If the past is any guide then during pre-industrial times rich people kept a much larger number of servants than they needed in part because it was conspicuous consumption and thus a higher status symbol but in part because for many the satisfaction of bullying lower status people and feeling their misery and the related sense of power and superiority are quite valuable. For those who like it I guess that satisfaction can only be whole when bullying other humans and probably would not be quite the same from bullying animals or machines no matter how advanced.
My guess is that if the AI machines are much more cost-effective than humans then to be competitive human workers will have to accept not just much lower wages but also willingly endure the spite of their superiors.
«capable of generating surplus value and effective demand»
As mentioned in another comment what matters to the owners of automation is not *sur*plus value but plusvalue itself as they would transition to being self-employed workers directly operating their means of production rather than remain capitalists hiring others to operate their capital.
When Marx said that the USA could transition beyond capitalism without the need for revolution he implied that capitalism can indeed create the conditions of its own replacement.
The incompatibility of an automated economy with capitalism is indeed the point.
Surplus value goes away amidst a huge growth in "things". Some call this abundance.
The labor intensive new work you describe I think might equate to what the young Marx called "the realm of freedom" for a "total human being". In other words free time and choice. it will certainly involve effort, both physical and mental, bit it may not be paid labor,
The Marxist interpretation of IA is very simple and elegant.
AI is just an automation technology: it substitutes living labor with dead labor (in money terms, not in quantity of human being employed). As such, it is the same economic phenomenon as the steam engine.
Because we have empirical evidence, we know AI can only be profitable if it automates the middle class jobs - those white collar, “intellectual” jobs. The reason for that is very clear and simple: the middle class has very low productivity (when they are productive), its elimination will open a room for capitalist accumulation and expansion.
The higher the salary of a worker, the lower its productivity; IA is very expensive, so it is only profitable if it eliminates the highest wages - which are, by definition, middle class wages. If AI gets cheap enough, it can be profitable to automate lower salary (i.e. higher productivity) labor. Therefore, this is just a matter of quantity that has a quality on its own.
As to why the capitalist intellectuals can't see AI as simple automation: by serendipity of destiny, the middle class is the one responsible for producing ideology in capitalist society. Therefore, the middle class is simply defending itself by using emotional, cultural, ethical, moral, transcendental, pseudo-scientific arguments against what is simply an automation technology.
Moralism is the tool of the middle class: the capitalist class doesn't need it because it can do whatever it wants, the proletariat and lumpenproletariat don't need it because they have nothing else to lose. Moral superiority is thus a feature of the middle class, a class identity.
“Moralism is the tool of the middle class: the capitalist class doesn't need it because it can do whatever it wants, the proletariat and lumpenproletariat don't need it because they have nothing else to lose. Moral superiority is thus a feature of the middle class, a class identity.”
«To summarize: in both Marxist and neoclassical worlds, an economy composed of highly automated sector only is incompatible with the maintenance of capitalism. In one case because the produced surplus value and thus profit is zero; in the other case, because insufficient aggregate demand leads to profits of zero.»
For the marxian side that seems to need some qualification:
* In marxian terminology "capitalism" is the a social relationship between an owner of means production and a free person employed to use those means of production.
* So for example someone who owns a lathe and works with her own lathe is not a capitalist but a self-employed worker, and if he has the lathe operated by a slave he is still is not a capitalist but still self-employed worker
* Capital is only means of production involved in capitalism, so the lathe is capital *only* if it is operated by a free worker employed by the owner.
* So in a world in which all means of production are operated by slaves or by robots or are fully automated there is no capitalism: all workers are self-employed and there is no capital so the issue of profit simply does not exist.
This is the strongest structural argument for why full automation doesn't collapse capitalism. The two-sector model (labor-intensive services absorbing displaced workers while generating the demand that sustains automated-sector profits) is historically grounded and hard to dismiss.
The critical assumption is transmission. The automated sector's productivity gains need to reach consumers as spending power. Your neoclassical case names this requirement explicitly: without it, aggregate demand and profits go to zero.
The record since 1971 bears on this. Computing, the internet and mobile each delivered productivity gains comparable to what AI promises. US productivity rose roughly 90% since 1979. Typical worker compensation rose 33%. The gains were real. They arrived as asset appreciation and corporate margins rather than household income.
