Not only will everyone be unemployed, but capitalism will also come to an end? Deutsche Bank makes a major projection of two ultimate outcomes for AI development.

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When discussing AI, the vast majority of people are still entangled in the question of "Will jobs be taken away?" But Deutsche Bank believes this perspective may be a bit narrow.

According to Chasing the Wind Trading Desk, the latest report by Deutsche Bank’s Global Head of FX Research, George Saravelos, explores two extreme endgames for AI development:

The first outcome is “complete replacement.” Just like Marx’s prediction 180 years ago and Musk’s vision today: among the economic factors of production, “capital” itself becomes “labor” itself, the value of labor drops to zero, and capitalism becomes obsolete. As AI massively replaces human work, wealth and income become highly concentrated among a few capital owners, while the income and demand of ordinary people are weakened, and the economy falls into the dilemma of “plenty of goods, but no one can afford them.”

Did Marx foresee artificial intelligence? About 200 years ago, he wrote a work on “machines,” envisioning a scenario of full automation. In this world, the problem of scarcity is resolved. However, as the value of labor drops to zero, capitalism becomes obsolete, and we will transition into a brand-new world of material abundance. Marx’s envisioned endpoint is strikingly similar to Elon Musk’s vision today.

The second outcome is “history repeats itself.” AI, just like previous technological revolutions, raises efficiency but does not fully replace human labor. It merely “empowers” humans, new jobs keep appearing, and policy systems can still patch up the disruption. In this scenario, the logic of economic operation remains similar to recent decades, and inflation, interest rates, and stock markets are more likely to rise moderately.

Will we head into an abyss, paradise, or just another ordinary industrial upgrade? This report from Deutsche Bank provides us with a brand-new perspective.

When “capital becomes labor,” why might traditional economics fail?

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

Since Adam Smith, all classical economists have based their models on the fundamental assumption: capital and labor are two completely independent factors of production. Whether capital or labor, their prices (interest and wages) are determined by their “relative scarcity” in the market.

Looking back over the past 200 years, all previous waves of technological innovation basically fit this model.

For example, the invention of the steam engine eliminated coachmen but created train conductors; the internet destroyed traditional print media but created countless programmers and delivery workers. In these historical cycles, there has always been work for labor. Machines are capital, and operating, maintaining, or designing machines still requires labor. Capital merely “supplements” labor.

However, fully automated robots with Artificial General Intelligence (AGI) completely upend this classification.

“In this scenario, capital becomes labor. It is no longer a supplement to labor, but a substitute.” George Saravelos points out sharply in the report.

When an AI machine can think autonomously, produce autonomously, and iterate autonomously, that machine is both capital and labor. The foundational structure of modern economics breaks down at this moment.

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

When the “supply creates its own demand” law fails, growth may face “long-term stagnation”

Once labor is massively replaced, how will the gears of the macro economy mutate? Deutsche Bank introduces a deeper theoretical deduction.

In a world where “AI replaces workers” entirely, wages fall, but material abundance reaches unprecedented levels. Machines tirelessly produce massive amounts of goods and services for the market.

According to classical economists such as Say, Walras, and Wicksell, “supply will automatically create its own demand.” In their theoretical models, markets are self-repairing. Product prices will fall as production costs drop. Workers will ultimately be able to buy more with less money, or find work in new fields.

However, Deutsche Bank warns that in a world of total AI automation, this self-correcting mechanism completely fails.

The logic is straightforward: automation will concentrate wealth and income extremely in the hands of a narrow “capital owner” class. In economics, the “marginal propensity to consume” of the rich (capital owners) is far below that of ordinary workers.

For example: An AI factory can produce 10,000 cars a day at very low cost. But all this profit goes to the AI owners. This owner cannot possibly buy all 10,000 cars; and the many ordinary people who have lost their jobs and incomes, even if cars get very cheap, cannot afford to buy them.

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

This equilibrium, where the market is completely cleared, would be characterized by structurally ultra-low labor income, deflationary price levels, and massive “excess savings” replacing strong consumer demand. Deutsche Bank points out that this matches economist Eggertsson and Mehrotra’s concept of “secular stagnation,” and in extreme cases, could trigger Marxist-style revolution.

“Keynes can save the day, but maybe not enough” — it depends on the government and institutions’ response speed

Faced with market failure, can another pillar of modern economics—Keynesianism—save the day?