If AI follows the same pattern, the labor-intensive second sector faces the constraint every service sector already faces: customers whose wages haven't kept pace with output. The care workers, coaches and artisan producers your model depends on need clients with money to spend. That base has been shrinking for decades.
The two-sector equilibrium requires a functioning link between productivity and demand. That link has been weakening for fifty years.
«The automated sector's productivity gains need to reach consumers as spending power. Your neoclassical case names this requirement explicitly: without it, aggregate demand and profits go to zero.»
In case of full automation aggregate demand certainly does not go to zero and profits go to zero but there is no need for profits for ex-capitalists to live fabulously well:
* Suppose that Apple fully automates MacBook production and GM fully automates Cadillac production: the owner(s) of Apple and Cadillac become self-employed workers (even if their only "work" were to push the button that starts the fully automatic factories).
* The owner(s) of Apple still need to buy cars and the owner(s) of GM still need to buy laptops, so aggregate demand will certainly not go to zero.
* Each sector's productivity gains will reach consumers as spending power: the Apple owner(s) will sell laptops and consume cars and the GM owner(s) will sell cars and consume laptops.
* The owner(s) of Apple and GM will have zero profits (defined as in the marxian sense) but will still have a colossal income as self-employed workers, from selling all those cars and laptops to each other.
* Human proletarians will have no wages and therefore most will live like the swallows and the fishes and the hares do; the swallows, fishes, hares also are unemployed.
* Some human proletarians will be still employed as pets (servants) of the owner(s) of Apple and GM etc.
The scenario is similar to "peak horse" when the use of horses for transport was automated away by cars and trucks: there were in the USA 27 million horses in 1915 and now there are 0.7 million horses most of which most are pets and some are unemployed in the wild like the swallows, fishes, hares.
Useful analysis. To further enrich the framework, we should consider the role of predictive value extraction as a modern driver of surplus. By leveraging AI to decode and anticipate the behaviors of the "mass-man," elites are not just automating labor; they are optimizing the management and coordination of entire populations.
In thermodynamic terms, this represents a reduction in systemic entropy for the ruling class, allowing them to extract a "behavioral surplus" that fits directly into the surplus value equation. It is no longer just about owning the machines, but about owning the algorithmic predictability of human agency itself.
Nobody's going to know because the framework that AI is built on fundamentally will never achieve general intelligence because it's entire framework is based on logical positivism and taxonomy.
No matter how much you give it Marxist text to read and it memorizes it still will never be able to do it.
How will Capital intensive economic sector be in equilibrium with Labor intensive sector? How will our economy make the transition where labor, made redundant or obsolete by AI, is accommodated into sector with low organic composition of Capital? Will all this transition be done by invisible hand?
If history of 1980s and 90s tell us anything, it indicates that such transition will not happen. After US lost its manufacturing industry, the labor force could not make necessary adjustments into other jobs. Now government may provide training & education to obsolete labor to assist in economic transition but still the transition can be difficult. Even impossible if AI economic disruption happens too fast & too big scale.
Also you didn't mention government sector. Government can somewhat smoothen the transition and maintain rates of profits. This can be done by two ways. In Marxist way by redistribution of income - that means more taxes on wealthy and instituting some kind of basic income guarantee (BIG) or job guarantee (JG) programs and generous social safety nets. The other is Keynesian way - that means more government spending for BIG & JG etc but without any redistribution of income (no hefty taxes on wealthy). Government spending will regardless be critical during AI transformation to maintain rate of profit. Elon Musk & other billionaires see social security and entitlements as unnecessary burden but they don't know that they derive their profits from consumer spending.
On AI transition, book The Globotics Upheaval by Baldwin is worth reading.
And what will happen if government chooses a laissez faire approach to AI transition - let markets balance themselves? There will be great economic instability which will create political instability. That means more populist demagogues, more MAGA & Brexit type movements.
But why labourwould be valued at near zero in case of its low contribution under near-full automation? Without at least some labour no production would be possible. So this labour will be what makes the whole production to run. Hence, it should have reward in the form of high wage. Where am I wrong?
Total labor income would be close to zero (small) if there are almost no workers. Suppose that a huge company with thousands of robots has only 1 worker. His wage may be high but *total* labor income will be almost nothing. All of income would go to the owners of the machines.
I think this is a very useful way to frame the issue, especially because it avoids the simple conclusion that AI automatically means the disappearance of labor income.
One point I would add is that technological progress can also radically change the relative purchasing power of different kinds of labor. Twenty years ago, if a television cost $2,000 and a New York barber earned $10 per hour, he needed 200 hours of work to buy one TV. Today, if a better television costs $1,000 and the same barber earns $40 per hour, he needs only 25 hours of work.
So the key effect is not simply that machines replace labor. In highly scalable and automatable sectors, technology can drive down prices dramatically. At the same time, in local, personal, trust-based, or human-authentic services, labor may become relatively more valuable. His purchasing power measured in televisions has increased enormously.
This is why I agree that the future of AI capitalism should be analyzed as a restructuring of labor, prices, income distribution, and demand, rather than simply as the end of human labor.
I would like to have included in this discussion the idea that AI in fact is only possible while using the Humanity's commons IPs and that the profits generated by AI should be thus properly redistributed, even if they go to zero overall.
Rather than look too far forward to the point where Ai has the potential to replace all existing categories of labor, we should analyze the current situation. That situation looks much more like what Marx encountered at the beginning of the industrial revolution. Capital needed to be acquired in order for capitalists to build the plants that would churn out goods. The capitalist needed to use all his capital and extract surplus value from his work force to be able to build his enterprise. The enterprise itself while able to churn out goods at a lower per unit cost than none industrial craft production still had to employ large numbers of workers so the per unit labor costs remained high and the capitalist paid his workers as close to their survival rate as he could get away with. Competition with other capitalists engaged in similar production remained intense.
Looking at Ai today the capital required to engage in Competition has limited Ai production to a handful of companies. Those companies have exhausted their cash reserves and are increasingly resorting to debt and firing unproductive workers to accumulate more investment capital.
It is also not clear that Ai can even replace workers or that Ai can be used to reduce the costs of production in the way that the assembly line did or the electrification of industry did.
This takes us back to Marx's distinction between sales and marketing workers and production workers. The former do not generate surplus value like the later do. Who then are the productive workers generating surplus value in the age of Ai?
It is a topic I am very interested in. In the Grundrisse, in the famous fragment about machines, Marx anticipates, many years earlier, the idea of a nearly fully automated society and presents leisure time as a source of value in this new context. However, that utopian future in which machines work and humans enjoy leisure is not a natural outcome of capitalism. It is necessary to struggle to socialize the ownership of machines (understood broadly, including AI) to avoid artificial scarcity and to prevent leisure time from being in the hands of a few (owners of robots, machines, AI, and platforms) and to ensure that all humanity can enjoy it. Otherwise, as Nicolás mentions below, and following Kalecki's warning, there could be an equilibrium in which the consumption of the capitalist class keeps the economy running.
It is not true that a world without human wages is a world without capitalism or profits. As Kalecki showed, profits are equal to investment plus capitalist consumption. After the initial shock of an aggregate demand loss, a new equilibrium would be possible based only on capitalist consumption.
Historically, of course, we have seen automation push people into services, and AI is likely to contribute to this trend. However, if AI becomes an immiserating force through outcompeting humans for jobs, then it will be capitalist consumption, rather than wages which sustain this demand for services.
The only thing necessary for there to be a tendency for the rate of profit to fall is a rising investment rate (of gross investment as a share of gross profit), something which has been historically correlated with the development of the productive forces. The US has been unwilling to have rising investment rates under neoliberalism in order to preserve its capitalist class, and hence has undermined its productive forces and increased rent seeking. And the less infrastructure and factories you have, the less use you'll have for AI to begin with. Already we're seeing the finance world hesitate about how the fixed capital expenditure is affecting the free cash flow of major tech companies, I suspect they'll be unable to endure it much longer.
At least regarding the issue of AI's effect on the economy from a Marxist point of view, this is something that I have written about before:
https://cosmonautmag.com/2023/05/artificial-intelligence-universal-machines-and-killing-bourgeois-dreams/
As well as the rate of profit dynamics I mentioned above:
https://cosmonautmag.com/2026/04/the-capitalist-in-the-21st-century/
«It is not true that a world without human wages is a world without capitalism or profits. As Kalecki showed, profits are equal to investment plus capitalist consumption.»