Keynes’s revolutionary insight was to acknowledge the failure of classical theory. Under Keynesianism, economic imbalances are not permanent, but cyclical. When prices adjust slowly, and labor retraining lags, governments must intervene forcefully.

In the AI era, such interventions may include: imposing high “AI taxes” on AI firms to create a fund to issue “stimulus checks” or universal basic income (UBI) to everyone. Through strong fiscal transfers, the economy would eventually reach a new balance.

But this logic faces immense real-world constraints.

The report cites well-known economists Acemoglu and Johnson’s extensive research on the history of technology deployment. History proves that policy and institutional change tends to be extremely slow.

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

To prevent declining living standards, Deutsche Bank lists a required reform agenda: “Stronger labor bargaining organizations, competition policies against monopolistic companies, not favoring capital over workers in tax and subsidy structures, public investment in skills and creative-task technologies, and broadening or reforming corporate governance.”

If technological change outpaces government and institutional adaptation, Keynesian medicine cannot take effect in time.

From Marx to Musk: The end of property rights and scarcity

Even with extremely proactive and responsive governments, deeper political-economic challenges remain.

The report raises a philosophical phenomenon: nearly 200 years ago, Karl Marx’s writings on “machines” and full automation are strikingly similar to today’s tech giant Elon Musk’s ultimate vision for AI.

In this final state of full automation, humanity solves the ultimate problem since ancient times—“scarcity.”

But what follows is the collapse of the foundational social consensus. “In this fully automated scenario, the essence of capitalism collapses. Political issues are no longer about wage subsidies. They reach the core of the social structure: If scarcity is gone, what is the point of property rights?”

As Keynes questioned in his famous 1930 essay “Economic Possibilities for our Grandchildren”: When people no longer need to labor to survive, what is the meaning of human existence?

Though such topics seem grand, Deutsche Bank stresses that, given their existential nature, they are absolutely relevant to current financial market pricing.

Deutsche Bank’s two endgames and pricing logic

For markets, it is essential to consider both the “transition period toward the endgame” and “the endgame itself.” Deutsche Bank divides the future world into two extreme parallel universes, and gives a clear asset pricing logic for each.

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

In this world, AI can rapidly and (almost) entirely replace human labor. In terms of living standards, this would be a paradise where economic scarcity is permanently resolved. But Deutsche Bank warns: getting there will be “the most destructive and uncertain path.”

• Macroeconomic characteristics: Unemployment continually rises, governments face constant intervention pressures, and social conflict intensifies. There will be endless resource distribution struggles between capital owners and labor.
• Market pricing logic: The macroeconomy will face strongly deflationary pressure, with real interest rates experiencing structurally continuous declines. Due to AI’s extreme efficiency, corporate profitability will soar.
• Stock and forex market performance: Although profits soar, the stock market will be mired in long-term confusion and volatility. The logic: companies face increased “confiscation risk” (e.g., extremely high taxes or nationalization), and how profits are split among stakeholders will always be unresolved. In forex, Deutsche Bank points out: “The countries best able to manage this smooth transition are likely to see their currencies benefit most.”

Endgame 2: AI is only an enabling technology (history repeats itself)

In this world, AI does not trigger a singularity, but like the innovations of the 20th century, is only an “augmentation technology” to human abilities.

• Macroeconomic characteristics: This is a coherent world. The limitations of technology adoption, gradual institutional evolution, and countercyclical Keynesian fiscal policies will function effectively. Although distributive conflict and labor market pains remain, humanity will always find new work.
• Market pricing logic: In contrast to the first endgame, this scenario’s macro indicators point upwards.
• Stock and forex market performance: Inflation, real interest rates, and the stock market are all more likely to move higher. Deutsche Bank summarizes: “History will rhyme, not break, just like the past few decades.”

What should we be watching now?

Deutsche Bank notes that the purpose of this report is not to provide an absolute forecast but to establish an analytical framework. Amid such a wide range of possible outcomes, market debate about AI’s macro impact will absolutely not stop in the short term.

From an investor’s perspective, what should we observe now to monitor AI economy development? Deutsche Bank distills clear “observation markers”:

1. Qualitative changes in labor data: Are we seeing a structural rise in unemployment? Is labor’s share of income—which has been declining—now plunging even faster?
2. Turn in fiscal and antitrust policies: How willing are governments to proactively pursue fiscal and institutional policies? Are they actively implementing income redistribution? Have they taken substantive antitrust measures against monopolistic capital groups (tech giants)?

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