I have reread this and I feel sad about it so I will make this explicit: this claim like those of so many right-wing Economists is not qualified with the all-important "in that specific model only" clause. Indeed Kalecki's theorem is not universally valid and it can only be proven in a model in which wage employees (proletarians) do exist. But in "a world without human wages" there are no wage employees by construction.
«After the initial shock of an aggregate demand loss, a new equilibrium would be possible based only on capitalist consumption.»
In "world without human wages" there are no capitalists, because "capitalists" are by definition the owners of means of production who have employees and there are no employees. Since these self-employed owners of the means production will consume each other's products there will be markets for those products.
Perhaps even if the production of economic goods will be fully mechanized there will still be wage employees as servants, in an unproductive role as status symbols, so they will generate no material profit.
The two-sector framework opens a cultural dimension that I think makes the model even richer than you've stated it here. The human-premium sector depends on consumers carrying a culturally transmitted preference for human authenticity, the ice-skater valued more precisely BECAUSE a human is performing. That preference was formed in a world where all output was human by default. The fascinating question your model raises is whether it reproduces across generations or slowly attenuates.
A generation raised on AI-generated content from age five is forming aesthetic preferences within an AI-saturated environment from the start. If your baseline sense of what good writing, music, performance and cooking feels like was shaped by AI output, the perceived gap between human and machine quality may never fully register. Which means the size of sector two could be generationally variable, large for cohorts who carry pre-AI cultural architecture, potentially much narrower for cohorts whose preferences were formed entirely within it. thats a demographic dimension to the equilibrium that makes the transition dynamics even more interesting to model, because sector two's long-run viability depends not just on redistribution but on whether the cultural preference that sustains it is durable or quietly depreciating across generational cohorts.
Good point; agree w/ you. Nobody knows if our preference for humans over non-humans would carry over. I think that, however reluctant I often am, to speak of transformational change, we enter here an unknown domain: machines no longer do what we tell them, they do not replace us, they actually, to some extent, become us. It moves from being an economic to being a philosophical or ontological issue.
Your ontological point opens a mechanism that I think is even more specific than it first appears. If machines "to some extent, become us" then the two-sector model eventually faces an Akerlof problem. The human-premium in sector two depends entirely on consumers being able to verify that the output is actually human. When that verification becomes impossible , tthe premium collapses even for output that genuinely IS human, because the uncertainty itself destroys the pricing signal..
This has already played out in one market. a painting's value depends on provenance, on WHO made it. When AI-generated art become indistinguishable from human work, the first instinct was labelling and certification. But the deeper problem is that provenance is becoming unfalsifiable. If you cant reliably prove something was made by a human, the market for human authenticity becomes a lemons market, the unverifiable drives out the verified and the premium dissolves across the board regardless of actual origin.
Thats the mechanism through which your ontological insight feeds back into the economics. Sector two fails when the boundary between human and machine output becomes unverifiable, because without verification the premium has no informationtheoretic foundation to stand on. The ice-skater survives because you can watch a physical body on the ice. The writer, the teacher, the coach, the counsellor, these are the categories where verification collapses first and they are precisely the occupations you placed at the heart of sector two.
Branko's two-sector model is elegant, but I wonder whether it resolves the contradiction or simply displaces it.
There is a material point that should come first. AI is often described as if it were almost immaterial production, but its infrastructure is deeply physical: chips, energy, water, cooling, data centers, grids, rare minerals, and land. The marginal cost of an AI output may look low only because much of the cost is hidden in the underlying fixed capital and environmental externalities. Once those costs are fully accounted for, the profit rate in the automated sector may be considerably less exceptional than it appears.
The argument then depends on the emergence of a sufficiently large labor-intensive "human touch" sector — care, teaching, sport, cooking, art, coaching — capable of generating surplus value and effective demand alongside the automated sector. But this seems to assume what needs to be proven. Why should capitalism naturally expand low-productivity, labor-intensive activities at the same scale at which AI displaces labor elsewhere? In many cases, that second sector may be less a growth engine than a residual — or even a social stabilization mechanism. It may be less a sector than a boutique.
From a political-economy point of view, the central contradiction may therefore shift. It is not simply labor versus machine. It is social productivity versus private appropriation. AI is built on collective knowledge, public research, open data, and vast social cooperation, yet the resulting productive capacity risks being enclosed in private models, cloud platforms, chips, datasets, and network effects.
That suggests a less stable outcome than a neat two-sector equilibrium: monopoly concentration, rent extraction at every layer, wage compression in remaining human tasks, aggregate-demand problems, and growing political pressure for redistribution. But that redistribution would require taxing the monopoly rents of the automated sector — precisely what the owners of that capital would resist.
AI may be the ultimate productive flow. But capitalism's instinct is to turn that flow into private stock. What feels new is the scale and object of enclosure: not only land, factories, or patents, but the capacity to think, create, and coordinate at scale. Left entirely to itself, that capacity will concentrate into private bottlenecks. But it does not have to. A democratic settlement could keep AI productive while preventing full enclosure: taxing monopoly rents, widening access, preserving competition, funding human capabilities, and recycling part of the gains into broad purchasing power. The question is therefore not whether AI ends capitalism, but whether democratic societies can redesign the valves before the flow hardens into stock.
«the emergence of a sufficiently large labor-intensive "human touch" sector — care, teaching, sport, cooking, art, coaching»
If the past is any guide then during pre-industrial times rich people kept a much larger number of servants than they needed in part because it was conspicuous consumption and thus a higher status symbol but in part because for many the satisfaction of bullying lower status people and feeling their misery and the related sense of power and superiority are quite valuable. For those who like it I guess that satisfaction can only be whole when bullying other humans and probably would not be quite the same from bullying animals or machines no matter how advanced.
My guess is that if the AI machines are much more cost-effective than humans then to be competitive human workers will have to accept not just much lower wages but also willingly endure the spite of their superiors.
«capable of generating surplus value and effective demand»
As mentioned in another comment what matters to the owners of automation is not *sur*plus value but plusvalue itself as they would transition to being self-employed workers directly operating their means of production rather than remain capitalists hiring others to operate their capital.
“to be competitive human workers will have to accept not just much lower wages but also willingly endure the spite of their superiors.”
aka “emotional labour”
When Marx said that the USA could transition beyond capitalism without the need for revolution he implied that capitalism can indeed create the conditions of its own replacement.
The incompatibility of an automated economy with capitalism is indeed the point.
Surplus value goes away amidst a huge growth in "things". Some call this abundance.
The labor intensive new work you describe I think might equate to what the young Marx called "the realm of freedom" for a "total human being". In other words free time and choice. it will certainly involve effort, both physical and mental, bit it may not be paid labor,
The Marxist interpretation of IA is very simple and elegant.
AI is just an automation technology: it substitutes living labor with dead labor (in money terms, not in quantity of human being employed). As such, it is the same economic phenomenon as the steam engine.
Because we have empirical evidence, we know AI can only be profitable if it automates the middle class jobs - those white collar, “intellectual” jobs. The reason for that is very clear and simple: the middle class has very low productivity (when they are productive), its elimination will open a room for capitalist accumulation and expansion.
The higher the salary of a worker, the lower its productivity; IA is very expensive, so it is only profitable if it eliminates the highest wages - which are, by definition, middle class wages. If AI gets cheap enough, it can be profitable to automate lower salary (i.e. higher productivity) labor. Therefore, this is just a matter of quantity that has a quality on its own.
As to why the capitalist intellectuals can't see AI as simple automation: by serendipity of destiny, the middle class is the one responsible for producing ideology in capitalist society. Therefore, the middle class is simply defending itself by using emotional, cultural, ethical, moral, transcendental, pseudo-scientific arguments against what is simply an automation technology.
Moralism is the tool of the middle class: the capitalist class doesn't need it because it can do whatever it wants, the proletariat and lumpenproletariat don't need it because they have nothing else to lose. Moral superiority is thus a feature of the middle class, a class identity.
“Moralism is the tool of the middle class: the capitalist class doesn't need it because it can do whatever it wants, the proletariat and lumpenproletariat don't need it because they have nothing else to lose. Moral superiority is thus a feature of the middle class, a class identity.”
This is the essence of Shaw’s “Pygmalion”
«To summarize: in both Marxist and neoclassical worlds, an economy composed of highly automated sector only is incompatible with the maintenance of capitalism. In one case because the produced surplus value and thus profit is zero; in the other case, because insufficient aggregate demand leads to profits of zero.»
For the marxian side that seems to need some qualification:
* In marxian terminology "capitalism" is the a social relationship between an owner of means production and a free person employed to use those means of production.
* So for example someone who owns a lathe and works with her own lathe is not a capitalist but a self-employed worker, and if he has the lathe operated by a slave he is still is not a capitalist but still self-employed worker
* Capital is only means of production involved in capitalism, so the lathe is capital *only* if it is operated by a free worker employed by the owner.
* So in a world in which all means of production are operated by slaves or by robots or are fully automated there is no capitalism: all workers are self-employed and there is no capital so the issue of profit simply does not exist.
This is the strongest structural argument for why full automation doesn't collapse capitalism. The two-sector model (labor-intensive services absorbing displaced workers while generating the demand that sustains automated-sector profits) is historically grounded and hard to dismiss.
The critical assumption is transmission. The automated sector's productivity gains need to reach consumers as spending power. Your neoclassical case names this requirement explicitly: without it, aggregate demand and profits go to zero.
The record since 1971 bears on this. Computing, the internet and mobile each delivered productivity gains comparable to what AI promises. US productivity rose roughly 90% since 1979. Typical worker compensation rose 33%. The gains were real. They arrived as asset appreciation and corporate margins rather than household income.
If AI follows the same pattern, the labor-intensive second sector faces the constraint every service sector already faces: customers whose wages haven't kept pace with output. The care workers, coaches and artisan producers your model depends on need clients with money to spend. That base has been shrinking for decades.
The two-sector equilibrium requires a functioning link between productivity and demand. That link has been weakening for fifty years.
«The automated sector's productivity gains need to reach consumers as spending power. Your neoclassical case names this requirement explicitly: without it, aggregate demand and profits go to zero.»
In case of full automation aggregate demand certainly does not go to zero and profits go to zero but there is no need for profits for ex-capitalists to live fabulously well:
* Suppose that Apple fully automates MacBook production and GM fully automates Cadillac production: the owner(s) of Apple and Cadillac become self-employed workers (even if their only "work" were to push the button that starts the fully automatic factories).
* The owner(s) of Apple still need to buy cars and the owner(s) of GM still need to buy laptops, so aggregate demand will certainly not go to zero.
* Each sector's productivity gains will reach consumers as spending power: the Apple owner(s) will sell laptops and consume cars and the GM owner(s) will sell cars and consume laptops.
* The owner(s) of Apple and GM will have zero profits (defined as in the marxian sense) but will still have a colossal income as self-employed workers, from selling all those cars and laptops to each other.
* Human proletarians will have no wages and therefore most will live like the swallows and the fishes and the hares do; the swallows, fishes, hares also are unemployed.
* Some human proletarians will be still employed as pets (servants) of the owner(s) of Apple and GM etc.
The scenario is similar to "peak horse" when the use of horses for transport was automated away by cars and trucks: there were in the USA 27 million horses in 1915 and now there are 0.7 million horses most of which most are pets and some are unemployed in the wild like the swallows, fishes, hares.
Useful analysis. To further enrich the framework, we should consider the role of predictive value extraction as a modern driver of surplus. By leveraging AI to decode and anticipate the behaviors of the "mass-man," elites are not just automating labor; they are optimizing the management and coordination of entire populations.
In thermodynamic terms, this represents a reduction in systemic entropy for the ruling class, allowing them to extract a "behavioral surplus" that fits directly into the surplus value equation. It is no longer just about owning the machines, but about owning the algorithmic predictability of human agency itself.
bookmarked can’t wait to read this. Looks great
Nobody's going to know because the framework that AI is built on fundamentally will never achieve general intelligence because it's entire framework is based on logical positivism and taxonomy.
No matter how much you give it Marxist text to read and it memorizes it still will never be able to do it.
At least until I'm done with what I'm working on.
Prof Branko,
How will Capital intensive economic sector be in equilibrium with Labor intensive sector? How will our economy make the transition where labor, made redundant or obsolete by AI, is accommodated into sector with low organic composition of Capital? Will all this transition be done by invisible hand?
If history of 1980s and 90s tell us anything, it indicates that such transition will not happen. After US lost its manufacturing industry, the labor force could not make necessary adjustments into other jobs. Now government may provide training & education to obsolete labor to assist in economic transition but still the transition can be difficult. Even impossible if AI economic disruption happens too fast & too big scale.
Also you didn't mention government sector. Government can somewhat smoothen the transition and maintain rates of profits. This can be done by two ways. In Marxist way by redistribution of income - that means more taxes on wealthy and instituting some kind of basic income guarantee (BIG) or job guarantee (JG) programs and generous social safety nets. The other is Keynesian way - that means more government spending for BIG & JG etc but without any redistribution of income (no hefty taxes on wealthy). Government spending will regardless be critical during AI transformation to maintain rate of profit. Elon Musk & other billionaires see social security and entitlements as unnecessary burden but they don't know that they derive their profits from consumer spending.
On AI transition, book The Globotics Upheaval by Baldwin is worth reading.
And what will happen if government chooses a laissez faire approach to AI transition - let markets balance themselves? There will be great economic instability which will create political instability. That means more populist demagogues, more MAGA & Brexit type movements.
But why labourwould be valued at near zero in case of its low contribution under near-full automation? Without at least some labour no production would be possible. So this labour will be what makes the whole production to run. Hence, it should have reward in the form of high wage. Where am I wrong?
Total labor income would be close to zero (small) if there are almost no workers. Suppose that a huge company with thousands of robots has only 1 worker. His wage may be high but *total* labor income will be almost nothing. All of income would go to the owners of the machines.
Thank you, I forgot to integrate
I think this is a very useful way to frame the issue, especially because it avoids the simple conclusion that AI automatically means the disappearance of labor income.
One point I would add is that technological progress can also radically change the relative purchasing power of different kinds of labor. Twenty years ago, if a television cost $2,000 and a New York barber earned $10 per hour, he needed 200 hours of work to buy one TV. Today, if a better television costs $1,000 and the same barber earns $40 per hour, he needs only 25 hours of work.
So the key effect is not simply that machines replace labor. In highly scalable and automatable sectors, technology can drive down prices dramatically. At the same time, in local, personal, trust-based, or human-authentic services, labor may become relatively more valuable. His purchasing power measured in televisions has increased enormously.
This is why I agree that the future of AI capitalism should be analyzed as a restructuring of labor, prices, income distribution, and demand, rather than simply as the end of human labor.
I would like to have included in this discussion the idea that AI in fact is only possible while using the Humanity's commons IPs and that the profits generated by AI should be thus properly redistributed, even if they go to zero overall.
Rather than look too far forward to the point where Ai has the potential to replace all existing categories of labor, we should analyze the current situation. That situation looks much more like what Marx encountered at the beginning of the industrial revolution. Capital needed to be acquired in order for capitalists to build the plants that would churn out goods. The capitalist needed to use all his capital and extract surplus value from his work force to be able to build his enterprise. The enterprise itself while able to churn out goods at a lower per unit cost than none industrial craft production still had to employ large numbers of workers so the per unit labor costs remained high and the capitalist paid his workers as close to their survival rate as he could get away with. Competition with other capitalists engaged in similar production remained intense.
Looking at Ai today the capital required to engage in Competition has limited Ai production to a handful of companies. Those companies have exhausted their cash reserves and are increasingly resorting to debt and firing unproductive workers to accumulate more investment capital.
It is also not clear that Ai can even replace workers or that Ai can be used to reduce the costs of production in the way that the assembly line did or the electrification of industry did.
This takes us back to Marx's distinction between sales and marketing workers and production workers. The former do not generate surplus value like the later do. Who then are the productive workers generating surplus value in the age of Ai?
It is a topic I am very interested in. In the Grundrisse, in the famous fragment about machines, Marx anticipates, many years earlier, the idea of a nearly fully automated society and presents leisure time as a source of value in this new context. However, that utopian future in which machines work and humans enjoy leisure is not a natural outcome of capitalism. It is necessary to struggle to socialize the ownership of machines (understood broadly, including AI) to avoid artificial scarcity and to prevent leisure time from being in the hands of a few (owners of robots, machines, AI, and platforms) and to ensure that all humanity can enjoy it. Otherwise, as Nicolás mentions below, and following Kalecki's warning, there could be an equilibrium in which the consumption of the capitalist class keeps the economy running.
The question remains essentially unchanged since the advent of mechanization — who will own the robots?